TY  - JOUR
AB  - Purpose Past studies show that companies’ connection with the government (or politically connected companies (PCCs)) contributed negatively to their financial performance. The grabbing hand theory suggests that political connection demand companies to serve political and social obligation that exhaust companies’ financial resources. The purpose of this paper is to extend the previous studies by examining the role of monitoring mechanisms, specifically corporate governance mechanism and institutional ownership (IO), whether they weaken or strengthen the financial performance of PCCs in Malaysia.Design/methodology/approach The sample consists of all companies listed on the Main Board of Bursa Malaysia (previously known as Kuala Lumpur Stock Exchange) for the year of 2004-2007. The time periods were chosen because there were no significant economic and political events that could possibly distorted the financial and non-financial data.Findings The findings show that companies’ political connection (the presence of political figure or government representative as members of board of director) has consistently showing negative relationship with performance. The result is consistent with the grabbing hand theory that argues that companies’ connection with government would actually destroy companies’ value. The monitoring role of corporate governance as measured by the percentage of independent board members does not have any significant effect on firm’s performance. The monitoring role of corporate governance as measured by the composition of independent board members have shown a positive significant effect on the company’s performance. However the second monitoring mechanism, the percentage of institutional investors, have a tendency to weaken the company’s performance.Originality/value The findings of this study provide an additional understanding of the consequence of government intervention on companies’ performance. This study also highlights the role of monitoring mechanism (independence board members and IO) in strengthening or weakening the performance. The findings suggest that the proper appointment criteria for board members should be seriously considered to ensure better corporate governance structure. Therefore, the formation of the nomination committee as suggested by the current Malaysian Code of Corporate Governance play an important contribution to ensure candidates nominated as board members have proper credentials and qualifications to carry out responsibilities as board members.
VL  - 6
IS  - 4
SN  - 2042-1168
DO  - 10.1108/JAEE-05-2014-0021
UR  - https://doi.org/10.1108/JAEE-05-2014-0021
AU  - Jaffar Romlah
AU  - Abdul-Shukor Zaleha
PY  - 2016
Y1  - 2016/01/01
TI  - The role of monitoring mechanisms towards company’s performance: Evidence from politically connected companies in Malaysia
T2  - Journal of Accounting in Emerging Economies
PB  - Emerald Group Publishing Limited
SP  - 408
EP  - 428
Y2  - 2024/04/20
ER  -