MY PHD DISSERTATION: A NON-TECHNICAL SUMMARY

Doctoral Dissertation: Corporate Short-termism in Malaysia: Investor Effects, Managerial Influence and Quarterly Financial Reporting 

Supervised by: Prof. Dr. Zalailah Salleh & Prof. Dr. Hafiza Aishah Hashim (Professors of Accounting at UMT, Malaysia)

External Examiners: Prof. Dr. Etty Murwaningsari (Universitas Trisakti, Indonesia) & Dr. Simon Scagnelli (Edith Cowan University, Australia)

• Introduction

Corporate short-termism, where businesses place immediate profit before long term sustainability, worries scholars and policymakers worldwide. My PhD thesis highlights several issues related to this issue. This article summarizes the main findings and significance of my doctoral study that enriched academic discussions and strategic policy decisions in Malaysia in a non-technical language.

• Executive Summary 

There is now a growing discussion about how companies prioritize short-term profits over long-term stability. My doctorate examined how investors' behavior, management characteristics and regulatory actions (e.g. quarterly financial reporting) influence this behavior. 

Investors Behavior and Managerial Influence

I examined data from 220 publicly listed companies in Malaysia and found that having more institutional shares in a company encourages long term investment. Family-owned firms invest poorly over the long term, however.

My findings also suggest that executive compensation structures tied to long-term performance encourage more future-oriented investment decisions. Interestingly, CEOs with a long-term career outlook- often indicated by younger age- are more likely to prioritize long-term investments. Amazingly, though, having an effective board of directors may buffer the negative effects of a short-term CEO career outlook. Notably, CEO tenure shows a dynamic relationship with long-term investment: it tends to decrease in the early years of tenure but increases as the CEO becomes more established within the company.

Quarterly Financial Reporting

I also assessed the effect of mandatory quarterly financial reporting in Malaysia, introduced as a regulatory change in 1999, using an event study and data from 292 listed companies. Interestingly enough, this requirement did not change the horizon of investments.

Significance and caveat

This study has findings that matter for policymakers, boards of directors and researchers. These offer insights into how regulations and corporate governance can influence how a company approaches short-term versus long term goals. And, importantly, it shows that mandatory quarterly reporting may not be detrimental to long-term investments in Malaysia. But the study's focus on Malaysia may constrain how general these findings might be, and there may be future research to expand on the discussion of short-termism elsewhere.

• What do these findings mean? 

Empowered Institutional Investors for Long-Term Outlook

Malaysia's governance code emphasized the role of institutional investors in creating long-term value. Previous studies predominantly focused on their association with good governance and financial performance. However, this study contributed to this body of literature by highlighting that institutional investors in Malaysia actively discourage short-termism and promote long-term investments.

Redefined Executive Compensation

Previously, executive compensation had been a focus of scrutiny in corporate governance research. The study extended this discourse by examining executive remuneration schemes in Malaysia, particularly long-term incentive remuneration. The Malaysian Corporate Governance code promoted remuneration based on long-term success but provided no specific guidance. The study nevertheless provided empirical support for a positive association between such schemes and long-term investments. This suggested that future revisions of the code might encourage similar schemes with standard time periods, as in the UK and other countries.

Explored CEO Career Horizons and Corporate Decisions

CEO career horizons and tenure were key variables in understanding corporate decision-making and practices. The current study contributed to this expanding literature by exploring relationships between CEO career horizons, board effectiveness and long-term investments. It concluded that shorter CEO career horizons drove short-term investment decisions but that a strong board of directors mitigated this negative effect. And it described a curvilinear relationship between CEO tenure and long-term investments, which is of particular relevance for CEO recruitment/retention policies.

Quarterly Financial Reporting: A Controversial Issue

My PhD also tested quarterly financial reporting, which is now banned in some countries due to short-termism concerns. Unlike what is practiced in the European Union and UK, I found no significant relationship between quarterly reporting and long term investments in Malaysia. This suggests that Malaysia does not necessarily need to abolish quarterly reporting solely on the grounds of promoting long-term investment.

Conclusion

In conclusion, my doctoral dissertation has made significant contributions to the conversation about corporate short-termism, particularly within the Malaysian context. I offered new insights into how institutional investors, executive compensation, CEO career horizons, and quarterly financial reporting affect companies' investment decisions. These findings have implications for policymakers and listed companies in Malaysia and beyond. 

Technical Notes on Methodology 

1. The study employed fixed-effects panel regression.

2. To control for endogeneity, the Baltagi EC2SLS model was employed. 

3. The study controlled for firm size, financial leverage, return on equity and cash holdings. 

4. In addition to fixed-effects panel regression, a feasible GLS model was used to test the effects of quarterly reporting.