Home • PRRES Inc. Journal • Read the Journal

Effect of Block Ownership on Performance of Malaysian Property Companies

Author/s: Roselina Shakir

Date Published: 1/01/2008

Published in: Volume 14 - 2008 Issue 4 (pages 361 - 382)

Abstract

Concentration of ownership is said to be more evident in Asian firms due to the prevalence of family-controlled and state-controlled firms. This study empirically examines the relationship between firm performance and the presence of block holders. It analyses panel data drawn from 81 Malaysian property firms studied during the period of 1999-2005. Results from ordinary least squares and two stage least squares regression within a simultaneous equation system suggests firms with high block ownership has a negative impact on firm performance. The results indicate that firm performance represented by Tobin’s Q does not reward firms with block owners as the market fears large shareholders would impose their wills in order to improve their own positions at the expense of other shareholders, thus favouring a dispersed ownership structure. However, contrasting findings were reported when an accounting measure is used as firm performance. The findings also show that causality runs in both directions indicating that block ownership is a determinant of performance and vice versa.

Download Full Article

Download the Full Article PDF

14445921.2008.11104263.pdf 14445921.2008.11104263.pdf (265kB)

Keywords

Block Ownership - Corporate Governance - Performance

References

  • Agrawal, A. & Knoeber, C. R. 1996, ‘Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders’, Journal of Financial and Quantitative Analysis, vol. 31, no. 3, pp. 377-397.
  • Asian Development Bank. 1999 a,b,c,d,e, Country Studies under RETA 5802.
  • Baek, J.-S., Kang, J.-K. & Park, K. S. 2004, ‘Corporate Governance and Firm Value: Evidence from the Korean Financial Crisis’, Journal of Financial Economics, vol. 71, no. 2, pp. 265-313.
  • Berle, A. & Means, G. 1932, The Modern Corporation and Private Property Macmillan, New York.
  • Campbell, R., C. Ghosh, and C. F. Simians.(2001). ‘The Information Content of Method of Payment in Mergers: Evidence from Real Estate Investment Trusts(REITs)’, Real Estate Economics (29) pp. 361-387.
  • Cannon, S. E. & Vogt, S. C. 1995, ‘REITs and Their Management: An Analysis of Organizational Structure, Performance and Management Compensation’. The Journal of Real Estate Research, vol.10, pp. 297-317.
  • Capozza, D. R. & Seguin, P. J. 2003, ‘Inside Ownership, Risk Sharing and Tobin’s Q-Ratios: Evidence from REITs’, Real Estate Economics, vol. 31, no. 3, pp. 367.
  • Cho, M. H. 1998, ‘Ownership Structure, Investment and the Corporate Value: An Emperical Analysis.’ Journal of Financial Economics, vol. 47, pp. 103-121.
  • Claessens, S. Djankov, S. & Lang, L. H. P. 1999(a), ‘Who Controls East Asian Corporations-and the Implications for Legal Reform’ World Bank Discussion Paper, Note No. 195.
  • Claessens, S. Djankov, S. & Lang, L. H. P. 1999(b), ‘East Asian Corporations: Heroes or Villains?’ World Bank Discussion Paper, 409.
  • Claessens, S. & Djankov, S. & Lang, L. H. P. 1999(c), ‘Who Controls East Asian Corporations?’ World Bank Policy Paper No. 2054.
  • Claessens, S., Djankov, S. & Lang, L. H. P. 2000, ‘The Separation of Ownership and Control in East Asian Corporations’, Journal of Financial Economics, vol. 58, no. 1-2, pp. 81-112.
  • Claessens, S., Djankov, S., Fan, J. P. H. & Lang, L. H. P. 2002, ‘Disentagling the Incentive and Entrenchment Effects of Large Shareholdings’, The Journal of Finance, vol. LVII, no. 6.
  • Demsetz, H. 1983, ‘The Structure of Ownership and the Theory of the Firm’, Journal of Law and Economics vol. 26, no. 2, pp. 375-390.
  • Demsetz, H. & Lehn, K. 1985, ‘The Structure of Corporate Ownership: Causes and Consequences’, Journal of Political Economy, vol. 93, no. 6, pp. 1155-1177.
  • Demsetz, H. & Villalonga, B. 2001, ‘Ownership Structure and Corporate Governance’, Journal of Corporate Finance, vol. 7, pp. 209-233.
  • Denis, D. K. & McConnell, J. J. 2003, ‘International Corporate Governance ‘, Journal of Financial and Quantitative Analysis, vol. 38, no. 1, pp. 1-36.
  • Eichholtz, P. M. A., Kok, N & Otten, R. 2008, ‘Executive Compensation in UK Property Companies’, Journal of Real Estate Finance and Economics, vol. 36, pp. 405-426.
  • Franks, J. & Mayer, C. 1997, ‘Corporate Ownership and Control in the U.K., Germany, and France’, Journal of Applied Corporate Finance, vol. 9, no. 4 pp. 30-45.
  • Friday, H. S., Sirmans, G. S. & Conover, C. M. 1999, ‘Ownership Structure and the Value of the Firm: The Case of RETS’, Journal of Real Estate Research, vol. 17, no. 1/2, pp. 7190.
  • Ghosh, G. & Sirmans, C. F. 2003, ‘Board Independence, Ownership Structure and Performance: Evidence from Real Estate Investment Trusts’, Journal of Real Estate Finance and Economics, vol. 26, no. 2/3, pp. 287-318.
  • Ghosh, C. & Sirmans, C. F. 2005, ‘On REIT CEO Compensation: Does Board Structure Matter?’ Journal of Real Estate Finance and Economics, vol. 30, no.4, pp.397-428.
  • Griffith, J. M., Fogelberg, L. & Weeks, H. S. 2002, ‘CEO Ownership, Corporate Control, and Bank Performance’, Journal of Economics and Finance, vol. 26, no. 2, pp. 170-183.
  • Haniffa, R. M. & Cooke, T. E. 2002, Culture, Corporate Governance and Disclosure in Malaysian Corporations Available: [http://www.blackwell-synergy.com.dbgw. lis.curtin.edu.au/toc/abac/38/3](26 May 2006).
  • Haniffa, R. & Hudaib, M. 2006, ‘Corporate Governance Structure and Performance of Malaysian Listed Companies’, Journal of Business Finance & Accounting, vol. 33, no. 78, pp. 1034-1062.
  • Hartzell, J. C., Sun, L. & Titman, S. 2005, ‘The Effect of Corporate Governance on investment: Evidence from Real Estate Investment Trusts’, The University of Texas at Austin, Working Paper.
  • Hermalin, B. E. & Weisbach, M. S. 1991, ‘The Effects of Board Composition and Direct Incentives on Firm Performance’, Financial Management, vol. 20, pp. 101-112.
  • Himmelberg, C. P., Hubbard, R. G. & Palia, D. 1999, ‘Understanding the Determinants of Managerial Ownership and the Link Between Ownership and Performance’, Journal of Financial Economics, vol. 53, pp. 353-384.
  • Holderness, C. G., Kroszner, R. S. & Sheehan, D. P. 1999, ‘Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression’, The Journal of Finance, vol. 54, no. 2, p. 435.
  • Jensen, M. & Meckling, W. 1976, ‘Theory of firm: Managerial Behavior, Agency Costs and Ownership Structure.’ Journal of Financial Economics, vol. 3, pp. 305-360.
  • Kaplan, S. N. 1997, ‘Corporate Governance and Corporate Performance: A comparison of Germany, Japan, and the U.S.’ Bank of America Journal of Applied Corporate Finance, vol. 9, no. 4, pp. 86-93.
  • Kole, S. 1996, ‘Managerial Ownership and Firm Performance: Incentives or rewards’, Working Paper. 93-10, Univ. Rochester, Rochester, NY.
  • La Porta, R., Lopez-de-Silanes, F. Shleifer, A. & Vishny, R. W. 1998, ‘Law and Finance’, Journal of Political Economy, vol. 106, no. 6, pp. 1113-1155.
  • La Porta, R., Lopez-De-Silanes, F. and Shleifer, A.1999, ‘Corporate Ownership Around the World’, The Journal of Finance, 54, 471-517.
  • La Porta, R., Lopez-De-Silanes, F., Shleifer, A. and Vishny, R. 2000, ‘Investor Protection and Corporate Governance’, Journal of Financial Economics, 58, 3-27.
  • Lemmon, M. L. & Lins, K. V. 2003, ‘Ownership Structure, Corporate Governance, and Firm Value: Evidence from the East Asian Financial Crisis ‘, The Journal of Finance, vol. 58, no. 4, pp. 1445-68.
  • Lim, L. 1999, ‘Malaysia’s Response to the Asian Financial Crisis’, in statement before the Subcommittee on Asia and the Pacific Committee on International Relations, United States House of Representatives.
  • Linderberg, E. B. & Ross, S. A. 1981, ‘Tobin’s Q Ratio and Industrial Organization’, Journal of Business, vol. 54, pp. 1-32.
  • Lins, K. V. 2003, ‘Equity Ownership and Firm Value in Emerging Markets’, Journal of Financial and Quantitative Analysis, vol. 38, no. 1, pp. 159-184.
  • Mak, Y. T. & Kusnadi, Y. 2005, ‘Size Really Matters: Further Evidence on the Negative Relationship between Board Size and Firm Value’, Pacific Basin Finance Journal, vol. 13, no. 3, pp. 301-318.
  • Mak, Y. T. & Li, Y. 2001, ‘Determinants of Corporate Ownership and Board Structure: Evidence from Singapore’, Journal of Corporate Finance, vol. 7, pp. 236-256.
  • McConnel, J. J. & Servaes, H. 1990, ‘Additional Evidence on Equity Ownership and Corporate Value.’ Journal of Financial Economics, vol. 27, pp. 595-612.
  • McConnell, J. J. & Servaes, H. 1995, ‘Equity Ownership and the Two Faces of Debt’, Journal of Financial Economics vol. 39, pp. 131-157.
  • Morck, R., Shleifer, A. & Vishny, R. 1988, ‘Management Ownership and Market Valuation: An Emperical Analysis.’ Journal of Financial Economics, vol. 20, pp. 293-316.
  • On, K.T. & Tan, M. G. 2007, ‘Ownership, Governance and Firm Performance in Malaysia.’ Corporate Governance: An International Review, vol. 15, no. 2, pp. 208-222.
  • Ooi, J.T.L. 2000, ‘Managerial Opportunism and the Capital Structure Decisions of Property Companies’. Journal of Property Investment and Finance, vol. 18, no.3, pp. 316-331.
  • Perfect, S. B. & Wiles, K. W. 1994, ‘Alternative Construction of Tobin’s Q: An Empirical Comparison’, Journal of Empirical Finance, vol. 1, pp. 313-341.
  • Shakir, R. 2007, Malaysian Property Firms: Behaviour and Performance. Unpublished Doctoral Thesis. Curtin Business School.
  • Seifert, B., Gonenc, H. & Wright, J. 2005, ‘The International Evidence on Performance and Equity Ownership by Insiders, Blockholders, and Institutions’, Journal of Multinational Financial Management, vol. 15, no. 2, pp. 171-191.
  • Shleifer, A. & Vishny, R. W. 1997, ‘A Survey of Corporate Governance’, The Journal of Finance, vol. 52, no. 2, pp. 737-783.
  • Tan, M. 2005, ‘Ownership Concentration, Board Concentration and Performance in Malaysia.’ In The 16th Asian Finance Association Conference, Asian Finance Association, Malaysia.
  • Thomsen, S. & Pedersen, T. 1996, ‘Nationality and Ownership Structures: The 100 Largest Companies in Six European Nations’, Management International Review, vol. 36, no. 2, pp. 149-166.
  • Thomsen, S. & Pedersen, T. 1999, ‘Economic and Systemic Explanations of Ownership Concentration among Europe’s Largest Companies’, Economic and systemic Explanations of Ownership Concentration among Europe’s Largest Companies, Vol. 6, Iss. 3, pp. 367-372.
  • Zhuang, J., Edwards, D. & Capulong, V. A. 2001, Corporate Governance and Finance in East Asia A Study of Indonesia, Republic of Korea, Malaysia, Philippines, and Thailand: Volume Two(Country Studies), Asian Development Bank, Manila.