Corporate Risk Disclosure in Malaysia: The Influence of Pre-dispositions of Chief Executive Officers and Chairs of Audit Committee

Abstract

Drawing on upper echelons theory, this study aims to provide evidence on the effects of the background influences of the Chief Executive Officer (CEO) and Chair of Audit Committee (CAC) on corporate risk disclosure. In practice, such corporate disclosures are found to be inadequate, and there is limited evidence on factors influencing risk disclosure decisions by management. Sampling from the 200 top listed companies in Malaysia, data is hand-collected from annual reports. Sentences in which pre-determined risk-related keywords appear are counted to measure total risk disclosure and its sub-categories. Demographic data for CEOs and CACs is collected, including age, functional track, education, tenure and ethnicity. The findings in this paper indicate that the CEOs’ tenure and ethnicity significantly influence their decision making in regards to corporate risk disclosure. That is, CEOs with Bumiputera ethnicity and with shorter-tenured backgrounds are associated with higher corporate risk disclosure. However, the background of CACs is found to have no significant influence. These results have implications for board decisions on the recruitment of CEOs. Further, there are implications for corporate governance policy-makers concerning the credentials of CACs in Malaysia. This paper provides empirical evidence on the relationship between corporate risk disclosure and the influence of pre-dispositions of CEOs and CACs in Malaysian top listed companies since prior research has not investigated these two types of key management players in the area of corporate risk disclosure.

Keywords: Malaysia, Corporate risk disclosure, Upper echelons theory, Chief Executive Officer, Chair of Audit Committee, Demographic characteristics