Do foreign ownership and foreign directorship matter for return on equity? Evidence from Malaysian listed companies

Abstract

The Malaysian Government has liberalised its restrictions on foreign equity ownership in local companies to enhance the country's competitiveness against regional neighbours in attracting more FDI inflows. With an overall panel of 4,176 firm-year observations drawn from a sample of 348 Malaysia-listed companies over the period 1999-2010, fixed-effect panel data regression found that percentage of foreign equity ownership, appointment of foreign chairman and appointment of foreign chief executive director did not have any significant relationship with firm's return on equity (ROE). However, increase in percentage of foreign directors sitting on a company's board significantly improved ROE. Besides, only when foreign investors have dominant (above 50%) voting rights, ROE increased. After categorised firm-year observations into five SIC-defined sectors, manufacturing sector sub-panel yielded similar results as overall panel. In contrast to overall panel, construction and wholesale trade sectors sub-panels showed the appointments of foreign chairman and foreign chief executive director negatively influenced ROE.

Foreign institutional ownership and bank performance: Evidence from Tunisia

“…The negative relationship between foreign institutional ownership and bank performance is mainly confirmed in developing countries from the Asian continent as shown in the studies of Jiang et al (2013) and Mamatzakis et al (2017) in China and Tee et al (2017) for Malaysian companies.…”

“…how they compile, select and exploit information, is weakened. Furthermore, opaque markets, such as developing markets, and opaque sectors, such as the banking sector, can be subject to more information asymmetry (Ferreira et al, 2017;Tee et al, 2017). In emerging markets, Liang et al (2012) report that firms have little incentive to voluntarily disclose information.…”

“…Indeed, Ferreira et al (2017) suggest a "smart-money effect" identified for local institutional investors in countries with important information asymmetry, non-English speaking and high levels of corruption. Tee et al (2017) indicate the increase in agency costs owing to the great geographic distance between the host and home countries and cultural differences. Consequently, the performance of the foreign-owned firms may be negatively influenced.…”

Effects of Chinese Equity Ownership and Board Involvement on Firm Profitability: Evidence from Listed Companies in the Malaysian Construction Sector

“…Studies on how Chinese equity ownership influence firms' performance are still lacking in Malaysia, unlike research on the other types of ownership structure, such as state ownership (Mansor & Lee, 2016) and foreign ownership (Tee, Lim, & Aik, 2017). Moreover, most of the previous firm-level ownership studies only investigated how ownership affects firm performance but neglected the possibility that board involvement could also exert some influences, in particular when separation of ownership and control usually take place in many real-world corporations.…”