Board Quality of SMESs in Malaysia: The Governing Role of Family Ownership

A lack of good governance characteristics among SME boards of directors is expected to lead to lower performance. Ownership structure is expected to monitor the management function of board of directors. Prior studies mostly attended on either listed companies or SMEs in developed countries, hence, resulted in the lack of evidence on governance practices among SMEs in developing countries. This study examines board characteristics among SMEs in Malaysia namely size, independence, expertise, ethnicity, and CEO duality and how they differ between family owned and non-family owned SMEs. A survey on SMEs in Klang Valley and Selangor finds that overall, the quality of board of directors of SMEs is low. The existence of more than 55% of family owned SMEs does not really provide a monitoring on the management. Differences in poor board characteristics between family owned and non-family owned SMEs are not significant. Further research is necessary to address the importance of ownership monitoring on SMEs management in order to further enhance the performance.