Taylor’s Case Study: The Impact of Corporate Governance on FinTech and Digital Economy

Associate Professor Dr. Nor Shaipah Binti Abdul Wahab discusses the importance of corporate governance in the rise of FinTech and digital economy.

Technology has helped us in many areas of our everyday lives. One area that may have been even more seamlessly incorporated is finance. While FinTech (or finance and technology) may have exploded during the mid-2010s, it has already been here since the early 2000s as the Internet and e-commerce business models started to emerge

It’s evident that as technology advances, many firms and companies in Malaysia must also start adopting FinTech and the digital economy or risk being left behind. Associate Professor Dr. Nor Shaipah Binti Abdul Wahab, Head of the School of Taylor’s School of Accounting and Finance, shares the importance of FinTech, the digital economy, and ensuring good governance through institutional stakeholders

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The Importance of FinTech and Digital Economy

Q: Why are FinTech and the digital economy important for companies and the country and what is their impact on them?

A: Essentially, FinTech and the digital economy are put in place to ease our processes — whether it be the companies or the consumers. It helps us with effective transactions and record-keeping. And if we aren’t roped into this advancement, we’ll be left behind.

Governments worldwide are paying so much attention to the advancement of the digital economy.

Its rise worldwide changes the business landscapes where businesses that aren’t able to cope will be left behind because they’ll no longer be relevant to the industry. 

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According to a report by the United Nations in 2019, the consequences at a macro level, or the country level, will affect the country’s economic level following the change in these business preferences. If companies aren’t well-equipped, not only will they be left behind, but at the country’s level, it’d mean losing foreign investments. That’s why Malaysia’s paying so much attention to this.

Q: What are some of the ways to facilitate the move into a digital economy?

A: Even though we want to move completely into digitalisation, it’s difficult in Malaysia at the moment because there’s a large portion of the underserved community that doesn’t have the utilities to facilitate digitalisation. That said, we can’t put the other counterparts who have them at a disadvantage by not advancing as it’ll eventually result in us being left behind.

When countries are aggressive in transforming into a more digitalised economy, they’d use whatever they can to incentivise companies. Our government does provide transformational hubs for SMEs to access training and awareness programmes. However, there needs to be a form of moderation to provide advice and help to assess the extent of how the digital economy is relevant to the company. 

As Malaysia prioritises digital transformation as the national agenda, any efforts to support it, including tax incentives, should be aligned with the economic development of the country. For this, corporate governance is crucial in playing a role to support digital transformation and, at the same time, keeping the firm’s risks under control.

Institutional Shareholders Maintain Corporate Governance in the Digital Economy

Q: How do corporate governance and institutional shareholders impact the progress of the digital economy and FinTech in the country?

A: The government has put in a large amount of budget to support these activities by providing tax incentives for firms to be more aggressive in their FinTech and digital economy involvement. This initiative motivates firms to be involved to secure their tax incentives. 

However, this can result in lower tax revenue for the government when taxation is the backbone of a country’s revenue, and, to some extent, expose the firms to reputational risks and the risk of being investigated for avoiding or evading tax. There are concerns by activists, media, and other NGOs on how an unfair share of tax can jeopardise the economic growth of a country.

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In this instance, governance becomes an important element where institutional shareholders can act as a mechanism to reduce the risks from a governance perspective because institutional shareholders are active in ensuring effective governance is in place. However, the evidence to support this notion is scarce. 

My current research investigates the extent institutional shareholders or shareholder activism can affect the relationship between the firm's involvement in the digital economy and book-tax differences which can enlarge the country’s tax gap.

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Q: How do corporate governance and institutional shareholders impact the progress of the digital economy and FinTech in the country?

A: Past research confirms that the higher the number of companies involved in pursuing a digital economy, the higher the tax gap and risk of the loss of the company’s reputation will grow. 

Institutional shareholders are useful because they’re aggressive in monitoring the governance of the companies. When we have institutional shareholders to moderate that relationship, we found that it goes negative and the reputational loss becomes lesser. 

In my previous research and also research done in other countries, we find that the presence of institutional shareholders governing companies links to negative risks which will result in the building of confidence in shareholders to invest more.

Q: How will this research contribute to society?

A: I was inspired by the government’s initiative to boost the digital transformation of firms in Malaysia which included more provisions being allocated to digital transformation during the National Budget presentation.

In line with the UN Sustainable Development Goal 8 related to decent work and economic growth, this research will help the public by highlighting that the incentives provided by the government for firms to be involved in digital transformation can be fully utilised while good governance is in place. 

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Hopefully, it’ll shed light to shareholders or investors on the importance of good governance when they’re assessing the firms’ FinTech or digital economy involvements, in particular when their tax planning measure indicates a higher magnitude of post-digital transformation compared to the period prior to that. I hope that this will be delivered on several avenues including conferences, symposiums, policy, and academic publications.

What’s Next for the Future of FinTech?

Q: With FinTech and the digital economy being here now, what’s the next big thing we should look out for?

A: While FinTech and the digital economy are present, it’s not as fully implemented. But there’s also another arm of technology — blockchain.

While we do have blockchain technologies now, it’s heavily focused on cryptocurrencies. I’d expect, in the next 10 years, we’ll be able to fully embrace FinTech solutions and blockchain technologies. Right now, companies are in transition. 

That said, we need to start bringing awareness and learning this. Why? In the future, I imagine it being used to keep track of and thread finances. In accounting, auditing is about evidence and the evidence is critical. By having blockchain technology, it helps the auditor to perform the audit trail easily. I’m expecting blockchain technology to be more available in the future when the technology is ready to be used in auditing and documenting instead of just trading.

Q: What’s one piece of advice you’d give those interested in the finance and accounting industry?

A: You cannot not like FinTech if you’re in the finance industry.

If you’re not embracing technology when the time comes or if you leave it aside, you’d be left behind and even more so for companies that want to grow. 

We need to be aware that the support given is crucial. You don’t want to realise after going through the transformation to regret not seeking support and advice already freely given.

Be more aware of what’s available, evaluate how it’d be relevant to your company, and then seek support and knowledge on funding and incentives you can apply for. 

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For students, it’s to look at what’s next. Look beyond your traditional degree by looking at how you can incorporate FinTech as a minor or an elective in your programme through Taylor’s Curriculum Framework.

Whether you’re looking for a suitable undergraduate or postgraduate programme, we’re here to help you find the perfect pathway unique to your needs!