Impact of Corporate Governance on Performance of Banking Sector in Malaysia

Abstract

The purpose of this paper is to examine the impact of corporate governance characteristics specially board of directors and audit committee on performance of Malaysian banking sector. In this study sample includes one set of original data, financial information was obtained from the annual reports of thirty banks in Malaysia in period of 2005-2009, and data analyzed by panel data model. Based on the finding in this research, it’s appear that three out of six corporate governance characteristics variables were discussed in this study such as board size, audit committee size, and audit committee meeting have positive relationship with performance of bank. Percentage of independent non executive board of director and percentage of independent non executive audit committee members have negative correlation with performance of bank. The result show that corporate governance mechanisms do influence the bank performance, by referring to this result, we hope that banks try to implement the right corporate governance system and policies until they can reduce probability of failure and bankruptcy and can also increase reliability for investors and investments.

Keywords: Corporate governance, Board of director, Audit committee, Bank performance, Malaysia