Revisiting the Role of Audit Committees: Evidence on Governance Characteristics and Firm Performance in Malaysia

Abstract

This study analyses the effect of audit committee characteristics on the performance of firms which are non-financial and are listed on Bursa Malaysia from the year 2017 to 2020. The research uses the GLS (Generalized Least Squares) method for estimation due to its efficiency in dealing with panel data. Both Tobin's Q and ROA are used as proxy variables for measuring firm performance. The study found that there is no significant effect of audit committee size, audit committee independence, and audit committee meetings on either Tobin’s Q or ROA, and hence, the structure of the committee does not seem to have any effect on firm performance. On the other hand, firm age has a positive and significant effect on both performance variables, meaning that experienced firms perform better. Lastly, firm size (measured in log assets) has a significantly negative effect on both performance proxies, indicating that the large size of the firm leads to performance decline. Therefore, the research demonstrates that the characteristics of the firm are more relevant than the characteristics of the audit committee for explaining firm performance.