Corporate Governance Reform and the Value Relevance of Equity Book Value and Earnings in Malaysia

Abstract

This paper examines the effect of corporate governance reform on the value relevance of equity book value and earnings by employing the Ohlson’s (1995) Valuation Model, and it is based on the methodology developed by Davis‐Friday et al. (2006). The sample consists of Main Board companies listed on Bursa Malaysia from 1999 to 2001 in order to investigate the effect during and after the issuance of the Malaysian Code on Corporate Governance (MCCG) as a measure of corporate governance reform. The findings generally indicate that equity book value and earnings are value relevant in assisting investors to value firms’ equity. Findings of this study, nonetheless, show that the regulatory change experienced by the country did not have an impact on the valuation of equity book value and earnings. This, thus, suggests that most of the Malaysian companies may not have met the intended purpose of MCCG, but merely conformed to the minimum requirement. In summary, the findings of this study provide evidence that the equity book value and earnings reported in the financial statement is value relevant in valuing Malaysian firms’ equity.

Citation

Jamaluddin, A., Mastuki, N. and Elmiza Ahmad, A. (2009), "Corporate Governance Reform and the Value Relevance of Equity Book Value and Earnings in Malaysia", Journal of Financial Reporting and Accounting, Vol. 7 No. 2, pp. 41-59. https://doi.org/10.1108/19852510980000003