Corporate ownership and company performance: a study of Malaysian listed companies

Abstract

Purpose

This study aims to examine the effects of corporate ownership (government-linked investment companies, GLICs), linearity of GLICs, board ownership and linearity of board ownership on company performance.

Design/methodology/approach

Using panel data from companies that are listed on the Malaysian Stock Exchange during the period of 2000 to 2009, this study uses weighted least square models.

Findings

The results show that GLICs ownership is positively and significantly related to company performance, while board ownership is negatively and significantly related to company performance. These findings suggest that GLICs ownership improves company performance, while board ownership destroys company performance. The results also show that while GLICs ownership has an inverted U-shaped relationship with company performance, board ownership has a U-shaped relationship with company performance.

Research limitations/implications

The theoretical implication of this study is that agency problem decreases in companies with low and high levels of board ownership concentration, while it increases in companies with middle level of board ownership concentration. Furthermore, agency cost decreases in companies with a certain level of GLICs ownership concentration as the government’s New Economic Model (NEM) expects. However, agency cost increases in companies after a certain level of GLICs ownership concentration.

Practical implications

In practical perspectives, this study provides evidence to policy makers that the government’s proposal to reduce GLICs’ investments in Malaysia and diversify them aboard as mentioned in NEM is supported because the decrease in GLICs stakes in certain level may increase company performance. On the other hand, if the policy of the government is to increase GLICs stakes, the company performance may decrease after a certain level of ownership concentration. This study also provides evidence that investors can invest in companies with low and high board ownership concentration. Furthermore, the NEM policy gives investors an opportunity to invest in the companies with GLICs. Reducing GLICs stakes in the Malaysian market and putting them in the international markets, as mentioned in the Malaysian Government’s NEM policy, will create more opportunities for international investors to invest their fund in the Malaysian market. Thus, the emerging markets exist. In addition, the NEM policy also encourages institutional ownerships like domestic and foreign to increase their stakes instead of GLICs in the Malaysian market.

Originality/value

So far, most of the previous studies on GLICs and board ownerships in the Malaysian setting focused on the relationship of the ownership structure with company performance. However, no study has been done to examine the linearity effects of GLICs and board ownerships on company performance. The study is very important to perform to provide the policy makers and investors with clear guidance before their decisions.

Citation

Fauzi, H. and Musallam, S.R.M. (2015), "Corporate ownership and company performance: a study of Malaysian listed companies", Social Responsibility Journal, Vol. 11 No. 3, pp. 439-448. https://doi.org/10.1108/SRJ-05-2014-0064