HONG KONG -- Japan is falling behind its regional peers in corporate governance while Malaysia is making marked improvements, according to a new report by the Asian Corporate Governance Association.

In the survey, conducted every two years, the association this time ranked Japan 7th, its lowest showing by far over the past decade and down from 4th in the 2016 edition. The country was weighed down by poor scores for the independence and diversity of its corporate boards of directors, due in part to the application of a stricter interpretation of survey criteria.

Australia repeated its 2016 showing as the best market in the region for corporate governance. Singapore and Hong Kong traded places in the next two slots, with Hong Kong edging the city-state by a point.

Japan's tumble comes as Carlos Ghosn, until last month the chairman of Nissan Motor, is in police custody over allegations he understated his compensation in company securities filings. He has denied the allegations, but they have reopened questions about the robustness of Japanese board oversight.

"The Nissan case is quite striking actually given the fact that the board of Nissan could turn on Carlos Ghosn and kick him out but not take collective responsibility" for the alleged violations, said Jamie Allen, secretary-general of the Governance Association.

If the board "did not know about this remuneration, then shame on them," he added. "It speaks very poorly about their internal controls."

Independent directors have a smaller presence on Japanese boards than in any of the other 10 regional markets surveyed, according to an accompanying report by investment bank CLSA, with a typical share of about 30% of board seats compared with around 50% in Hong Kong and more than 60% in Singapore. Japanese directors tend to serve longer as well, with an average tenure of more than 15 years.

Moreover, women held only 3.5% of Japanese board seats, the lowest regional share after South Korea. This compared with around 15% in Hong Kong and Singapore, CLSA found. Said Allen, "Many companies still don't have a policy on board diversity."

Malaysia's climb up the Governance Association's rankings meanwhile mirrored Japan's fall, with the Southeast Asian nation rising to 4th in the rankings from 7th last time in the wake of this year's dramatic change of government after 61 years of rule by the United Malays National Organisation-led National Front.

"Essentially, it is optimism about the new regime and there also some concrete changes happening," said Charles Yonts, CLSA's head of environmental, social and governance research.

Investors are encouraged by "concrete moves to tackle endemic corruption issues fostered by the previous Najib regime," the Governance Association said. It scored Malaysia, alongside Australia, ahead of all other markets for its auditing and audit regulators.

In applauding its anti-corruption stance, the group cited moves by Prime Minister Mahathir Mohamad's government to arrest predecessor Najib Razak and his wife as part of its probe into the alleged misuse of state funds. Regulators have also continued corporate governance reforms, including the implementation of a new companies act, which has made it easier to incorporate companies and given a bigger voice to minority shareholders.

The report also favorably noted recent revisions to the country's corporate governance code, which it said underscored the importance of accountability and transparency. But the report noted that public governance in Malaysia remains a concern despite the strengthening of civil society in the aftermath of the Mahathir's election.

By CLSA's separate scoring, Japan slipped to 3rd from 2nd in 2016 while Malaysia rose to 6th from 8th.

Nikkei Asian Review editor Zach Coleman contributed to this report.