Culture, corporate governance and analysts forecast in Malaysia

Abstract

This study examines the relationship between Bumiputra (in reference to Malay indigenous race) directors, a proxy for culture and analysts forecast. In addition, the study investigates whether corporate governance affects that relationship. Based on a sample from 1999 to 2009 and 664 observations, we find a positive and significant relationship between culture and analysts forecast error suggesting that Bumiputra directors lead to less transparent information environment. However, we find limited evidence to support that good governance weakens the positive relationship between Bumiputra directors and analysts forecast error.Keywords: Ethnicity, corporate governance and analysts forecast.Data availability: Data are publicly available from the sources identified in the paper.JEL classifications: G34, M14 3 IntroductionFinancial analysts are important players in the capital market. Their role in analysing information, either publicly and privately obtained is crucial in determining the progress of firms, especially in terms of quality of earnings. There are abundance of research on role of financial analysts in the capital market with such focus on analysts' forecasts, analysts' coverage and the effect on future income (see Bradshaw, 2011;Ramnath et al., 2008 Jomo, 1999), but on one hand, the assistance is much needed to reduce wealth imbalance among ethnics.Pryor (2007) argues that when economic institutions are not imposed by force, the cultural characteristics are more likely to determine the economic system, rather than economic institutions. This statement is partially true when we examine the studies of Mitton (2002) and Bushman et al. (2004) which suggest that Malaysia is weak in legal enforcement. We could argue that due to the relatively weak legal enforcement of rules and regulations of the capital market, cultural characteristics will take precedence in business dealings, and shapes the capital market. (1988) argues that cultural dimensions identified by Hofstede (1980) influence a country's accounting system in two ways; (1) through their influence on a country's institutions 2 We admit that there has been some concern raised by the academic world regarding Hofstede understanding on culture. Please see Baskerville (2003) and Baskerville-Morley (2005) for some arguments against Hofstede cultural studies. Although we admit limitations exists, at the same time we believe that the cultural dimensions offered by Hofstede is the best current cultural dimension model that could be used in capital market research.

Director Networks, Political Connections, and Earnings Quality in Malaysia

“…Based on this framework, we posit a negative relationship between BUMI and earnings quality. Abdul Wahab, Allah Pitchay, and Ali (2015) investigate the relationship between Bumiputera directors and analysts’ forecast errors and find a positive relationship, lending support to the Hofstede-Gray framework.…”

Culture values and entrepreneurial innovativeness: A comparative study of Malaysian ethnic entrepreneurs

“…For instance, as shown in Table 5, the direct effect of IND on EI of Malay group is much stronger than the direct effects of Malaysian Indian and Chinese groups. This difference implies that Malays particularly have more sense of control over their lives through recreational and leisure activities (Wahab et al, 2015); they tend to spend more time with families and friends as an effective way to get innovative ideas (Yeoh & Yeoh, 2015). However, Malaysian Chinese often focus more on building business networks and work hard (Yeoh & Yeoh, 2015), whereas the Indians spend their leisure time more in prayers and with specific communities due to their belief system (Wahab et al, 2015).…”

Factors Affecting the Prevention of Corruption Using Fraud Heptagon Approach

“…A good and quality organizational culture has a positive and significant effect on the implementation of good governance in government organizations (Bierstaker, 2009;Bhasin, 2012;Mihret, 2014;Quah, 2015;Umar, 2016;Wahab, Pitchay and Ali, 2016), thus H1a is accepted. It is in line with previous studies.…”

“…The government should aim for prosperity and freedom from corruption for its people (Ndraha, 2007), yet the administration of state affairs is highly vulnerable to conflicts of interest (Jensen and Meckling, 1976b) that has the potential to cause information asymmetry (Fama et al, 2007), resulting in a culture of corruption that greatly impacts governance and antifraud control to eradicate corruption (Bierstaker, 2009). A good culture has a significant positive relationship with governance and the risk of fraud (Mihret, 2015;Wahab, Pitchay and Ali, 2016), associated with the presence of effective leaders. Furthermore, women leaders are capable of suppressing corruption (Lenard et al, 2017) and reducing the number of fraud (Prabowo et al, 2017) by implementing good governance and code of ethics (Law, 2011;Mensah and Zutter, 2017).…”