School of Accounting
Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 UKM Bangi, Selangor, MALAYSIA.
Faculty of Business and Accountancy
Universiti Selangor (UNISEL)
40000 Shah Alam, Selangor, MALAYSIA.
Accounting Research Institute
Universiti Teknologi MARA,
40450 Shah Alam, Selangor, MALAYSIA.
School of Accounting
Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 UKM Bangi, Selangor, MALAYSIA.
Abstract
Small- and medium-sized enterprises (SMEs) do not gain sufficient economic returns despite their significant economic contributions. A possible cause of poor SME performance is weak corporate governance. However, the corporate governance of SMEs is rarely investigated. Ownership structure provides SMEs with a monitoring mechanism that enhances performance. This study examines the relationships between board characteristics (including size, composition boards, CEO duality, expertise, and ethnicity) and SME performance in Malaysia. This study also explores how such relationships can be moderated by monitoring ownership structure. Survey results on SMEs in Klang Valley and Selangor areas show that non-executive boards and CEO duality are significantly and positively related to firm performance. In comparison, management ownership is significantly and negatively related to performance. Board size, expertise, ethnicity, and family ownership are not significantly related to SME performance. Findings indicate that good corporate governance improves decision making and firm performance. Furthermore, agency theory can explain conflict of interest in SMEs and the importance of corporate governance in enhancing their performance.
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