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1. Introduction
In many countries including Malaysia, corporate governance legislation and guidelines were framed in the aftermath of corporate scandals such as Enron, WorldCom, Satyam and Tyco. These legislations and guidelines were to prevent such scandals in future and to improve and monitor corporate governance environments. These legislations and guidelines include Sarbanes-Oxley Act (SOX, 2002) in the USA, Malaysian Code of Corporate Governance (MCCG, 2000, 2007, 2012) in Malaysia, the Principles of Good Corporate Governance and Best Practice Recommendations (Australian Securities Exchange, 2003, 2007) in Australia, Enactment of Clause 49 of the Listing Agreements by Securities and Exchange Board of India in 2005, the Combine Code on Corporate Governance (2003) in UK and others. Corporate governance is defined as:
[…] the process and structure used to direct and manage the business and affairs of the company toward enhancing business prosperity and corporate accountability with the ultimate objective of realizing long-term shareholder value whilst taking into account the interests of other stakeholders (High Level Finance Committee Report on Corporate Governance, 1999, Malaysia).
The High Level Finance Committee on corporate governance published a comprehensive report which formed the basis of corporate government reforms in Malaysia in 1999. MCCG (2000) published by Securities Commission Malaysia was an initiative of private sector to review and establish reforms of standards of corporate governance at micro-level. The code essentially aims to set out principles and best practices on structures and processes that companies may use in their operations toward achieving the optimal governance framework (MCCG, 2000). The code included the issues such as the composition of the board, procedure for recruiting new directors, remuneration of directors, the use of board committees, their mandates and activities. Since the release of the code, Malaysian corporate scene has made significant strides in corporate governance standards. MCCG (2007) is a revised version of MCCG (2000). The new version aims to strengthening the board of directors (BOD) and audit committees and the internal audit function, and ensures that they discharge their roles and responsibilities effectively. MCCG (2012) encapsulates eight principles and their corresponding 26 recommendations. The principles established clear roles and responsibilities of the board, strengthening board composition, reinforce effectiveness of independent directors, their commitments, uphold integrity in financial reporting, recognize and manage risks, ensure timely...