JAMAR Vol. 7 · Number 1 · 2009 1 Corporate Governance and Voluntary Disclosure in Corporate Annual Reports of Malaysian Listed Firms Mohamed Akhtaruddin* Monirul Alam Hossain** Mahmud Hossain*** Lee Yao**** Abstract This study investigates empirically the extent of corporate governance and voluntary disclosure by listed firms in Malaysia. The governance factors examined are Board size, proportion of independent non-executive directors (INDs) on board, outside share ownership, family control, and percentage of audit committee members to total members on the board. Our results suggest a positive association between Board size and voluntary disclosures and between proportion of INDs and voluntary information. However, the extent of voluntary disclosure is negatively related to family control, and the ratio of audit committee members to total members on the board is not related to voluntary disclosures. The findings of our study have policy implications for Malaysia as well as for other East Asian countries because of the similarities in the socio-cultural environment and ownership structure of firms in these countries. Keywords Corporate Governance Voluntary Disclosure Corporate Annual Report Listed Firms Bursa Malaysia * University of Rajshahi, Bangladesh ** Hail Community College, Saudi Arabia *** Nanyang Technological University, Singapore **** Loyola University, New Orleans, USA Introduction This paper presents empirical evidence on the association between corporate disclosure and governance structure. Prior research has analysed corporate disclosure from an agency perspective and hypothesises that corporate disclosure is related to information asymmetry between management and investors (Diamond and Verrecchia,1991; Lang and Lundholm, 1993 and 1996). Moreover, prior research mostly investigates the link between disclosure and firm-specific characteristics. Examples include Firth (1979), Cooke (1989, 1992 and 1993), Wallace (1988), Lang and Lundholm (1993), Wallace, Naser, and Mora (1994), Ahmed and Nicholls (1994), Hossain, Tan, and Adams (1994), and Wallace and Naser (1995). However, there has been little research linking corporate disclosure to governance structures. Issues of corporate governance, transparency and disclosure have been the focus of researchers in the region only in recent years, particularly after the East Asian financial crisis in 1997. It has been argued that the East Asian crisis is not only the result of the loss of investor confidence, but more importantly, is due to the weak corporate governance in many firms in this region (Tan, 2000; Mishra, Randoy and Jensen, 2001; Mitton, 2002). The lower transparency in emerging markets results in higher levels of asymmetric information and decreases in firm value (Jensen and Meckling, 1976). Firm value, on the other hand, is largely influenced by disclosure policy and governance environments. Lobo and Zhou (2001) indicate that firms wishing to enhance their value may do so by the comprehensive disclosure of information. Investors are usually ready to pay higher premiums for higher disclosure (Mitton 2002). More specifically, disclosure helps investors come closer to the company’s affairs and hence, reduces the gap between management and investors. The agency theory implies that We thank Mike Adams, and workshop participants at the University of Science, Malaysia for their useful comments