Ownership structure, corporate governance and firm performance in Malaysia

Highly corporate concentrated ownership was among the significant factor that brought Malaysia into the 1997/98 financial crisis. Concentrated ownership, as agency theory states, has contributed to lower the effectiveness of corporate governance by considering the interests of majority shareholders at the expense of minorities, having the motivation and power to punish management and either appointing independent directors or sitting personally on the board to protect their interests. To overcome the problem, the MCCG, which largely followed recommendations of the United Kingdom (UK) code, was issued in 2001. However, it was argued that the same requirements of corporate governance practices in the UK code many not work effectively in a country which has a different legal system, business culture and corporate structure. Despite many studies have been conducted to examine the influence among the ownership structure corporate governance and firm performance, the results of the previous studies are still indeterminate. Unlike many previous studies, this study aimed to examine corporate governance in Malaysia by investigating ownership structure independently of corporate governance. Ownership structure was measured by government ownership, local nominees, and foreign nominees, while corporate governance was measured by CEO's duality, number of independent directors, board size, frequency of board meetings, number of women directors and audit committee. Firm performance was measured by return on assets and earnings per share. Data on ownership structure and corporate governance were collected from companies' annual reports, while data regarding firm performance were gathered from Bloomberg database sources and Annual Reports. Data were collected from secondary sources for the period 2003 to 2013 involving 341 Malaysian Public Listed Companies selected using a purposive sampling method involving the companies that have been existed throughout the period of 2003 to 2013. The data were analyzed using descriptive statistics, correlation and panel data regression model. Results of testing the influences among ownership structure, corporate governance and firm performance are found to be mixed. For example, local nominee, CEO duality and board meeting showed weak and negative influences on return on asset while foreign nominee and independent directors had weak and positive influences on earnings per share. The same mixed results were also found between concentrated ownership and corporate governance. This study has added to the body of knowledge from a different perspective of considering ownership structure as an independent variable separated from corporate governance. Finally, the findings of this study expect to assist the relevant authorities to evaluate the present listing requirements, corporate governance practices and the current ownership structure trends in enhancing future corporate performance