Ownership Structure, Financial Rent and Performance: Evidence from the Malaysian Manufacturing Sector

Chu, Ei Yet

doi:10.1016/s1569-3732(07)12008-9

Cited by 6 publications

(6 citation statements)

References 40 publications

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“…The negative influence of firm diversification on asset utilization suggests that severe wastages of assets/resources caused by agency problems occur alongside firm diversification. Our finding is consistent with the findings in Ang et al (2000), Fleming et al (2005) and Chu (2007). Instances of resource expropriation, manager-owners' entrenchment and other activities that enhance only the interests of controlling families cause adverse effects on firm efficiency and performance.…”

Section: Analysis For Specification 2: Diversification and Asset Utilsupporting

confidence: 91%

“…However, over time, as firms are ambitiously involved in diversification, it is possible they will be diversified beyond their core competencies and capabilitiesinto unrelated businesses. The manager-owners could increase diversification to boost the chances of inefficient reallocation of resources, transfer pricing, insider trading or other activities that protect the interests of the controlling families which subsequently leads to lower firm value (Chu, 2007). Lien and Li (2013) find that controlling family ownership in Taiwanese firms is significantly associated with a greater extent of diversification, which impairs firm value.…”

Section: Firm Diversification and Performancementioning

confidence: 99%

“…Diversification into various areas of business is also generally regarded as one of the factors that caused the 1997 Asian Financial Crisis (AFC) to be more detrimental than expected (Fatimah, 2001). Chu (2007), in his study of ownership structure and rent-seeking in the Malaysian manufacturing sector also points out that diversification is among the mechanisms that can be used to expropriate shareholder value, especially when the controlling families' interest is comparatively large and the industries involved have low intensity of competition. Using a sample of 355 listed firms for the year 2000, Zuaini and Napier (2006), in their study of ownership structure and firm diversification, find that the control rights of controlling shareowners are significantly negatively associated with the 'excess value' of the firms, suggesting that expropriation increases with control rights.…”

Section: Introductionmentioning

confidence: 99%

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An Agency Perspective on Firm Diversification, Efficiency and Performance: Evidence From Malaysia

San²,

Teh³

2019

IJFR

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I examine, from the agency perspective, the relationship between three important corporate measures among the Malaysian publicly-listed family-controlled firms: firm diversification, asset utilization efficiency and firm performance. I also explore the role of board independence in moderating the firm diversification-performance relationship. My findings suggest that the greater the extent of firm diversification, the poorer will the asset utilization efficiency be. The poorer efficiency is likely to have caused the equally poorer performance for the firms in my findings. Notably, firm diversification is found to be more detrimental to performance for those firms affiliated to business group compared to firms without group affiliation. The group-affiliated firms which are found to be more diversified than the non-group firms, could have engaged in greater diversification for the self-interest of the controlling family. Specifically, I find that the agency-driven diversification causes the ROA (Tobin’s Q) of the firms to be lowered by 0.354% (0.026) for every additional increase in the number of business segments as the measure of firm diversification. In terms of the moderating effect of board independence, my finding shows that audit committee of board comprises entirely of independent outside directors positively moderate the firm diversification-performance linkage and is capable of reversing the apparently negative linkage between the two.

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Section: Analysis For Specification 2: Diversification and Asset Utilsupporting

confidence: 91%

Section: Firm Diversification and Performancementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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An Agency Perspective on Firm Diversification, Efficiency and Performance: Evidence From Malaysia

San²,

Teh³

2019

IJFR

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“…Furthermore, referring to rent-seeking (Bebchuk & Roe 1999) or rent-protection theory (Bebchuk 1999), the company prefers to choose a funding source form of debt because it maintains a proportion of previous ownership. This theory is particularly relevant in developing country economies (Chu 2015).…”

Section: Literature Review Asymmetric Information and Financing Decis...mentioning

confidence: 99%

“…Funding is an essential factor in company performance and, in aggregate, is crucial in corporate governance (Stiglbauer 2011). The managers' use of debt will reduce the entrenchment effect when their control is relatively low, indicating financial institutions' role in supervising companies (Chu 2015).…”

Section: Literature Review Asymmetric Information and Financing Decis...mentioning

confidence: 99%

Financing Decisions: Is the Quality of Information Still Relevant to be Considered?

2022

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Information asymmetry makes it difficult for company management to make decisions regarding funding sources. This study aims to investigate and explain the behaviour of company management when faced with asymmetric information problems. Data on 459 companies in Indonesia during the 2005-2019 period are surveyed in an attempt to provide the latest evidence regarding this issue. Investigations using the fixed-effect model approach and dynamic two-step system generalised method of moments are carried out using preliminary and robustness tests. The results show that in addition to company-specific factors, the problem of asymmetric information is an important factor considered by management in determining funding sources. The worsening information gap has led companies to increasingly use external funding from borrowing instead of adding additional funding sources from equity issuance (confirming the pecking order theory). Robust results in this study will be of use to regulators and enrich the literature related to corporate funding decisions in developing countries.

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Meta-analyzing ownership concentration and firm performance in Asia: Towards a more fine-grained understanding

2008

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We present a meta-analysis of the relationship between concentrated ownership and firm financial performance in Asia. At the cross-national level of analysis, we find a small but significant positive association between both variables. This finding suggests that in regions with less than perfect legal protection of minority shareholders, ownership concentration is an efficient corporate governance strategy. Yet, a focus on this aggregate effect alone conceals the existence of true heterogeneity in the effect size distribution. We purposefully model this heterogeneity by exploring moderating effects at the levels of owner identity and national institutions. Regarding owner identity, we find that our focal relationship is stronger for foreign than for domestic owners, and that pure "market" investors outperform "stable" or "inside" owners whom are multiply tied to the firm. Regarding institutions, we find that a certain threshold level of institutional development is necessary to make concentrated ownership an effective corporate governance strategy. Yet we also find that strong legal protection of shareholders makes ownership concentration inconsequential and therefore redundant. Finally, in jurisdictions where owners can easily extract private benefits from the corporations they control, the focal relationship becomes weaker, presumably due to minority shareholder expropriation.Asia Pac J Manag (2009) 26:481-512 DOI 10.1007 Authors are listed alphabetically. A shorter version of this paper is included in the 2008 Academy of Management Best Paper Proceedings. We are indebted to APJM guest editors Eric Gedajlovic and Mick Carney for their editorial guidance, and to two anonymous reviewers for their insightful feedback. A special word of thanks goes out to Tammo Bijmolt and David Wilson, who graciously supplied us with methodological advice. We are nevertheless responsible for any remaining errors.

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Ownership Structure, Financial Rent and Performance: Evidence from the Malaysian Manufacturing Sector

Cited by 6 publications

References 40 publications

An Agency Perspective on Firm Diversification, Efficiency and Performance: Evidence From Malaysia

An Agency Perspective on Firm Diversification, Efficiency and Performance: Evidence From Malaysia

Financing Decisions: Is the Quality of Information Still Relevant to be Considered?

Meta-analyzing ownership concentration and firm performance in Asia: Towards a more fine-grained understanding

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