Comparative study on board structure and performance between domestic and foreign banks in Malaysia

Main Article Content

Haslindar Ibrahim Ng Yi Xiang Nik Hadiyan Nik Azman Abdul Hadi Zulkafli


This study examines the performance of domestic and foreign banks with regards to the relationship between the board structure and their financial performance in Malaysia. The sample consists of 8 domestic banks and 16 foreign banks in Malaysia from 2012 to 2016.The board structures are board size (BS) and proportion of independent director (ID) as an independent variables and firm size as the control variable. Meanwhile, the performance is measured by four ratios, liquidity (current ratio), profitability (return on assets), risk and solvency (loan to deposit ratio) and efficiency performance (asset utilization ratio). The findings reveal that the board size is proved to be significant relationship with return on assets (ROA) as well as loan to deposit ratio (LDR) for both domestic and foreign banks but insignificant with the other ratios of both the domestic and foreign banks. Apart from that, independent director proportion showed an insignificant influence on financial performance with four financial ratios for both domestic and foreign banks. This study suggests that both domestic and foreign banks do have difference in terms of financial performance, domestic banks perform better than foreign banks in terms of generating good return on assets and loan to deposits ratio however foreign banks perform far better in terms of level of liquidity of the banks as compared to domestic banks.

Article Details

How to Cite
IBRAHIM, Haslindar et al. Comparative study on board structure and performance between domestic and foreign banks in Malaysia. Economics, Management and Sustainability, [S.l.], v. 3, n. 2, p. 42-59, nov. 2018. ISSN 2520-6303. Available at: <>. Date accessed: 21 jan. 2020. doi:


Al-Mamun, A., Yasser, Q. R., & Entebang, H. (2014). Comparison between Islamic and Conventional Banking : Evidence from Malaysia. International Journal of Excellence in Islamic Banking and Finance, 4(1), 1–14.
Andres, P. De, & Vallelado, E. (2008). Corporate governance in banking: The role of the board of directors. Journal of Banking & Finance, 32(12), 2570–2580.
Ansari, S. (2009). Financial Performance of Islamic and Conventional Banks in Pakistan : A Comparative Study, 1–19.
Azhar Rosly, S., & Afandi Abu Bakar, M. (2003). Performance of Islamic and mainstream banks in Malaysia. International Journal of Social Economics, 30(12), 1249–1265.
Azhar Rosly, S., & Afandi Abu Bakar, M. (2003). Performance of Islamic and mainstream banks in Malaysia. International Journal of Social Economics, 30(12), 1249-1265.
BarNir, A., Gallaugher, J. M., & Auger, P. (2003). Business process digitization, strategy, and the impact of firm age and size: the case of the magazine publishing industry. Journal of Business Venturing, 18(6), 789–814.
Belkhir, M. (2009). Board of directors’ size and performance in the banking industry. International Journal of Managerial Finance, 5(2), 201–221.
Claessens, S., Demirgüç-Kunt, A., & Huizinga, H. (2001). How does foreign entry affect domestic banking markets?. Journal of Banking & Finance, 25(5), 891-911.
Cornett, Adair & Nofsinger (2015). Corporate Finance, 3rd Edition.
Dionne, G., & Triki, T. (2005). Risk management and corporate governance: The importance of independence and financial knowledge for the board and the audit committee. Cahier de recherche/Working Paper, 5, 15.
Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49-64.
Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of management review, 14(1), 57-74.
Fries, S., & Taci, A. (2005). Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries. Journal of Banking & Finance, 29(1), 55-81.
Gul, S., Irshad, F., & Zaman, K. (2011). Factors Affecting Bank Profitability in Pakistan. Romanian Economic Journal, 14(39).
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329.
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. the Journal of Finance, 48(3), 831-880.
Kosmidou, K., Pasiouras, F., Doumpos, M., & Zopounidis, C. (2004). Foreign versus domestic banks’ performance in the UK: a multicriteria approach. Computational Management Science, 1(3-4), 329-343.
Kosmidou, K., Pasiouras, F., Zopounidis, C., & Doumpos, M. (2006). A multivariate analysis of the financial characteristics of foreign and domestic banks in the UK. Omega, 34(2), 189-195.
Levine, R. (1996). lForeign Banks, Financial Development and Economic Growth, International Fi& financial Markets: Harmonization versus Competition.
Matthews, K., & Ismail, M. (2006). Efficiency and productivity growth of domestic and foreign commercial banks in Malaysia (No. E2006/2). Cardiff economics working papers.
Pathan, S. (2009). Strong boards, CEO power and bank risk-taking. Journal of Banking & Finance, 33(7), 1340–1350.
Pathan, S., Skully, M., & Wickramanayake, J. (2008). Board Size, Independence and Performance: An Analysis of Thai Banks. Asia-Pacific Financial Markets, 14(3), 211–227.
Rowe, W., Shi, W., & Wang, C. (2011). Board governance and performance of Chinese banks. Banks and Bank Systems, 1.
Sekaran, U., & Bougie, R. (2009). Research Methods for Business: A Skill-Building Approach. 5th Edition, John Wiley and Sons Inc., Hoboken.
Staikouras, Ch., & Wood, G. (2003). The determinants of bank profitability in Europe. In: Paper presented at the Proceedings of the European Applied Business Research Conference, Venice, Italy, June 9-13, 2003.
Stiglitz, J. E. (1993). The role of the state in financial markets. The World Bank Economic Review, 7(suppl_1), 19-52.
Sufian, F. (2009). Determinants of bank efficiency during unstable macroeconomic environment: Empirical evidence from Malaysia. Research in International Business and Finance, 23(1), 54-77.
Sufian, F. (2009). Factors influencing bank profitability in a developing economy: Empirical evidence from Malaysia. Global Business Review, 10(2), 225-241.
Sufian, F. (2010). Developments in the performance of the Malaysian banking sector: opportunity cost of regulatory compliance. International Journal of Business Competition and Growth, 1(1), 85-103.
Walter, I., & Gray, H. P. (1983). Protectionism and international banking: Sectorial efficiency, competitive structure and National policy. Journal of Banking & Finance, 7(4), 597-609.