CHAPTER 5: RESEARCH DESIGN AND METHODOLOGY
5.6 Stage Two – Corporate Integrity Indicators and Measurement
The stage one study was used to inform the development of the survey questionnaire.
This questionnaire was then distributed via mail to company boards of directors and
company top management in the government link companies across Malaysia.
Findings from the survey questions identified which corporate governance indicators
can be used to model and assess integrity and determine their importance. Stage two
of data collection addressed research question number two and three.
5.6.1 Survey population
The populations for the study comprised of members of boards of directors and top
management who were the managers responsible for the company’s corporate
governance, and the company secretaries of the Malaysian government link
companies.
These companies were identified as the research sample since they account for
approximately RM 169 billion (AUD$57 billion) or 35% of the market capitalization
of the Kuala Lumpur Composite Index (KLCI) and account for an estimated 250,000
of the national workforce (Putrajaya Committee on GLC High Performance 2006).
Part of the National Integrity Plan agenda was to transform the government link
companies into high performing entities (Putrajaya Committee on GLC High
Performance 2006). In 2004, the Malaysian government launched the government link
company Transformation Programme with the dual aims of enhancing economic
performance and accelerating the country’s social and economic development. Since
being introduced in 2004, the government link company Transformation Programme
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This result and assessment of the government link companies integrity practices and
performance will greatly impact the productivity and wellbeing of almost all
companies and almost all Malaysians across the country (Putrajaya Committee on
GLC High Performance 2006). A complete list of companies in this study was
provided in Appendix 2.
At the time of commencing data collection (February 2009), there were thirty five
government link companies listed in Bursa Malaysia Berhad (formerly known as
Kuala Lumpur stock exchange).
5.6.2 Sample selection
The procedure in the selection of the stage two samples was a multi-stage cluster
sampling. With cluster sampling, the first stage of the sampling procedure was to
identify the Malaysian government link companies listed in Bursa Malaysia Berhad
(formerly known as Kuala Lumpur stock exchange) as of 31 of December 2008.
Thirty five government link companies were identified which represent thirty five
clusters. Potential respondents from each company were then identified using a
purposive judgement sample which focused on the respondent that was responsible
for corporate governance reporting and practices in their company. Precautions were
taken to choose samples that were experts and had in-depth knowledge of corporate
governance reporting and practices to ensure that their answers provided evidence of the actual situation. Board of directors, managers and company’s secretary were identified as the best respondents that can provide needed information for stage two of
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The list of each company’s board of directors was obtained from the Bursa Malaysia data base. It provides the company name, board of directors name, mail and email
contact address. This list was cross referenced against the list in the company website
to ensure these people were the current board members. Company’s managers and company’s secretary were identified based on information gathered from company annual report and company website. The total sample used in this study was adjusted
in terms of equal sample sizes of respondents from each company or cluster. A
standard of ten representatives from each company were invited to participate in the
survey exercise. This improves the statistical significance and validity of the sample
(Hair, Anderson et al. 1995). A total of three hundred and fifty potential respondents
were identified for stage two data collection.
5.6.3 Sampling error
It is very unlikely that the sample will perfectly represent the population from which
the sample is being drawn. The difference between the sample and the population,
which is due to sampling, is referred to as sampling error. Sampling error is the
expected variation in any estimated parameter (intercept or regression coefficient) that
is due to the use of a sample rather than the population (Hair, Black et al. 2006).
Although chance alone can increase the sampling error, there are two other issues that
have to be considered: sample selection; and the non-response problem. The sample
selection has been addressed in sub-section 5.6.2, while the non-response problem is
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5.6.3.1 Non-response bias
The other important issue of sampling error is the problem of non-response bias. This
occurs since most of the sample surveys attract a certain amount of non-response. In
this case, the researcher should consider and pay attention to this problem, because a
well produced sample can be jeopardised by the non-response bias (Bryman and
Cramer 1990). The problem is that respondents and non-respondents may differ in
certain aspects and, hence, the respondents may not be representative of the
population.
In this aspect, an independent-samples t-test was conducted to address the non-
response bias problem in the present study. A t-test was used to determine whether
there was a significant difference between two sets of scores (Coakes, Steed et al.
2008). In this case, the data were separated into: early respondents; and late
respondents, since non respondents tend to be similar to late respondents in
responding to surveys (Miller and Smith 1983). The t-test result was presented in
Appendix 3.
From Appendix 3, it can be seen that the two-tail significance of all of the main
variables was not significant at p< 0.05. This means that there were no differences
between the early responses and late responses. In other words, non-response bias can
be ignored.
5.6.4 Data quality
Data quality is very important in conducting any research. Poor data quality can have
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There are two major sources of error in a survey study, namely, measurement error
and sampling error. Measurement error is discussed in the section below, while
sampling error has been discussed in sub-section 5.6.3.
5.6.4.1 Measurement error
Measurement error is defined as ‘inaccuracies of measuring the “true” variable values due to the fallibility of the measurement instrument (i.e., inappropriate response scales), data entry errors, or respondents errors’ (Hair, Black et al. 2006). Therefore, the observed value obtained consists of the “true” value and the measurement error. When the observed value is used to compute correlations or means, the “true” effect is
partially covered by the measurement error. As a result, the correlations become
weaker and the means less precise. There are two important characteristics that should
be addressed relating to measurement error: (i) validity; and (ii) reliability.
Validity, or construct validity, is the extent to which the constructs of theoretical
interest are successfully operationalised in the research in terms of how it incorporates
both the extent to which the constructs are measured reliably and whether the measure
used captured the construct of interest (Abernethy, Chua et al. 1999). A thorough
understanding of what is to be measured and then deciding an appropriate and precise
instrument to measure is the most important way to ensure validity (Hair, Black et al.
2006).
Reliability, on the other hand, is the degree to which the observed variable measures the “true” value. The more reliable measure will show greater consistency than a less reliable measure when the measure is used repeatedly (Hair, Black et al. 2006).
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Therefore, to increase the validity and reliability, and thus minimise the measurement
error, certain procedures (e.g., development and administrative of the questionnaires)
should be considered by the researcher.
Measurement error can result from both poor wording of the question and a faulty
questionnaire construction (Dillman 2007). Therefore, the development of the
questionnaire should be considered carefully. In the present study, the development of
the questionnaire followed the procedures suggested by Dillman (2007) and Andrews
(1984). When available, prior research instruments have been used in this study, with
some appropriate modification, to fit the research objective. The use of prior research
instruments can increase the reliability of the data (Hair, Black et al. 2006). The
development of the questionnaire is discussed in sub-section 5.6.6.
5.6.5 Justification of the use of a survey questionnaire
In social sciences, the survey method is used widely to examine empirically the
characteristics and interrelation of sociological and psychological variables (Roberts
1999; Nazari, Kline et al. 2006). As Nazari et al. (2006) state, there are several
underlying assumptions in survey research using self-report of attitudes, values,
beliefs, opinions and/or intentions. These self-report assumptions, discussed below, reflect the present research’s central objective; which is to examine the perception and opinion of board of directors and top management on their company corporate
governance practices.
Firstly, the respondents are the most reliable source for certain types of information
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governance practice, the approach or method in measuring and assessing the actual practice is crucial. The board of director, managers and company’s secretary are the most reliable source of information since they are responsible and involved in the
corporate governance process.
Secondly, those subjective perceptions actually matter. One can argue that
perceptions may not be real; however, perceptions of reality can be more powerful
than reality itself since very often people act on their perceptions (Nazari, Kline et al.
2006).
Thirdly, perceptions can be demonstrated to be linked to outcomes of interest to
organizations (Nazari, Kline et al. 2006). In other words, perceptions influence the
behaviours that have real consequences for organizations. The common measure bias
found in previous studies which uses only information reported in the annual report as
a measurement for corporate governance practices may only lead to a false sense of
security that the right judgements and the right actions were being made and taken.
Perceptions from the board of directors and top management can provide an insight
view of the actual corporate governance practices in the company. Given the objective
in the second stage of the study, as well as considering the above assumptions of the
self-report survey, a survey method is appropriate.
5.6.6 The questionnaire
One set of questions were developed. The questionnaire included questions relating to
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demographic details of the managers. The development of the questionnaire followed
the guidelines of Dillman (2007).
5.6.6.1 Development of the questionnaire
There were three steps taken during the questionnaire development process. Firstly,
two main sources of information were used to construct the questions in the
questionnaire. The first source was obtained from the Malaysian Code on Corporate
Governance (MCCG) itself. The Code divides corporate governance information into
two main categories: Principles of Corporate Governance were those items
specifically identified by the Malaysian Code on Corporate Governance which set out
broad principles of good corporate governance, and Best Practices in Corporate
Governance were value-added items generally proposed by other best practices worldwide which identified a set of guidelines or practices intended to assist
companies in designing their approach to corporate governance. The second source of
corporate governance information was from various worldwide studies on corporate
governance. The development of questions for the questionnaire was based upon
factors identified in national and international best practice guidelines and other
research studies.
Second, discussions were held with fellow academics in the corporate governance
research program. These discussions focussed on both the reliability and validity of
the proposed items in the instrument.
Third, the drafted instrument was given to the interviewees during the semi-structured
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It focussed on the wording and understands ability of the questions and the covering
letter, the setting out of the questionnaire, and the time estimates to complete the
answers. Some minor changes to the questionnaire were made as a result from the
feedback given by the interviewee. The exercise will ensure a more appropriate and
sensitive survey questionnaire can be established.
The questionnaire consisted of eight parts (see Appendix 4).
Part A of the questionnaire related to the role of the Board of Directors (BOD). It
covers five important aspects namely Board Leadership & Control, Board Balance,
Board’s Right to Information, Appointment of Directors and Board Re-election.
Specifically, thirty six questions asked under this part were on:
Director’s Roles & responsibilities
Director’s selection & appointment
Meeting & information
Committee function, minority shareholder & independency
Vision
Operational procedure
Professional advice & performance indicator
Director’s succession plan, education & evaluation
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Part B of the questionnaire related to the Directors’ Remuneration. It includes the
Level & Make-up of Remuneration and Procedure. Specifically, eight questions asked
under part B were on:
Directors’ remuneration attractive & transparent procedure
Directors’ remuneration by performance driven & formal procedure
Reward criteria
Part C of the questionnaire asked about the aspects of communication that exist
between companies and investors. It aims to examine the company’s relationship with
its investors. Specifically, the eighteen questions asked focus on:
Dividend policy & related party transaction
Annual General Meeting (AGM) & annual report
Extraordinary General Meeting (EGM) & announcement
Annual General Meeting (AGM) function
Part D of the questionnaire related to the company’s Board of Directors (BOD)
responsibility and accountability towards the firm shareholder. It includes the
financial reporting, internal control and relationship with auditors. Specifically the
seventeen statements asked under this part were:
Internal control & information
Report release & auditing
Audit committee
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Part E of the questionnaire related to the Board of Directors (BOD) responsibility in
ensuring that management and employees of the company uphold the highest level of
ethical values and responsibilities. As such, the Board must ensure the company has a
policy implicating such responsibilities. Specifically the seven questions asked were
on:
Code of ethics & Whistle blower policy
Part F of the questionnaire related to how the Board of Directors (BOD) recognizes
intellectual capital as one of the most important assets in the organization.
Specifically the nine questions asked were related to:
Intellectual Capital recognition
Intellectual Capital appreciation & implementation
Part G of the questionnaire related to the company Board of Directors (BOD)
responsibility and transparency towards the firm shareholder. As a show of responsibility, the BOD must be “transparent” in disclosing pertinent information to the shareholder. Specifically, all the questions asked were related to:
Disclosure on auditing, audited report & board responsibility
Disclosure on internal control, Annual General Meeting (AGM) notice & lead
control
Disclosure on board profile, third party transaction & remuneration committee
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Part eight of the questionnaire related to general background information about the
respondent and the company for which they worked. It comprised of eight questions
including respondent demographic information on their gender, age, education level and length of the respondent’s employment. Information about the company asked in this part was on the industry sector and company turnover.
5.6.6.2 Rating scale
A Likert Scale (figure 5.2) was used as the basis for measuring responses to the closed
questions in the questionnaire. This scale examined how strongly subjects agreed or
disagreed with the statements on a five-point scale. A Likert Scale has an odd total of
response points and the midpoint was neutral (Cavana, Delahaye et al. 2001). The
study used a 5-point Likert Scale to measure the factor; a “5-point” score denotes the
maximum level of agreement and acceptance of the gauged factor for corporate governance practices, a “3-point” score denotes neutral whilst a “1-point” score represents the maximum level of disagreement and no compliance of the gauged
factor for corporate governance practice.
The following anchor points were used in this study:
Strongly Agree
Agree Neutral Disagree Strongly
Disagree
Not Applicable
5 4 3 2 1 0
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5.6.7 Data collection procedure
The data source for stage two was a formal survey questionnaire. A total of three
hundred and fifty questionnaires were distributed via mail to company board of
directors and company top management in Government link companies across
Malaysia.
The mail explained the details of the study and requested the respondent at their
earliest convenience to return the completed questionnaire and the consent form in the
reply paid envelope provided. Reminder mails were sent to survey invitees after three
weeks. Several further mails were sent to invitees who had not responded, or only
partially responded. The follow up action by the researcher was limited to monitoring
of the administration of the survey through frequent contact with the respective
companies. It was not possible for the researcher to involve the companies again in
the survey process to follow up on non-respondents.
5.6.8 Confidentiality
Ensuring the confidentiality of the data was important not only to retain privacy of the
respondents, but to ensure that the respondents provided accurate and honest
responses to the questions.
Prior to conducting the study, the ethics approval application was submitted to Victoria University’s Human Research Ethics Committee (HREC). The application addressed issues of privacy and confidentiality, management of potential risk and the
information to be provided to participants. Data were aggregated and no individual
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The questionnaire was confidential. The views of individual respondents were
aggregated and no individual responses identified.
5.6.9 Data analysis methods
Eight specific sets of data were collected from the sample population:
1. Perceptions and opinions about the Board of Directors (BOD) roles in
Malaysian government link companies. It covers both basic principles and best
practices of corporate governance based on the recommendations of the
Malaysian Code on Corporate Governance (Part A of the survey).
2. Perceptions and opinions about Directors’ Remuneration which refers to basic
principles of corporate governance recommended by the Malaysian Code on
Corporate Governance (Part B of the survey).
3. Perceptions and opinions about dialogue between companies and investors and
the relationship between the board and shareholders at the annual general
meeting (AGM). The questionnaire was based on basic principles and best
practices of the Malaysian Code on Corporate Governance (Part C of the
survey).
4. Perceptions and opinions on board responsibility and accountability towards a
firm’s shareholders. Both basic principles and best practices recommended by
the Malaysian Code on Corporate Governance were referred to in formulating
the questions under this part (Part D of the survey).
5. Perceptions and opinions relates to the board’s responsibility in ensuring that
management and employees of the company uphold the highest level of ethical
values and responsibilities in fulfilling their obligations. The world best practice
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6. Perceptions and opinions relates to how the board recognizes intellectual capital
as one of the most important assets in an organization. This is based from world
best practice (Part F of the survey).
7. Perceptions and opinions about the company Board of Directors (BOD)
responsibility in disclosing pertinent information to the shareholder. The Board