Do voluntary corporate risk disclosures and board leadership effectiveness predict firm performance? The moderating role of audit committee financial expertise in Malaysia

Article Details

Wong Baan Wahh, mazni@um.edu.my, University of Malaya, Kuala Lumpur, Malaysia
Mazni Abdullah, , Heriot-Watt University Malaysia, Putrajaya, Malaysia
Edward Wong Sek Khin, , Heriot-Watt University Malaysia, Putrajaya, Malaysia

Journal: The Asia-Pacific Social Science Review
Volume 21 Issue 4 (Published: 2021-12-01)

Abstract

Deficiencies in the quality of risk reporting impede investors’ ability to make well-informed investment decisions. In the wake of unexpected corporate collapses, calls for a greater amount of voluntary risk disclosures by the regulators are entirely legitimate, in the expectation that improved risk reporting published in the annual report enables investors to assess a firm’s risk profile and its firm value more accurately. This study investigates the relationship between the voluntary corporate risk disclosures (VCRD), board leadership effectiveness, audit committee financial expertise, and firm performance of 290 companies listed on the Kuala Lumpur Stock Exchange (KLSE). To collect and measure the quality of risk disclosures, we performed a manual content analysis method. We employ the partial least square structural equation modeling (PLS-SEM) technique, and the empirical results show that the relationship between VCRD and firm performance is positive and significant. We found a significant and positive relationship between board size and the level of firm performance, as measured by both accounting (ROA) and market-based performance (Tobin’s Q) measures. However, CEO duality is found to be non-significant in its association with firm performance. SEM results further demonstrate that audit committee financial expertise has a positive and significant moderating influence on the VCRD-ROA nexus. Overall, the findings of this study demonstrated that the exogenous latent constructs collectively accounted for 30.8% and 69.3% of the variance in ROA and Tobin’s Q, respectively. Research contributions, policy implications, and future directions are also discussed in this paper. To the best of the authors’ knowledge, no study has yet to examine the interplay between the extent of VCRD, governance mechanisms, and firm performance in Malaysia, following the implementation of the Malaysian Code of Corporate Governance (MCCG) 2017.

Keywords: Risk disclosure, Board Leadership Effectiveness, Firm performance, Malaysian Code of Corporate Governance, Structural Equation Modeling

DOI: https://www.dlsu.edu.ph/wp-content/uploads/pdf/research/journals/apssr/2021-December-vol21-4/12-do-voluntary-corporate-risk-disclosures-and-board-leadership-effectiveness-predict-firm-performance-the-moderating-role-of-audit-committee-financial-expertise-in-malaysia.pdf
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