Determinants of Perceived Corporate Governance (CG) Compliance among SMEs in Klang Valley: the Mediating Role of Internal and External Factors

Magalingam, Naviena Selvakany (2026) Determinants of Perceived Corporate Governance (CG) Compliance among SMEs in Klang Valley: the Mediating Role of Internal and External Factors. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

Corporate governance (CG) compliance has become increasingly important for small and medium-sized enterprises (SMEs), particularly in emerging economies where regulatory expectations and stakeholder pressures continue to intensify. Despite its importance, CG compliance among SMEs remains uneven and insufficiently explored, especially with regard to the interplay of internal and external organisational factors. Accordingly, this study examines the determinants of perceived corporate governance compliance among SMEs in the Klang Valley, with particular emphasis on the mediating roles of internal and external factors. The analysis is theoretically grounded in Agency Theory, Resource Dependence Theory (RDT), Stewardship Theory, and Stakeholder Theory, which collectively provide a comprehensive framework for understanding governance behaviour within SMEs This research examines the impact of coercive financial pressure, ethical organisational culture, perceived CG effectiveness and regulatory pressure towards perceived CG compliance among SME. A total of 260 SME employees’ data from Klang Valley were collected for the purpose of answering the research objectives. The collected data was further analysed using statistical tools of Statistical Package for the Social Sciences (SPSS) and Partial Least Squares Path Modeling Method with Smart-PLS. The results reveal that all proposed determinants have a significant influence on perceived corporate governance compliance among SMEs. Notably, regulatory pressure and perceived corporate governance effectiveness are the strongest contributors, while coercive financial pressure and ethical organisational culture also play significant but smaller roles. Furthermore, perceived corporate governance effectiveness and regulatory pressure partially mediate the relationships between coercive financial pressure and perceived corporate governance compliance, and between ethical organisational culture and perceived corporate governance compliance, respectively. This study contributes to the literature by providing empirical evidence on the complementary roles of internal and external factors in enhancing perceived corporate governance compliance among SMEs in Malaysia. From a practical perspective, this study provides further insights by highlighting the importance of strengthening regulatory monitoring, promoting continuous training and awareness of corporate governance practices among employees, fostering an ethical organisational culture, implementing effective internal controls and evaluation mechanisms, enhancing perceptions of governance effectiveness, and establishing clear policies and procedures to guide compliance. Together, these measures can help SMEs in the Klang Valley improve transparency, accountability, and adherence to corporate governance standards, while creating an environment that encourages responsible decision-making and reduces governance risks