Corporate boards, ultimate ownership structure and corporate diversification : a study of public listed companies in Malaysia
Corporate boards, ultimate ownership structure and corporate diversification : a study of public listed companies in Malaysia
In countries where the ownership of corporations is dispersed, the concern of corporate governance is to align the interests of shareholders and managers, due to the separation of ownership and control. In contrast, corporate ownership in developing countries such as Malaysia if often concentrated in the hands of a small number of owners, such as families or state bodies. In this situation, the agency problem that needs to be addressed through corporate governance mechanisms is the danger that minority shareholders will be expropriated by controlling owners due to the high degree of control exercised by the latter through ownership structures and alliance with management.
This study provides evidence on internal governance structures and corporate diversification by analysing 355 Public Listed Companies in Malaysia. Data were collected for the year 2001, a year in which corporate governance codes started to be regulated through listing requirements. The results relating to board composition, board structure and decision processes show that Malaysian companies have adopted sound corporated governance practices. With regard to ownership, the majority of the companies in the sample have an ultimate controlling owner, particularly an individual or family. As the controlling owners of companies have, on average, rights of control over a greater percentage of shares in any given company than their rights to participate in the cash flows form that company (because of the use of pyramid and cross-holding structures), controlling owners may have an incentive to expropriate, minority interests through methods such as inefficient corporate diversification. More than half of the companies analysed are diversified. The risk of such expropriation would be expected to be reflected in the value of highly diversified companies. However, the results of the research provide no evidence that diversified companies in Malaysia are valued differently from focused companies. This finding is inconsistent with the argument that diversification reduces the value of companies. Moreover, the excess values have a significant positive relationship with diversification levels, irrespective of the measurements used for diversification levels (number of segments reported, number of related two-digit SIC segments or Herfindahl indices for asset and turnover), indicating that diversification gives more value to the corporations. However, there is evidence that diversification may lead to expropriation of minority shareholders in the context of particular ownership structures. Corporate diversification in a developing country like Malaysia, therefore, is perceived as a mixed blessing.
University of Southampton
2004
Ishak, Zuaini
(2004)
Corporate boards, ultimate ownership structure and corporate diversification : a study of public listed companies in Malaysia.
University of Southampton, Doctoral Thesis.
Record type:
Thesis
(Doctoral)
Abstract
In countries where the ownership of corporations is dispersed, the concern of corporate governance is to align the interests of shareholders and managers, due to the separation of ownership and control. In contrast, corporate ownership in developing countries such as Malaysia if often concentrated in the hands of a small number of owners, such as families or state bodies. In this situation, the agency problem that needs to be addressed through corporate governance mechanisms is the danger that minority shareholders will be expropriated by controlling owners due to the high degree of control exercised by the latter through ownership structures and alliance with management.
This study provides evidence on internal governance structures and corporate diversification by analysing 355 Public Listed Companies in Malaysia. Data were collected for the year 2001, a year in which corporate governance codes started to be regulated through listing requirements. The results relating to board composition, board structure and decision processes show that Malaysian companies have adopted sound corporated governance practices. With regard to ownership, the majority of the companies in the sample have an ultimate controlling owner, particularly an individual or family. As the controlling owners of companies have, on average, rights of control over a greater percentage of shares in any given company than their rights to participate in the cash flows form that company (because of the use of pyramid and cross-holding structures), controlling owners may have an incentive to expropriate, minority interests through methods such as inefficient corporate diversification. More than half of the companies analysed are diversified. The risk of such expropriation would be expected to be reflected in the value of highly diversified companies. However, the results of the research provide no evidence that diversified companies in Malaysia are valued differently from focused companies. This finding is inconsistent with the argument that diversification reduces the value of companies. Moreover, the excess values have a significant positive relationship with diversification levels, irrespective of the measurements used for diversification levels (number of segments reported, number of related two-digit SIC segments or Herfindahl indices for asset and turnover), indicating that diversification gives more value to the corporations. However, there is evidence that diversification may lead to expropriation of minority shareholders in the context of particular ownership structures. Corporate diversification in a developing country like Malaysia, therefore, is perceived as a mixed blessing.
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Published date: 2004
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Local EPrints ID: 465446
URI: http://eprints.soton.ac.uk/id/eprint/465446
PURE UUID: 036df318-405c-46bb-9572-40936e9cb8d3
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Date deposited: 05 Jul 2022 01:05
Last modified: 05 Jul 2022 01:05
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Author:
Zuaini Ishak
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