The financial crisis has encouraged corporate governance - Free Essay Example

Governance is a term that refers to how the government uses authority and power to set the rules and regulation, to govern the people, in order to achieve continuity to national development. Corporate governance is a multifaceted topic. Corporate governance is a very important part of the face of responsibility, trustees responsibility to shareholders and others of information disclosure, auditing and control mechanisms. This person should be responsible for corporate governance in accordance with all aspects of the hand is. Another important focus is economic efficiency, both internally (such as best practice guidelines) and outside the company (such as the national system of systems). In this economic view, is an optimal corporate governance system should detect and prevent fraud results and designed. Recently, the public was quite the interest in corporate governance practices, especially since the Enron Corporation and WorldCom that the collapse of large companies has caused public concern. The principles of corporate governance include several elements: honesty, trust, integrity, openness, performance orientation, responsibility and reliability, mutual respect and commitment to the organization. The most important thing is how directors and management of the establishment of governance model for the other participants can be based on the value of the company, and can effectively evaluate its effectiveness regularly. In particular, the performance of senior executives was an honest, ethical, especially in the face of conflicts of interest and the time to disclose financial statements. There is no global standard definition on corporate governance. Cadbury Report (1992) define that the corporate governance is the system by which companies are directed and controlled. However, the corporate governance as including a set of relationships between companys management, its board, its shareholders and other stakeholders, and provides the structure through the companys goal setting, and identify those objectives and monitoring performance was described the Organization for Economic Co-operation Development (OECD) (2004). The Malaysian Code on Corporate Governance(2000) defined Corporate governance as process and structure used to guidance and management services for the business and affairs of the company to strengthen accountability and business prosperity and long-term sha reholder value with the ultimate goal, taking into account the interests of other stakeholders. Before to the financial crisis in 1997, Malaysia has become known as the East Asian miracle was due to its high growth rate 8.9 per cent by an average of one economic system in maintaining during the period 1988 to 1996. Besides that, the country to low inflation rate of about 3-4 per cent per year. In addition, the growing focuses on manufacturing, especially in electronics. Moreover, the country also makes certain in high employment rates.'(Mohamed Ariff and Syarisa Yanti Abu Bakar (1994) Under the impact of the financial crisis, the Malaysian financial markets in turmoil, banks verge of bankruptcy, a large number of companies in trouble, and many workers were unemployed. Significant decline in domestic private demand, resulting in sharp decline in investment, real GDP fell by 7.4% in 1998, and lower consumption. Therefore, unemployment rate rose, inflation doubled and the currency f ell. (WTO, 2001) The financial crisis has encouraged corporate governance reform in East Asia. Nowadays, the corporate governance of a country more focuses on checks and balances. As a consequence, Malaysia has aimed to improving corporate governance practice. Corporate governance in Malaysia emphasis on separation on company management and ownership, roles and responsibilities of managers and directors, increased disclosure of corporate non financial information, and improved on internal control.'(Jill Solomon, 2007) 1.2 Research Problem Since corporate governance is very important to listed company in Malaysia. The shareholders and investors are maintaining their wealth maximization. So, in this research paper, our main study is to identify whether the better the corporate governance result in better share price? Then, we will overview how corporate governance affects corporate performance? 1.3 Research Objectives In this research paper, our main objective is to examine the better corporate result in better share price. Then, we will identify whether good corporate governance will affect firm performance. 1.4 Scope of the Research In this research paper, I will select 30 public listed companies those are listed in Bursa Malaysia. After that, I will compare corporate governance measures of all the 30 public listed companies in annual report which in year 2009. 1.5 Organization of the Research The study is organized as follows. Chapter 1 introduces the research problems and objectives. Chapter 2 explores the relationship between corporate governance and share price with the aims of developing a conceptual framework of how corporate governance would affect the share price. Chapter 2 also provides a definition of corporate governance and examines the factors likely to influence the share price. It then goes on to examine how to measure and identifies the measures used in previous empirical studies. In Chapter 3, three hypotheses are formulated and a signaling model using regression analysis developed to test the predictive ability of corporate governance measures in annual report. The essential features of the research design and testing approach are also explained. Chapter 4 provides summary statistics and the empirical results of the study. The final chapter summarizes the main findings and implications of the study. It also discusses the limitations of the study and pos sible directions for future research. CHAPTER 2 SURVEY OF LITERATURE 2.1 Introduction Most of the survey of literature which examined the link between corporate governance and firm performance focus on a specific facet of governance, such as the right and duties of shareholders, remuneration committees, the appointment of directors, the attendance of non directors at board meetings, transparency and disclosure, responsibilities of the board, internal control, and alliances and merges. Besides that, study the impact of a complete set of governance standards on firm performance came close by profitability ratios that there is quite little empirical literature. Net profit margin and return on equity are the examples of profitability ratio on firm performance. The corporate governance should lead to higher share price or better firm value from those advocates of agency theory. Eisenhardt (1989) emphasized agency theory identified mechanisms which reduce agency loss. Thus, it will maximize the wealth of shareholders and investors. It is frequently assumed that boar ds of directors are more independent as the proportion of their outsider directors increases (John and Senbet 1998). Nevertheless, there are no relation between proportion of outsider directors and Tobins Q which found by Hermalin and Weisbach (1991); there are no connection between the proportion of outsider directors and Tobins Q, assets turnover, return on assets and stock returns which found by Bhagat and Black (2002); and there are no linkage between the proportion of outsider directors and various performance measures. On the other hand, there are some advocators shown there are relationship between proportion of outsider directors and performance measures such as Baysinger and Butler(1985), Rosenstein and Wyatt(1990) ,Brickley, Coles and Terry(1994), and Anderson, Mansi and Reeb(2004). 2.2 Board Activities 2.2.1Board Meeting In relation to effective governance board meeting has also been studies. In developing the efficiency of a board the board meeting time is an important resource which suggested by Coger et.al (1998). The bank holding companies meet slightly more often than manufacturing firms which study by Adam and Mehran (2002) on board meeting of financial and non financial firms. Adam and Mahran (2002) found that the average number of board meeting per year is 8.45 which are close to 7.45 meetings a year reported by Vafeas (1999).Even so, there had a negative correlation between the number of board meeting and performance which found by Vafeas (1999). It is means that the more often board meeting, the less value of the firms. This is because of the view that higher board meetings follow poor performance. Further tests point out the following years of unusually high meeting frequency when raising the operating performance. Raising their level of board activity is linked with developed operating performance that boards respond to poor performance in such result conclusion. A response on the importance of meeting but MAICSA was emphasized with the issuance of guidelines (Abdul Hadim M. Fazilah and Md Ishak Ismail). On the other hand, the number of meeting in a year together with directors attendance should be disclosed and the board should meet frequently that suggested by The Malaysian Code on Corporate Governance. 2.2.2 Board Committee In corporate governance the board committee has an important role by improving in keeping an eye on management and enhancing the decision making by the board and accountability to shareholders. The aspect of the boards linked to committee may affect performance recognized by Klein (1998). In particular, it was argued that there is positively relation between the proportion of insiders on the financial committee and firm performance. Nonetheless, a study by Weir et. al (2001) found that talent of committee members and independence of committee membership has no effect on performance. Finding from Vafeas and Theodorou (1998) there is no evidence to support the view that the structure of board sub committees considerably affected firm performance. Each board on average has 4.42 committees and each committee member sits on 1.87 committees that shown by Adams and Mehran (2002). Malaysian Code on Corporate Governance and Bursa Malaysia listing requirement but involve compensation and rem uneration of directors and committees to handle the matters pertaining to nomination of directors and internal control and integrity of the external audit (Abdul Hadim M. Fazilah and Md Ishak Ismail). 2.2.3 Remuneration To settle the conflict of interest among the managers and shareholders remuneration provides as an instrument. Remuneration as an important mechanism of corporate governance is the incentives of top management have been characterized which indicated in John et.al (2001). The firm performance will be affected by the director compensation which bring out by Brick, Palmon and Wald (2002). Regarding to banking institution, Anderson and Campbell (2002) recommended that breakdown to state significant incentives by Japanese banks led to the extension of credit to smaller, less well- known borrowers and increasingly secured such loan with overpriced real estate in the 1980s. The compensation is termed as Deferred Compensation or Deferred Stock and in the form of cash and stock (Abdul Hadim M. Fazilah and Md Ishak Ismail). Almost 95% of the firms have deferred compensation plans for their directors according to Adam and Mehran (2002). In contrast, the firms provide an option of cash or stoc k to their directors only 31%. To examine the implication of having different level of both type of compensation on the firm performance which the studies have been carried out. Adam and Mehran (2003) argued that manufacturing companies possessed a mean that the value of granted option was 60 percent larger than the sum of base salary and bonuses, using a measure of Ratio of Value of Granted Option to Salary plus Bonuses. Houston and James (1995) shown that financial firms as represented by bank holdings were said relied on lower stock options. The difference was due to expansion status of the industry. Smith and Watts (1992) and Mahran (1992) were suggested that low growth industries proxies by Tobins Q ratio rely less on stock based compensation. The boards of a low growth industries can evaluate observe and monitor the actions of CEOs easily so rely more on fixed rather than stock based compensation. The bank holdings companies into a low growth industries was attributed lower To bins Q of 1.0 compare to the manufacturing with 1.9 according to Adam and Mehran(2003). Moreover, they argued it might make easier for the board to monitor CEO actions while the bank holdings companies sample which smaller stock return volatility. Directors remuneration should reflect the commitment and responsibility and should be significant of the directors which required by the Malaysia Code on Corporate Governance. Remuneration should link level of responsibilities as well as rewards to experience in the case of executive director. The remuneration committee including mainly and wholly of non executive directors should make a decision on the level of remuneration for the executive directors. In contrast, the board as a whole should determine the remuneration of the non executive directors. In the annual reports, the details of the remuneration of each director are required to disclose by the companies. 2.2.4 Transparency and Disclosure The financial transparency is an important instrument that provides credible assurances to shareholder, creditor, and depositor that they will avoid doing from fraudulent activities. In Mitton (2002) and Coles et. al (2002), one of the mechanisms had been measured financial reporting or disclosure quality in evaluating the corporate governance of a firm. Shareholders are able to attain complete and convenient information about companys governance characteristics and its financial matters in disclosure measure. For example, the firm should release information on their board committees, members, and structure and stock option prices and its remuneration. Appointing reputable external auditors may be achieved higher disclosure quality. In general, reputable external auditors referred to one of the big 5 international accounting firm (Reed et. al, 2000; Mitton, 2002; Titman and Truman, 1986). Through the mandate disclosure requirements of the listing exchange, the higher disclosure qua lity can be properly worked out. Increased study of the firm report and high demand for disclosure from the investors would improve the disclosure quality of a firm which in informal technique. In August 2002 released the Guidelines on make easy the benchmarking of audit standards of our listed companies with the international standards and matter relating to internal audit functions by Institute of Internal Auditors the internal audit functions to support the boards of directors t o complement the measures. The task of companys audit committee to strengthen the independence of the external auditor also underlined in the Code. As a result, only increase the transparency of listed companies, investors can grasp the true, accurate, complete, timely and impartial information, and ultimately the formation of all the shareholders of listed companies and the positive interaction between the relationships between the maximization of corporate value and achieve the best interests of all sha reholders 2.2.5 Foreign Ownership By having foreign ownership with reputable foreign firms, development on corporate governance can be attaining at the firm level. This is because of one of the firm has practiced different and addition of new standards. The foreign bank brought new information technology, management technique and mechanisms and forces the domestic bank to implement when they are entry as said by Peek and Rosengren (2000). It is still positively act in response by the market. When the firms within the industry acquired by foreign firms coming from countries with better accounting standard and better shareholder protection, Bris and Cabois(2003) concluded that the industry performance measured by Tobins Q increases. By upholding the regulation of 30% limit on foreign ownership of the banks, Malaysia defends its domestic banks for the period of the crisis. 2.3 Board Structure 2.3.1 CEO Duality When the same person holds CEO and the chairperson then the agency problem likely is higher. Daily Dalton (1992) and Brickley et al. (1997) are no finding any relationship between CEO duality and performance of firms. Efficiency in monitoring management that said by Hannifa and Cooke (2000) could be improved through CEO-Chairman duality, because reducing in information asymmetry and needing in contract is less where assumes the position of CEO and Chairman all together by one person. The combination of the CEO and chairman will allow the CEO focus their power to make a decision on their self- interest. Consequently, the separation of the position into two can spreads out their power and permit the board to more completely carry out its fiduciary duties. The separation of the position on CEO and chairperson the firms are more valuable that argue by Yermack (1996). However, Goyal and Park (2002) find that with CEO duality, the CEO turnover to firm is higher for companies. There i s also a positive association between separating the functions of the CEO and firm performance which found in Sanda et al (2003). In Malaysian Code on Corporate Governance (2000) nobody has tolerant power of decision since there is a condition of balance authority and power between CEO and Chairman. 2.3.2 Board Size Based on the board size performance relationship for financial and non financial firm there were different finding. The board size has a negative relationship to firm performance for non financial firms. There is the negative relationship between board size and Tobins Q which found by Yermack (1996). In addition, when using small size sample of firms, there is also find negative relationship between board size and profitability of the firms. A number measured quite small in those markets when they found that firm valuation is highest which the finding in firms listed in Malaysia and Singapore by Mak and Yuanto(2003). Lipton and Lorsch (1992) and Jensen (1993) had recommended a possible factor affecting monitoring quality based on board size. From larger boards, CEOs are able to take out better pay that found by Core, Holthausen, and Larcker (1999). Even as Shivdasani and Yermack (1999) reported a size of 11, Vafeas (1999) recognized a board size of 12. To explain for a larger board there are some different reasons. Institutional shareholders before the increase in activism the board size are supposed to increase. Based on the study on Hermalin and Weisbach (2001); Yermack (1996); and Baker and Gompers (2000), to create larger boards due to positive correlation of board size with firm size. Adams and Mehran (2002) found the evidence that shown positive relationship between board size and Tobins Q. 2.3.3Independent Board of Directors Independent is refers to independence from the major shareholder and independence from management that set by Malaysian Governance Code and requirement of listing in Bursa Malaysia. The board independence is linked with the entry of outsiders into the board. According to Adams and Mehran (2003), increase in the proportion of outside directors on the board should increase firm performance since they can effectively in monitoring the managers. Measurement in terms of ratio of outside directors to board size based on the proportion of the outside directors. Based on the study by Adams and Mehran (2002), there is no relationship between the proportion of outsiders on the board and Tobins Q which finding on board independence performance. Moreover, Hermalin and Weisbach (2001) said that the higher proportions of outside directors are linked with better decisions regarding such as CEO turnover, acquisitions and executive compensation but not linked with better firm performance. On the ot her hand, in the occasion of acquisitions and merges, it was found that offer premiums increase with the independence of the targets board (Brewer III et. al., 2000). In Byrd et al (2001), there is positive relationship between the proportion of independent directors in the board and survival of firms. Although number of outsiders sitting on the board is regulated by certain regulation. At least one third of the board to include of independent directors that released in January 2001 by Bursa Malaysia (formerly known as Kuala Lumpur Stock Exchange (KLSE) listing requirements amendments. 2.4 Audit Committee There is no finding relation between earning restatements and fees paid for financial information system implementation as well as audit committee independence provides non audit services which by Kinney, Palmrose and Scholz (2004) and Agrawal and Chadha (2005). Nevertheless, some advocators find some evidence to prove there is negative relationship between earnings and audit committee. The negative relation between earnings management and auditor independence was shown by Frankel, Johnson and Nelson (2002). Moreover, Klein (2002) was shown a negative linkage between earnings management and audit committee independent. Furthermore, in Anderson et al. (2004) found that totally independence audit committees have lower debt financing costs. Based on the above evidence, Ashbaugh, Lafond and Mayhew (2003) and Larcker and Richardson (2004) were not agree with them. In Smith Report (2003), audit committee such as a mechanism that improve effectiveness and keep an eye on company management as well as make sure external auditors objectivity and independence. 2.5 Summary When there is a separation of ownership and control, in general, corporate governance refers to set of mechanisms that influence managers make decisions. The study of this chapter is on the relationship between corporate governance and firm performance. I have accessible a variety of ways to enhance corporate governance. As discussed above, some of the predictable variables used as measures of corporate governance are board meeting, board committee, remuneration, transparency and disclosure, foreign ownership, CEO duality, board size, independent of board of directors and audit committee. Covers a wide range and extensive of corporate governance internally and externally put in place that found in those mechanisms. CHAPTER 3 RESEARCH METHODOLOGY 3.1 Introduction This chapter presents the research design. Firstly, the theoretical framework is developed based on literature review carried out in the earlier chapters. Secondly, the research hypotheses to determine that there is relationship between corporate governance and share price. By using the connected dependent and independent variable to analysis the relationship of corporate governance, we examine the factor of share price and firm performance. At the moment, we will present the multiple regression analysis to compare the entire variable. Finally, we will use t-testing, F-testing and R square in our statistic analysis. In this chapter we will select 30 samples from Bursa Malaysia in random which all in ACE market. We can compare since all 30 samples that we selected are in year 2009. 3.2 Theoretical Framework Good corporate governance will bring better share price to the firm? There are evidences to prove that good corporate governance really can improve firm performance. So, how corporate governance affect the firms share price? The four independent variables set in this chapter such as number of independent non-executive directors; attendance of board meetings; attendance of audit committees and directors remunerations will affect the two dependent variables which are firm value(share price) and firm performance(earnings).The firm has poor corporate governance then its firm performance may not pretty well. However, if the firm has good corporate governance its firm value will increase. The higher concentration on ownership will bring up the firm value. According to Coles et al (2002), as well to board members fiduciary responsibility they will have personal wealth incentive to monitor managers with the proportion of ownership. Furthermore, a firm with good corporate governance will pr otect and maximize the wealth of investors. Thus, a firm with good corporate governance will ensure the company is run to achieve its goal, checks and balances to reduce abuse of power and promote fair treatment to the stakeholders. Dependent Variables Independent Variables 1. Independent Non-Executive (INE) 2. Attendance of Board Meeting (ABM) 3. Attendance of Audit Committee (AAC) 4. Directors Remuneration (DR) Figure 3.1: The theoretical framework in describing relationship between the independent variables and the dependent variable 3.3 Research Hypotheses The study is considered to look at the relationship between corporate governance and firms performance. There are many factors that affect a firms performance such as internal and external perspectives. Nevertheless, it is take for granted that all factors contributing to firms performance have same stage of influence on the selected samples which in investigating the linked between corporate governance practice and firms value. Hence, the following hypotheses have been developed: H10: There is no significant relationship between corporate governance practices and firm value. H1A: There is significant relationship between corporate governance practices and firm value. H20: There is no significant relationship between corporate governance practices and firm performance. H2A: There is significant relationship between corporate governance practices and firm performance. These two hypotheses were developed in generally will run company which always maximizes shareholders return which would explain in better firms value. 3.4 Dependent Variables There are two dependent variables in this study which are share price and earnings. This is because corporate governance practice of a firm will affect its firms share price and earnings. 3.5 Independent Variables The four types of independent variables in this study are:1) Number of Independent Non-Executive Director; 2) Attendance of Board Meeting; 3) Attendance of Audit Committee and 4) Directors Remunerations. Independent Non Executive Director can effectively in monitoring the managers while there is positive linkage between independent non executive director and firm performance. Board meeting time is an important resource for the board of the efficiency. Therefore, number of director who attends the board meeting can be one of the independent variable. Since, the audit committee as an important tool to improve the company performance then we set attendance of audit committee as one of independent variable. The remuneration can resolve the conflict of interest between managers and shareholders. For that reason, directors remuneration will encourage to improve the firm performance. 3.6 Sample and Data Collection 3.6.1 Target Population In this study, all the public listed companies listing in Bursa Malaysia as our population target. 3.6.2 Sources of data The source of data is base o n the secondary data. Annual report was the majority of the data that search from website. Normally, seek the data by company list on Bursa Malaysia Stock Exchange. The library books, website, newspapers and magazine also use to search for secondary data. We examine the factor likely influence share price by using the related dependent and independent variable to analysis the relationship of corporate governance. The sample of company and the data of annual report collection that would select from list on Bursa Malaysia of 30 Company in ACE Market and examine data period for year 2009 performance of financial statements and annual reports. The dependent and independent variables analysis are based on financial statements and annual reports of post on Bursa Malaysia list of company. 3.6.3 Criteria of Selection of Sample For study the corporate governance practice, the prior researcher measure the relationships of corporate governance are empirical evidence base on company annual report for examine the relationship with share price. The Bursa Malaysia group of company operate fully incorporated stock exchange and offers a whole range of exchange relate service. All the listed company must fulfill which are set out in the listing condition on Bursa Malaysia securities Bhd in the listing requirement and disclosure standards. Therefore, all the data listed in Bursa Malaysia are relevant and reliable. The samples were chosen randomly in ACE Market which list in Bursa Malaysia. Appendix 1 is the list of all the company that I choose to analysis their value and performance. 3.6.4 Period of Study The period of study will cover only one year of annual report which is in year 2009. 3.7 Data Analysis 3.7.1 Multiple Regression Analysis- Specifying the regression Equation To assume the k is independent variable are possible relate to dependent variables. The model is following the equation. SPEit= ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²0+ ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²1INEit + ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²2ABMit + ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²3ACCit + ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²4DRit +ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦. +ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²kxk+ ÃÆ'Ã… ½Ãƒâ€šÃ‚ µit Where, SPE = share price and earnings (measure of firm value and firm performance), = the intercept coefficient of the regression line on the Y (SPE) axis when X (Independent variables) axis is zero, = the regression coefficients or slope of the regression line (the increase in Y for a unit, increase in X), = the random error variable, INE = Number of Independent Non-Executive Directors. Calculate the total number of independent non- executive directors of the company; ABM = Attendance of Boards Meetings. Calculated by total attendance of boards meeting divided by total number of board meeting in a year; AAC = Attendance of Audit Committ ee. Calculated by total attendance of audit committee divided by total number of audit committee meetings in a year, DR = Directors Remuneration. Calculated by total directors remuneration divided by total independent non executive directors in a year. The measures of share price and earnings (SPE) are dependent variable, the INE are the number of independent non-executive directors; ABM is the attendance of board meetings; AAC are the attendance of audit committees and DR is the directors remunerations are independent variables. Even though all the companies are concern in the same period, time dummy variables will change over time. The above regression equations are using the Pooled Least Squares and standard errors are calculated using Whites correction for heteroscedasticity. 3.8 Statistical Test 3.8.1 Test of Statistical Significance Three formulate are use in the test of statistical, the coefficient of determination, t-testing, F-testing are concern in statistical analysis. The coefficient of determine are test of ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²1 address only the question of whether there is enough evidence to infer that a linear relationship exists. This is useful to measure the strength of that linear relationship that to compare several different model. However, the coefficient of determination adjusted that taken into account the series of independent variable and the sample size. To apply the simple linear regression by using the slope coefficient to examine that are sufficient evident exist to allow us to conclude that there was a linear relationship between the dependent and independent variables. The regression models are following below: H0: ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²1= ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²2 = ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²3 = ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦. ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²k = 0 H1: At least one ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²i is not equal to zero If the null hypothesis is true that none of the independent variables is linear and relate to dependent variables therefore we can examine that model is useless. However, if at least one independent variable is not equal to zero, the model also has some useful tools. The t-test of the individual coefficient allow us to determine whether ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²1 no equal to 0 (for i= 1,2,3,ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦,k) to notify us whether a linear relationship exist in dependent and independent variables. The t-test is test for each independent variable. It is compare a sample mean to an accepted value or compare two sample means. The F-test is to compare standard deviation or two variances. It is combining the series of t-test relationship bring into single test. The relationship between F-test and t- test can explain by mathematically. The R2 is calculated as the Regression Sum of Squares (RSS) divided by the Total Sum of Squares (TSS), or the square of R. The R can ta ke on a value from -1 to +1, which depends on whether the association between the two variables is positive or negative, thus the value of R2 can fall between 0 and 1. If the R2 is close to one indicates that the model fits the data very well. Conversely, R2 close to zero indicates the model is not very good. In this study, R2 is applied to test whether the four independent variables can explain the dependent variable of corporate governance. For instance, higher the value of R2, greater the variation of corporate governance, that could explain by the four variables. 3.9 Summary This chapter presents the research design for this study. It begins with the development of the theoretical framework from which two hypotheses were proposed to test the effects of the share price. It is proposed that corporate governance is directly related to share price. For companies with favorable information on their annual reports, this information can be communicated to potential investors to increase shareholders returns. The dependent and independent variables were specified and defined and a signaling model developed using multiple regression analysis. This was followed by a description of the sample size, data collection methods and statistical tests used in the study. The next chapter presents the statistical analysis of the two hypotheses developed, and provides a discussion and interpretation of the result. CHAPTER 4 EMPIRICAL RESULTS 4.1 Introduction The main objective of this study is to examine the accuracy of share price and earnings per share contained in the list of ACE Markets and also examine whether the accuracy of share price and earnings per share are influenced by four of the determinants. Thus, after the illustration of the research methods in previous chapter, this chapter will proceed to present the results in this study. It will first provide the descriptive statistics for results of dependent and independent variables. Thereafter, result for regression analysis is obtained to test the significance for four of the hypotheses generated. Lastly, an analysis of the regression results is then be discussed and explained.