Ethnic Diversity and Share Repurchases Policy

This study investigates whether board diversity attributes as recommended by the Malaysian Code on Corporate Governance is relevant and effective in curbing misuse of share repurchases policy. Based on 275 firm-year observations among share repurchasing firms between 2006 and 2010, we find that ethnic diversity can help curb the potential misuse of managerial discretion in deciding whether to frequently repurchase their own shares. Our study contributes to the existing literature on board characteristics in several ways. First, it provides evidence that board diversity in terms of ethnicity can significantly affect companies' policy. We find that companies with less diverse board as measured by ethnic group are more likely to frequently embark on share repurchase which have a detrimental effect on current earnings. Second, we find that a large number of directors on the board can significantly reduce the tendency of managerial opportunistic behaviour. Finally, having independent directors alone does not guarantee companies are free from unwarranted opportunistic behaviours. Therefore, the study provides early evidence of the efficacy of recent Malaysian Code on Corporate Governance 2012 which recommended diverse balance of board members to ensure proper monitoring role and curbing the likelihood of unwarranted managerial opportunistic behaviour by unduly controlling owners. (C) 2016 Published by Future Academy www.FutureAcademy.org.uk