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DEVELOPMENT OF A CORPORATE INTEGRITY ASSESSEMENT ...vuir.vu.edu.au/21888/1/Aida Maria  · PDF file “I, Aida Maria Ismail, declare that the PhD thesis entitled Development of a Corporate

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  • DEVELOPMENT OF A CORPORATE INTEGRITY

    ASSESSEMENT INSTRUMENT USING CORPORATE

    GOVERNANCE INDICATORS IN MALAYSIA

    AIDA MARIA ISMAIL

    A thesis submitted in total fulfilment of the requirements for the

    degree of

    Doctor of Philosophy

    Governance Research Programme

    Faculty of Business and Law

    Victoria University

    2013

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    ACKNOWLEDGEMENTS

    My sincere thanks are due to many people who have given me valuable contributions to this

    research. Without their support and encouragement, it would have been hard for me to

    complete this research, which at times seemed never ending. Therefore, I would like to take

    this opportunity to gratefully acknowledge those whose contributions were significant to the

    successful completion of this thesis.

    First and foremost I wish to express my heartfelt thanks to my supervisors, Professor Anona

    Armstrong and Professor Colin Clark.

    Professor Anona Armstrong is my principal supervisor. Professor Armstrong shows me the

    direction, advice, encourages and always be there to support me which made the completion

    of this thesis possible. She become my mentor and has groomed me to be passionate with

    research. Her broad experience and skills in supervising of PhD research has given me

    confidence regarding my thesis.

    Professor Colin Clark is my co-supervisor. Professor Clark provided me with valuable

    support, advice and encouragement during my PhD journey. Without his continual support,

    this thesis would have taken longer time to complete.

    Secondly, I would like to thank Victoria University staff, especially Tina Jeggo, for helping

    me in all administrative matters related to my study; Dr Kumi Henetinggala for her moral

    support, and the Postgraduate Office, for providing useful training programmes.

  • iii

    Thirdly, my gratitude to both of my sponsor, the Ministry of Higher Education Malaysia, and

    Universiti Teknologi MARA Malaysia, for providing me sufficient financial support for

    pursuing my study in Australia.

    Special thanks to all of my friends, who have gave me unreserved supported. Without all

    these individuals, I would not have been able to complete the research. Many thank to all of

    you.

    I owe a great debt to my family. My deepest love and gratitude goes to my husband, Zulfikar

    Abdul Rahman, his endless support and love made it possible for me to go through the ups

    and downs of my PhD journey. My lovely daughters, Awatif, Ameera and Ameena, who

    complete my life has been a continuing inspiration in completing this thesis. My late father,

    Hj Ismail Bin Alias and mother Hjh Ramlah Abdul Rahman, have given me the confidence to

    pursue my dreams. Their own strength has been an inspiration. I am also grateful for the

    continual support and encouragement of my sister Aireen and brothers during this period of

    study. I am blessed with such wonderful family.

    Finally, praise to Almighty Allah who gave me the strength, patience and ability to complete

    the research.

    I sincerely thank you all.

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    DECLARATION

    “I, Aida Maria Ismail, declare that the PhD thesis entitled Development of a Corporate

    Integrity Assessment Instrument using Corporate Governance Indicators in Malaysia is no

    more than 100,000 words in length including quotes and exclusive of tables, figures,

    appendices, references and footnotes. This thesis contains no material that has been submitted

    previously, in whole or in part, for the award of any other academic degree or diploma.

    Except where otherwise indicated, this thesis is my own work”

    Signature_______________________________________ Date 20 March 2013

  • v

    ABSTRACT

    Integrity means to act with truth, being honourable, loyal, faithful and trustworthy ad to exhibit

    “moral excellence and honesty”. The purpose of this research was to provide models of best practice

    in corporate integrity for public listed companies in Malaysia. This study arose from perceptions that

    what was reported in corporate governance statements was not always consistent with what was

    actually happening in the companies. The research is the first of its kind to design an integrity

    assessment instrument and to assess Corporate Integrity Systems in Malaysian Companies.

    Specifically, it identified the scope of Corporate Integrity Systems implemented in publicly listed

    companies, identified appropriate indicators, and verified the reliability of the instrument.

    The initiative for enhancing ethics and integrity in the private sector in Malaysia was the drafting of

    the Malaysian Code on Corporate Governance in 2000, followed by the acceptance of the National

    Integrity Plan in 2004 by the Malaysian Prime Minister and later the revised Malaysian Code on

    corporate Governance made by the Security Commission Malaysia in 2007. The constructs listed in

    these became the criteria for the development of an integrity assessment instrument. Three stages of

    data collection were conducted in order to achieve the research objective.

    The first stage of data collection provided contextual information about current practices related to

    corporate governance reporting among Malaysian government link companies and an understanding

    of the corporate integrity concept through a series of semi-structured interviews. Information gathered

    sought to validate the terminology, concepts and issues that help in establishing an appropriate and

    sensitive survey questionnaire. The second stage of data collection gathered quantitative data about

    respondent perceptions and opinions of their company corporate governance practices through a

    survey using a structured questionnaire. Respondents were members of company boards of directors

    and top management in government link companies. The last stage of data collection was based on

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    information disclosed in annual reports. Quantitative data about corporate governance reporting

    practices among Malaysian government link companies were collected.

    Data were collated and analysed. The interview exercise identified the following important

    observations: the ineffective and unreliable reporting of corporate governance; the importance of

    validating corporate governance reporting to ensure the accuracy of reported information and the

    understanding of the corporate integrity concept. The second stage of the investigation identified

    corporate governance indicators which can be used to model ad measure corporate integrity and its

    reliability. It also identified which factors were important in modelling and assessing corporate

    integrity. Factors identified were: none directors factors, three directors remuneration factors, four

    shareholders factor; four accountability and audit factors, one business ethics and responsibility

    factor, two intellectual capital factors and four disclosure factors.

    The final stage of the investigation measured corporate integrity value and how it related to

    performance. Integrity value was measured by benchmarking the corporate governance reporting

    practices against board and top management perceptions and opinion and assessing any discrepancy.

    The integrity value confirms the accuracy and reliability of the information presented in the annual

    reports or in any other publicly available information. Then the investigation determined the

    relationship between corporate integrity and performance. The factor scores were regressed against

    company performance. The performance indicators were measured by the proxies: Return on Capital

    Employed (ROC), Return on Assets (ROA), Return on Operating Cash Flow (CFA) and Tobin’s Q.

    The findings suggest that a high integrity value does not necessarily result in good corporate

    performance. A company may have a high integrity value but it does not mean that they perform well.

    There is no unified theory linking integrity and performance. This study made an original contribution

    to agency theory by proposing a new auditing model which integrated behavioural implications of the

    human beings (boards of directors and top management) involved in the production and management

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    process, and introduced the integrity concept (consistency of corporate governance reporting and

    perceptions) into corporate governance research.

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    PUBLICATIONS ASSOCIATED WITH THIS THESIS

    Conference Paper

     3rd International Borneo Business Conference, Hosted by University Malaysia Sabah

    Presenter 15-17 December 2008, Kota Kinabalu, Sabah, Malaysia

     2010 Global Conference on Business & Finance (GCBF), Hosted by The Institute of Business &

    Finance Research, LLC (IBFR)

    Presenter & Published

    3 to 6 January 2010, Keauhou Beach Resort Kailua-Kona Hawaii, United State of America

     1st Finance & Corporate Governance Conference, Hosted by La Trobe & SSRN

    P

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