GST 5033 FINANCIAL REPORTING AND CONTROLTOPIC: OWNERSHIP AND GOVERNANCE OF FIRMS IN MALAYSIA: ITS IMPACT TO FIRM PERFORMANCE – GROUP ASSIGNMENT (35%) –14250386112LECTURER : DR AINON @ JAMILAH RAMLICOURSE : MBPA (MASTER BY COURSEWORK)DUE DATE : MAY 24, 2017 (THURSDAY)LECTURE DETAILS : FRC, THURSDAY, 9AM-12PMPREPARED BY :00LECTURER : DR AINON @ JAMILAH RAMLICOURSE : MBPA (MASTER BY COURSEWORK)DUE DATE : MAY 24, 2017 (THURSDAY)LECTURE DETAILS : FRC, THURSDAY, 9AM-12PMPREPARED BY :607860181610NO. NAME MATRIC NUMBER1. NG CHUNG YAN P17D030F2.
NUR ARIFAH BINTI NORDIN P17D028F3. MOHD HAFIZ BIN CHE MAHMUD P17D020F00NO. NAME MATRIC NUMBER1. NG CHUNG YAN P17D030F2.
NUR ARIFAH BINTI NORDIN P17D028F3. MOHD HAFIZ BIN CHE MAHMUD P17D020FTABLE OF CONTENTSCONTENTS PAGE NUMBER1.0 INTRODUCTION 1-21.1 PROBLEM STATEMENT 2-31.
2 OBJECTIVES OF THE STUDY 32.0 LITERATURE REVIEW AND THEORIES 4-20CONCLUSION 21REFERENCES 22-23CHAPTER 1INTRODUCTION1.0INTRODUCTIONDoes ownership important? And what are its influences for governance of firms and its impacts on firm performance in Malaysian listed trading and service companies? For the last twenty years, the issue of ownership has received great attention and large amount of researchers have been addressed it, especially in the developed countries like the the United States (US), United Kingdom (UK), Europe and others. Despite that, Malaysia as one of the emerging markets, the issue of ownership structures has also aroused public concern, especially right after the Asian financial crisis in 1997. Ownership of the firm means the rights of the owner on that firm and the structure of ownership in different businesses or countries is relatively different (Hu & Izumida, 2008 and Chen & Yu, 2012).
Compared with the ownership structure in Western countries, Malaysia’s corporate ownership is usually concentrated such as Tan Chong Motor Holdings Bhd. For instance, in Malaysian companies, families hold about 44.7% of their shares (Carney ; Child, 2013) and this is supported by the findings of Amran and Ahmad (2013). Moreover, in conventional business corporation, the owner of the business will be the one who invested in capital while the businesses that are in consumer retail cooperative, wholesale business, public utility cooperative, mutual banking institution and others are actually owned by their customers. In contrast, the business in service industries are not owned by anyone.
Usually, there is a significant relationship between ownership and firm performance. Furthermore, governance of a firm means the a series of code that control the firm and its purpose is to balance the stakeholders of the company such as customers, suppliers, managers, shareholders, government, financiers and the communities. The issues related to corporate governance are not fresh or recent because they occur simultaneously with the birth of the company. In the aftermath of the 1997 financial crisis, governance of firms has also became an attractive topic for Asian researchers.
According to Zabria, Ahmad ; Khaw (2016), Finance Committee on Corporate Governance in Malaysia has defined corporate governance as ‘the process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective.’ From an economic point of view, corporate governance plays an crucial role in achieving efficiency, shifting scarce resources such as capitals to a higher performance of firm. Corporate governance mechanisms are divided into two categories namely internal mechanisms and external mechanisms. The examples of internal mechanism are board size, board structure, board of directors, independence of board and others while the examples of external mechanism are management labour and talent markets, competitive market conditions, corporate control markets and others.
In this Industrial Revolution Era, Malaysian firms have to strive hard to compete with each other in order to ensure that they can remain on the top and to be competitive. But sometimes, the firm performance can be affected by other factors that are uncontrollable. Since ownership in Malaysia varies by management, concentration, foreign and government ownership, we will definitely have different impacts on performance of firm from the expected results. However, there are only few empirical studies were conducted on ownership, firm governance and corporate performance in the Malaysian trade and services sectors where mostly were outdated.
Thus, based on the background of Malaysia, more researches on this title should be carried out so that it can contribute to the growing literature on ownership, governance of firm and firm performance in the aspect of Malaysia and also as the references for the Malaysian firms.1.1PROBLEM STATEMENTThis study is titled on ownership and governance of firms in Malaysia: Its impact to firm performance.
It is a familiar and ongoing issue in the economic and accounting fields. The reason for choosing Malaysia because Malaysia is an emerging country and it is an on-going developing country. Firm performance is consider as a complicated term as it may include varies meanings as long as it involves with the organizational performance, company operations and business outcomes. Typically, the performance of firm means the organizational performance that is including the products and services manufactured, the operations of different departments of the company, the performance of employees of the company, the sum of the results of their work and others. At the same time, the performance of the firm can be seen in a wider context as part of the company’s business development.
By taking into consideration on the issues of ownership and governance of firms that are getting concern by worldwide, this study choose ownership stuructures, firm governance and firm performance variables to conduct the study. Ownership is important to many firms and the aim of the governance of firms is to increase the accountability of firms and prevent disasters in large-scale.In terms of the relationship between ownership structures and firm performance, the impact of ownership structures on performance of firm has been a major concern for countries around the world, including Malaysia as different studies have been conducted showed different or mixed results. The major problem is that some of the previous studies showed that there is a significant relationship between ownership structures and firm performance which is return on asset (ROA) and return on equity (ROE) but some of the previous studies did not a significant result. For instance, Ghazali (2011) Amran and Ahmad (2013), Jadoon and Bajuri (2015), Musallam (2015), Pang and Abdul Hamid (2016), Wei, Qian and Somosundaram (2017) and Rashid, Ali and Magsi (2017) found that ownership structure is significant to the performance of firm whereas the studies that is done by Arshad (2014), Abdulsamad and Yusoff (2016) and Aziz, Mohamed and Hasnan (2017) did not found that the ownership structure is significant to the performance of firm. In other word, some of the findings from previous studies on the parametric regression model did not support the agency theory indicating that the variables were not significant and implied that the obtained results were varied.Besides that, in terms of the relationship between governance of firms and firm performance, the employing of governance of firms towards performance of firm has also been a hot topic for the Asian countries, including Malaysia.
As stated above, some of the previous studies showed that there is a significant relationship between governance of firms and firm performance but some did not. For instance, the findings in Gupta and Sharma (2014), Badriyah, Sari, and Basri (2015) and Rashid, Ali and Magsi (2017) supported the siginificant of governance of firms on the performance of firm. Conversely, the findings in Ghazali (2011), Achchuthan and Kajananthan (2013) and Ramli and Ramli (2016) did not support that where Ramli and Ramli (2016) found that all the director and broad attributes factors are not statistically significant with the firm performance. All of this indicating that different results will be obtained in different countries and over time due to the different style of culture adapted by different people.Moreover, there were large amount of studies published one this title in other developed and developing countries and there were limited studies that have been done on this title in Malaysia but mostly is outdated. With this reason, the government or the policy makers might have faced some hardship in regulating the issues of ownership and firm governance on behalf of Malaysia and Malaysian firms may encountered difficulties in finding good references for them to refer and to make the best management decisions.
Meanwhile, the nexus between differs in different countries and time period (Hu & Izumida, 2008 and Chen & Yu, 2012). Furthermore, new findings of this study will give us the new knowledge and new understandings about the listed trading and service firms in Malaysia as different patterns of ownership will give different impacts to the firm in good or bad way and this can be a good reference for all firms in Malaysia. Thus, this is intended to carry out this research in Malaysia to fill the previous research gaps.Therefore, the problem statement is: Is there any relationship between ownership, governance of firms and firm performance that are interrelated among the variables in Malaysia listed Trading and Services firms. 1.2OBJECTIVES OF THE STUDYThe general objective of this study is to study the relationship between ownership and governance of firms towards firms performance in Malaysia that is claimed in agency theory, stakeholder theory, the concept of ownership, the idea of corporate governance and the concept of firm performance.
The specific objectives of this study are:1)To study the contribution of ownership structures towards firms performance of the Malaysia listed Trading and Services firms. 2)To determine the relationship between governance of firms towards firms performance of the Malaysia listed Trading and Services firms. 3) To examine whether the listed trading and service firms in Malaysia will get the efficiency in the firm performance through the practices of governance of firms.CHAPTER 2LITERATURE REVIEW2.0INTRODUCTIONThis chapter presents the literature review of previous studies that are closely related to the current study.
There are numerous empirical studies on ownership and governance of firms towards firm performance that have been used to review in this study. Previously, different results were obtained by different researchers using various methods that covered different countries. In order to explore the most recent relationship between ownership and governance of firms towards firm performance in Malaysian trading and service companies, it is important to review selected studies by considering these variables. The main theories referred in this research include the agency theory, stakeholder theory, the concept of ownership, the concept or idea of corporate governance and the concept of firm performance.
Agency theory and stakeholder theory are a widely understood concept in business nowsaday. All the articles that have been used to review in literature review were mostly above the year of 2010 except the some of the origin definitions of the theories and concepts. Besides that, a detailed analysis on previous studies will be carried out in this chapter.
2.1THEORETICAL FRAMEWORKThis section presents a framework that is as the guide line of theoretical elements for the empirical analysis of this study from the previous studies. Some of the important or useful empirical theories will be employed in this study.2.1.
1AGENCY THEORYAgency theory is part of the major subject of governance of firms or corporate governance because it relates to the issues of directors controlling the company while the company is owned by stockholders. According to Jensen and Meckling (1976), agency relationship will be arisen when an agent, which can be represented by a manager who plays the role as a decision maker in the organization on behalf for the principal which is owner or shareholders. Agency theory is an economic and management theory that aims to interprete relationships and self-interest in business organisations and it is a beneficial framework for designing governance and organizations control (KBmanage, 2018). In other words, the agency theory is an idea that explains the relationship between principals and agents in business where the most common agency relationship is that shareholders represent principals and firm executives represnets agents in finance sector. In the aspect of research, the agency theory is discussed as the separation of control from ownership (as illustrated in figure 1) implying that the professional managers manage a firm on behalf of the firm’s owners or the professional managers represent the owners of a companies. Furthermore, as stated by Mulini and Wong (2011), the agency theory holds that the top management of an organization should have a significant ownership of the company to ensure a positive relationship between corporate governance and the number of shares or stocks owned by the top executives or top management.Next, there are some key terms and concepts are crucial to comprehend the agency theory.
According to Kaplan Financial Knowledge Bank (2012), the agent is employed by the principal in order to perform the task on the behalf of the principal. Therefore, agency means to the relationship between the principal and the agent. Due to the lack of trust in the sincerity of the agents, the principals will decide to incur agency costs in supervising the agency’s behavior. By accepting the tasks on their behalf, the agents are responsible to the principals.
For the separation of ownership and control, companies that quoted on the stock market are normally very complex and these companies require a lot of equity investment in order to finance them (Kaplan Financial Knowledge Bank, 2012). For instance, they usually have a large number of stockholders. Mark (n.d.) stated that in his article, the separation of ownership and control refers to the situation in which shareholders have little or no direct control over management decisions in publicly held business corporations where this can lead to a potential conflict of interests between directors and shareholders. Moreover, this separation is usually due to the problem of collective action and the dispersed share ownership.
The separation of ownership and control will also result in costs which is resulting from the moral hazard and adverse selection. The examples of cost of agency are cost of meetings with financial analysts and principal shareholders, cost of monitoring behavior like establish management audit procedures, costs of management giving annual report data like risk management analysis, committee activity and cost of principal reviewing this data, incentive schemes and remuneration packages for directors and so on. Nevertheless, mechanisms such as business failure, corporate governance oversight, managerial financial incentives, the market for corporate control and others may reduce these costs. However, one of the benefits of the separation of ownership and control is that it allows for decision making in hierarchical level which is beneficial to the market for certain types of decisions (Mark, n.d.).
For example, hierarchical decision making may be more efficient than market transactions or market allocation.Second, the optimal firm size can be quite large due to the economies of scale in both decision making and production.Lastly, based on the previous studies, the agency theory is used to explain the studies by Achchuthan and Kajananthan (2013), Jadoon and Bajuri (2015), Abdulsamad and Yusoff (2016), Pang and Abdul Hamid (2016), Aziz, Mohamed and Hasnan (2017), Wei, Qian & Somosundaram (2017) and Rashid, Ali and Magsi (2017).
Source: Adapted and modified from the Kaplan Financial Knowledge Bank (2012).Figure 1. The separation of ownership and control2.
1.3STAKEHOLDER THEORY The previous study done by Gupta and Sharma (2014) has mentioned about stakeholder theory. Stakeholder theory is the theory of organizational management and business ethics which deals with the morals and values of management organization. Dr.
F. Edward Freeman, a professor at the University of Virginia was the person who first introduced the stakeholder theory in his landmark book, “Strategic Management: A Stakeholder Approach” where it shows that shareholders are just one of many stakeholders in the organization (smartsheet, 2018). The theory says that stakeholders ‘ ecosystems involve anyone who invests and participates in or affects by the companies in terms of suppliers, employees, government agencies and others. Besides that, Freeman’s theory said that an organization’s true success depends on satisfying all stakeholders but not just those who may profit from the stock. The basis for stakeholder theory is that organizations are very large and their impacts on society is so universal that they should take responsibility for many sectors of society but not only shareholders (Kaplan Financial Knowledge Bank, 2012).
In addition, stakeholder theory may be the inevitable result of agency theory, because when considering stakeholder needs, there is a business case to improve employee motivation, customer perception,shareholder conscience investment and supplier stability. Moreover, stewardship theory is also considered as stakeholder theory because it suggests that a managers of the company or the board directors and the CEO of the company act as stewards and they are more motivated to act in the best interests of the firm rather than for their own self-interests ( Mulini and Wong, 2011).Source: Adapted and modified from the Kaplan Financial Knowledge Bank (2012).
Figure 2. The stakeholder theory2.1.
3CONCEPT OF OWNERSHIP TOWARDS FIRM PERFORMANCEIn these few decades, the concept of ownership has received great attention. This concept is wide as it includes acceptance of the concept of responsibility, taking initiative, being held responsible and making an independent decision on matters that have been expressly delegated to you and others (Storti, 2013). Ownership refers to a situation that gives a person the maximum range of rights on a property and it can be obtained through purchase, a gift, the establishment of a trust, the operation of law and so on. Amran and Ahmad (2013) stated that the structure of ownership is an essential determininat in shaping the system of corporate governance and the distribution of power between its managers or directors and its shareholders results in the degree of ownership concentration of a company. The ownership concentration is good for the organization as bigger shareholdings allow for larger monitoring of managers (Jensen ; Meckling, 1976). Thus, conflicts of interest will be reduced and the value of shareholders will be increased with the absence of separation between ownership and control mitigates (Morck, Shleifer ; Vishny, 1988).
The common types of ownership structure that are used as the independent variables in the previous studies are managerial ownership, family ownership, government ownership,foreign ownership, state ownership, concentrated ownership, local nominee ownership and institutional ownership. Previously, the concept of ownership is used to explain the studies by Ghazali (2011), Amran and Ahmad (2013), Arshad (2014), Musallam (2015), Jadoon and Bajuri (2015), Abdulsamad and Yusoff (2016), Pang and Abdul Hamid (2016), Rashid, Ali and Magsi (2017), Aziz, Mohamed and Hasnan (2017) and Wei, Qian and Somosundaram (2017). From the previous empirical findings, Amran and Ahmad (2013), Jadoon and Bajuri (2015) and Rashid, Ali and Magsi (2017) found that ownership structure is significant to the performance of firm and there is complex relationship between corporate ownership, governance and firm performance indicating ownership have huge effect in Malaysia and in Pakistan. According to Amran and Ahmad (2013), family ownership is the most common ownership structure in Malaysia as most of the Malaysian businesses are family companies. Jadoon and Bajuri (2015) indicated that concentration ownership is significant and positively related to the performance of firm in both market base and accounting performance indicators in Pakistan.
At the same time, Pang and Abdul Hamid (2016) stated that different types of ownership structures resulted in different level performance of firms in Malaysia. Furthermore, study that has been done by Ghazali (2011) and Musallam (2015) revealed that there is a positive and significant relationship between foreign ownership and the performance of firm but Musallam (2015) found that there is a negative and significant relationship between state ownership and the performance of firm in Malaysia indicating that foreign ownership is good for firm performance but the state ownership is the other way round. In addition, Ghazali (2011) also found that government ownership was statistically significant and positively related to the performance of firm in Malaysia. Meanwhile, the findings of Aziz, Mohamed and Hasnan (2017) indicated both foreign ownership and managerial ownership has significant relationships towards the financial restatement showing that managerial shareholders are monitored and disciplined managers effectively just to ensure that there is no misstated in the accounts prepared. Aziz, Mohamed and Hasnan (2017) also found that foreign ownership guaranteed the quality of accounting information effectly implies that the opportunism of the management is reduced due to the presence and control of foreign ownership in Malaysia. Lastly, the findings of Wei, Qian and Somosundaram (2017) showed that concentration ownership improves the performance of firm in the case of Malaysia.In contrast, study that is done by Arshad (2014) showed that concentration ownership (shareholder ownership) has no significant relationship towards the performance of firm in Malaysia.
Meanwhile, Abdulsamad and Yusoff (2016) also found that there is no significant relationship between the local nominee ownership and the performance of firm in Malaysia implying that local nominee owners did not involve decisions making in management or plays an passive roles in things that related to the performance of firm. For instancte, they are lacking of participation in the general meetings. Lastly, the findings of Aziz, Mohamed and Hasnan (2017) also found that institutional ownership, family ownership and government ownership are not statistically significant on financial restatement.
2.1.4CONCEPT OF GOVERNANCE OF FIRM TOWARDS FIRM PERFORMANCEGovernance of firm has also received quite a lot attention during the these twenty years owing to some economic reforms in countries and accidents of economic history. For example, the large corporate debacles and the regional market crisis. Corporate governance is the system of rules, processes and practices that companies are guided and controlled.
Corporate governance usually involves in balancing the interests of stakeholders of the company. For example, managers, shareholders, suppliers, clients, financiers, communities and the governments. According to Gupta and Sharma (2014), corporate governance is required in order to establish a culture of transparency, awareness and openness as it allows companies to maximize the their long-term value, which can be seen in terms of corporate performance.
Of recent, the practice of corporate governance is increasingly become important.The common indicators of corporate governance that are used as the independent variables in the previous studies are board structure, disclosure of information, CEO duality, board size, independent board of directors, directors’ professionalism or qualification, board meeting, board committee, directors’ remuneration, transparency and disclose, mergers and acquisitions, firm size and firm age. Previously, the concept of corporate governance is used to explain the studies by Ghazali (2011), Achchuthan and Kajananthan (2013), Gupta and Sharma (2014), Badriyah, Sari, and Basri (2015), Pang and Abdul Hamid (2016), Ramli and Ramli (2016), Roy (2016) and Rashid, Ali and Magsi (2017). Based on the previous empirical findings, found that countries in Asian have similar cultural characteristics but they do not share the same corporate governance practices. For instance, companies in India follow a more strict corporate governance practices based on US model while companies in South Korea follow corporate governance that is in stakeholder form. Besides that, the result of there is only a little impact corporate governance practices on firm performance was found in the study of Gupta and Sharma (2014). Next, in the study of Badriyah, Sari, and Basri (2015), corporate governance influence the presence of Risk Management Committee where it affects the performane of firm meaning that the corporate governance influences firm performance indirectly in Indonesia.
Besides that, the findings in Rashid, Ali and Magsi (2017) revealed that Pakistan’s corporate governance should be better censored, perhaps limiting the energy of large shareholders to ensure the interests of minority shareholders. In contrast, the study of Ghazali (2011) indicated that none of the corporate governance variables is statistically significant in interpreting the performance of the company in Malaysia meaning that the regulatory efforts that began after the 1997 economic crisis have not led to better corporate performance. Not only that, findings in Achchuthan and Kajananthan (2013) also fail to prove that there is a significant relationship between the corporate governance factors such as board structure, board meetings and board committees with the firm performance in Sri Lanka. Lastly, previous findings also showed that corporate governance in terms of directors with professional in accounting has no significant relationship toward the performance of firm but results in a lower total revenue in Malaysian companies and this is proved by the study of Ramli and Ramli (2016). At the same time, Ramli and Ramli (2016) also found that all the director and broad attributes factors are not statistically significant with the firm performance. 2.
1.5CONCEPT OF FIRM PERFORMANCEAll of the previous studies were conducted to determine the relationship between ownership and corporate governance towards firm performance. Normally, many studies use return on asset (ROA) and return on equity (ROE) as the measurement of financial performance for the selected companies. ROA is a profitability ratio that measures how well a company is generating profits from its invested total assets and and it represents the actual performance of the firm (Ponnu, 2008). ROE is defined as the amount of net income returned as a percentage of shareholders equity and it measures the profitability of a company by revealing the profit generated form the money that is invested by its shareholders (Epps and Cereola, 2008). Meanwhile, According to Nega (2017), ROE has been proven to be a trusted performance measure for corporate stakeholders because many people have used it in studies and it is suitable for both short-term and long-term investment. Previously, Amran and Ahmad (2013), Arshad (2014), Gupta and Sharma (2014), Jadoon and Bajuri (2015), Pang and Abdul Hamid (2016) and Wei, Qian and Somosundaram (2017) used ROA and ROE as the dependent variables which are the determinants of the firm performance while Musallam (2015), Abdulsamad and Yusoff (2016), Rashid, Ali and Magsi (2017) and Aziz, Mohamed and Hasnan (2017) used ROA only as the dependent variable which is the determinant of the firm performance.
Meanwhile, Achchuthan and Kajananthan (2013) and Roy (2016) used ROE only as the dependent variable which is the determinant of the firm performance. In contrast, Ghazali (2011), Abdulsamad and Yusoff (2016), Pang and Abdul Hamid (2016) and Wei, Qian and Somosundaram (2017) are the studies that used also other measures for firm performance other than ROA and ROE such as earnings per share (EPS) and Tobin-Q. Topic: Ownership and governance of firms in Malaysia: Its impact to firm performanceTable 1: The Summary of Literature ReviewAuthor(s), Date Data Used Theory(s) Used Method(s) Used Major FindingsGupta & Sharma (2014) -Variables: Board constitution, board structure, different committees, independent directors and their roles, conflict of interest and disclosure of information.-Sample period: 8 years of secondary data from company annual reports from 2006-2013.-Country: India and South Korea.
-Concept of corporate governance.-Stakeholder Theory -Analysis of parameters.-Asian countries have similar cultural characteristics but do not share corporate governance practices.-India has been found to follow a stricter corporate governance practices that is based on the American model whereas South Korea follows the corporate governance forms of stakeholders.-South Korea didn’t believe in outsiders ‘ intervention in the business of the company at first and it does not have mandatory requirements of independent directors and various committees to take care of the company’s work but slowly does.
-It has enacted various legislations on corporate governance practices and disclosure norms, but it cannot be fully implemented due to the concentration of power of the family-run enterprises.-Lastly, the results showed that corporate governance practices have limited influence on the company’s share price and financial performance.Rashid, Ali & Magsi (2017) -Variables: Firm size, firm age, industry division and Return of aggregate -Concept of corporate governance. -Descriptive Statistics.-Analysis of Variance. -The results of this paper highlighted the complex relationship between corporate ownership, governance and firm performance.-First, the result reported how unique controlling Table 1: The Summary of Literature Review (Continued)Author(s), Date Data Used Theory(s) Used Method(s) Used Major Findingsresources (ROA).
-Sample period: 5 years of secondary data from company annual reports from 2011-2015.-Country: Pakistan. -Concept of ownership.-Agency Theory. -Cross-Tabulation.-Correlations Test.
shareholders affect ownership and governance structures. -Second, the sort of ownership has a coordinating effect on firm performance and the immature monetary framework, which ignores the effects of satisfactory.-Eventually, the results showed that in Pakistan the focus of ownership is obvious and that the sort of ownership is determined at a very early stage.Amran & Ahmad (2013) -Variables: Managerial ownership, family ownership, debt, firm age, firm size and industry type.-Sample period: 420 public listed companies and 5 years of secondary data from company annual reports from 2003-2007.
-Country: Malaysia. -Concept of managerial ownership.-Concept of family ownership. -Descriptive Analysis.-Multivariate Regression Analysis. -The results showed that the managerial ownership is significant to the return of assets (ROA) and return on equity (ROE) whereas the family ownership is significant to Tobin’s Q, ROA and net assets.-The results also revealed that the increase of internal ownership enhances the company’s performance because of the readjustment of internal and external interests and the decrease of shareholder’s conflict of interest.
-The results also indicated that when the proportion of managers’ shareholding increases, the performance of the company decreases.-Thus, greater control and larger shareholdings in managers are more concerned with self-interest than by shareholders.Abdulsamad & Yusoff (2016).
-Variables: Government ownership, local nominee and foreign nominee, Return on asset (ROA) and -Concept of ownership structure.-Descriptive Analysis.-Results indicated that there’s not much change in the ownership structure and corporate performance in Malaysia during the period from 2002 to No. 2013.Table 1: The Summary of Literature Review (Continued)Author(s), Date Data Used Theory(s) Used Method(s) Used Major Findingsearnings per share (EPS) are used to measure firm performance.-Sample period: 369 listed Malaysia companies and 11 years of secondary data from company annual reports from 2003-2013.
-Country: Malaysia. -Agency Theory -Of the three ownership structures, the ownership of the locally nominated nominee did not show any significant relationship with any of the firm performance in 2003, 2008 and 2013.-Foreign nominee only has made contribution to the company’s performance during the year 2003.-It can be concluded that the economic development of Malaysia does not affect the ownership structure of the listed Malaysian companies.Pang & Abdul Hamid (2016) -Variables: Board structure, CEO duality, board size, independent board of directors, directors’ professionalism/qualification, board meeting, board committee, directors’ remuneration, transparency and disclose, merger and acquisition.
-Sample period: 5 years of secondary data from company annual reports from 2010-2014.-Country: Malaysia. -Concept of ownership structure.
-Concept of corporate governance.-Agency Theory-Linear Regression-Multiple Regression.-Panel Data Regression Analysis. -The study tends to determine which ownership structure and corporate governance practices are more feasible, practical and profitable in every sector of the economy in Malaysia.-Firms can use the information of this study as a guide, by considering which ownership structure and corporate governance practices will bring maximum benefits to the company and make the company a competitive advantage.
-This study examines the significance of alternative corporate governance components of listed companies in Malaysia that is different from the early literature on the effect of corporate governance performance and this model has the characteristics of identifying the impact of various corporate governance components.Table 1: The Summary of Literature Review (Continued)Author(s), Date Data Used Theory(s) Used Method(s) Used Major FindingsMusallam (2015) -Variables: MTBVR, ROA, foreign ownership, state ownership, firm size, firm age, leverage ratio, profitability, investment, capital intensity and liquidity.-Sample period: 190 non-financial listed Malaysia companies 10 years of secondary data from 2000-2009. Data is collected from annual reports and DataStream.-Country: Malaysia. -Concept of corporate performance.-Concept of foreign ownership.
-Weighted Least Square (WLS).-OLS.-Descriptive Statistics.-Correlation Matrix.-The empirical results showed that the impact of foreign ownership on performance of firm is positive and significant, whereas the impact of state ownership is negative but it is significant to firm performance.-Next, the results suggested that foreign ownership enhances corporate performance but the state undermines corporate performance.
-In addition, the results also indicated that foreign and national ownership has a linear relationship with corporate performance.-Findings also found that the firm age gave negative impact to the firm performance while liquidity gave positive impact to the firm performance.-Higher state ownership is not lead to better firm performance.-Lastly, the results concluded that with the existence of linear relationships, the increase in foreign ownership may improve corporate performance.Ramli & Ramli (2015) -Variables: Gross Profit/COS (CG/COS), Profit before tax/Total Cost(PBT/TC), Total Revenue, Cost of good solds, Muslim directors, Muslim INEDS, Muslim CEO, Professional -Concept of corporate governance..
-Descriptive Statistics.-Inferential Analysis. -Malaysia have MFRS 118 for financial accounting but most of them are not following the Shariah precepts. -Findings found that directors with professional qualification in accounting are statistically associated with lower revenue meaning ther eis an inversely relationship with corporate performance.Table 1: The Summary of Literature Review (Continued)Author(s), Date Data Used Theory(s) Used Method(s) Used Major Findingsqualification, board size and Muslim chairman.
-Sample period: 50 Malaysia biggest companies with good CG score, Based on CG Scorecard in 2012. Data is collected from annual reports.-Country: Malaysia. -Most of the board directors are monopoly by non-muslim directors.-The results also revealed that the board attribute cannot prove its significant influence on profit moderation and profit maximization.-In short, the presence of the CEO Muslims who is directly involved in the company’s operations does not affect the company’s profits.Arshad (2014) -Variables: ROA, ROE, number of family member owning shares in the company, number of director owning shares in the company, number of private institutions or companies owning shares in the company, number of activist institutions owning shares in the company, disclosure of effective communication with shareholders through company proxies, disclosure of annual general meeting held, total -Concept of firm performance.
-Concept of ownership structure. -Pearson Correlation Analysis.-Multivariate Regression Analysis. -The results showed that there is no significant correlation between ownership structure and corporate performance.-Among variable in this Panel A, only change in EPS and change in the mean of net sales is correlation significantly positive (r=0.188) at a level 0.01 indicating that the increase in firm size will increase the particular measure of firm performance.
-In the Panel B, results showed that six significant correlation exist (?LOGTS & ?EPS, ?LOGTS & ?ROA, ?LOGTS & ?RET, ?LOGTS & ?RETadj, ?LOGTA & ?EPS, ?LOGTA & ?RETadj) indicating that bigger firm size will have better firm performance.-In panel C, results have shown that only ?LOGTS has positive significant correlation with Table 1: The Summary of Literature Review (Continued)Author(s), Date Data Used Theory(s) Used Method(s) Used Major Findingsassets and net sales.-Sample period: 237 Malaysia Public Listed Companies 13 years of secondary data from 1996-2008. Data is collected from annual reports and DataStream.-Country: Malaysia. ?EPS at 0.
01 level.-The result is not supported the hypothesis about change in shareholder structure are positively associated with changes in performance.-However, findings indicated that there is a positive relationship between ?LOGTS and ?EPS.
This concluded that larger PLC will have higher firm performance.Ghazali (2011) -Variables: Director or management ownership, foreign ownership, government ownership, board size and independence and Tobin’s Q.-Sample period: 87 non-financial listed companies in 2001. Data is collected from annual reports.-Country: Malaysia. -Theory of corporate performance.
-Concept of ownership structure.-Concept of corporate governance.-Regression Analysis.-Descriptive Statistics.-The results revealed that none of the corporate governance variables is statistically significant to explain the company’s performance.-Nevertheless, the two ownership variables, the government and foreign ownership, were statistically significantly correlated with company’s performance.-Furthermore, results also found that the foreign ownership was significant at 1% significance level which meets the expectation that companies that had more foreign ownership is more profitable whereas government ownership is significant 10% which show the company with government as shareholder was performed very well.
-Corporate governance was not significant correlation with expanding the firm performance.Table 1: The Summary of Literature Review (Continued)Author(s), Date Data Used Theory(s) Used Method(s) Used Major Findings-In conclusion, the evidence insufficient to show that the company that is under corporate governance was performed better because this research is on 2001 which is too early to detect about the positive impact of corporate governance.Badriyah, Sari, ; Basri (2015) -Variables: ROA, Tobin’s Q, size of board, proportion of independent, concentrated ownership, managerial ownership, auditor reputation, firm size, firm complexity, financial reporting risk and leverage-Sample period: 395 non-financial companies in Indonesia Stock Exchange (ISE) in 2013.
Data is collected from annual reports.-Country: Indonesia. -Theory of corporate performance.-Concept of corporate governance.
-Structural Equation Model (SEM) based on Partial Least Square (PLS). -Results showed that 71 companies had form RMC and 169 companies had not formed RMC (240 from 395 that meet the sampling criteria).-The findings of this study said that there is an implication to the companies to form RMC as it will enhance the performance of the company.-Based on PLS data, concentrated ownership, managerial ownership and leverage is under 0.
5 of factor loading.-In conclusion, this research supported the hypothesis of the test indicating that corporate governance affects the form of RMC. The firm characteristics affect the forms of RMC. Lastly, existence of RMC was affected the firm performance.
Achchuthan & Kajananthan (2013) -Variables: Corporate governance practices (CGP), ROE, board leadership structure (BLS), -The idea of corporate governance.-Agency theory. -Anova (f-test).-Independent sample t-test.
-Results revealed that there is no significant relationship between the performance of firm among corporate governance practices which are board committees, leadership structure, board meetings and proportion of non-executiveTable 1: The Summary of Literature Review (Continued)Author(s), Date Data Used Theory(s) Used Method(s) Used Major Findingsproportionate of non-executive directors in the board (PNED), board committees (BC) and board meeting (BM).-Sample period: 28 listed manufacturing firms in Colombo Stock Exchange. 5 years of secondary data from 2007-2011.
Data is collected from annual reports.-Country: India (Sri Lanka). -Stewardship theory. -Descriptive Statistics.
directors.-Results also found that there is no significant relationship between performances of firms across the BLS as separate and combined leadership in the listed manufacturing firms in Sri Lanka indicating that both combine or separate leadership structure in the corporate governance practices have earned the same level of ROE approximately.-In short, four out of twenty eight listed manufacturing firms have formed the all three committees as Remuneration, Audit and Nomination while the remaining of twenty four firms has formed only one or two committees in the board structure perspective. As a result, it leads to the results of not significant.Aziz, Mohamed & Hasnan (2017) -Variables: Management ownership, government ownership, institutional ownership, family ownership, foreign ownership, ROA and leverage.
-Sample period: 853 publicly listed companies in Kuala Lumpur Stock -The idea of ownership.-Agency theory.-Signalling theory. -Descriptive Statistics.-Regression Model. -Findings revealed that managerial ownership and foreign ownership significantly affect the presence of financial restatement and financial restatement is negatively and significantly associated with these two factors.-This means that managerial shareholders are effective in disciplining and monitoring managers so that the there is no misstated in prepared accounts.
-Moreover, findings of the study also found that foreign ownership is effective in guaranteeing the quality of accounting information beauseTable 1: The Summary of Literature Review (Continued)Author(s), Date Data Used Theory(s) Used Method(s) Used Major FindingsExchange (KLSE). 9 years of secondary data from 2005-2013. Data is collected from annual reports.
-Country: Malaysia. the supervision and existence of foreign ownership could reduce the opportunism of the management especially from foreign investors that are involved in long-term.-Furthermore, institutional ownership, government ownership and family ownership is not significant with the financial restatement.-Lastly, government ownership was found to reduce the probability of restatement, adverse from the predicted influence.
Jadoon & Bajuri (2015) -Variables: Tobin’s Q, ROE, ROA, largest shareholder holder (LSH), shareholding of largest five owners (R5LSH), shareholding of largest ten owners (10LSH), firm age (AGE), total asset (Size) and leverage of firms (LEV).-Sample period: 638 listed firms on the Karachi stock exchange (KSE) for a time period of 6 years from 2006-2011.-Country: Pakistan. -The concept of ownership structure-The concept of firm performance.-Agency theory. -Multiple Regression Models.
-Descriptive Statistics.-Correlation Analysis.-Correlation Matrix.-The results indicated that ownership concentration has positive impact on the performance of firm for both accounting and market base performance factors.-Moreover, the LSH and 10LSH has significant positively relationship with ROA while 5LSH does not, showing that higher concentration of ownership, it will increase the firm performance except for 5LSH.-Next, in respect of ROE and Tobin’s Q, results revealed that they are positively related to all the three ownership concentration indicators indicating that concentration of ownership increase the firm performance for all three ownership concentration factors.
-Furthermore, ROA has significant positive association with LSH and 5LSH while ROE and Tobin’s Q has strong positive relationship with Table 1: The Summary of Literature Review (Continued)Author(s), Date Data Used Theory(s) Used Method(s) Used Major Findingsall the ownership concentration indicators.Roy (2016) -Variables: Board of directors, board committees, audit fees, ownership structure, ROE, MTBVR, debt, firm age and firm size.-Sample period: 58 top Indian listed companies for a time period of 6 years from 2007-2012.-Country: India.
-The idea of corporate governance.-Descriptive Statistics.-Multiple Regression Analysis.-Correlation Analysis.
-PCA. -MTBVR results showed an R-square of 34.9% indicating there is a strong association with five factors.-Next, results of ROE showed R-square of 48.
6% meaning it is significantly influenced by the five factors.- Lastly, five corporate governance factors help in explaining the association to future firm performance measured by MTBVR while five corporate governance factors are associated with historical performance measured by ROE.Wei, Qian ; Somosundaram (2017) -Variables: Dividend payout, ROE, ownership concentration, firm leverage, firm liquidity, firm growth, firm size, firm age, board size, independent director and board meetings.-Sample period: 811 Malaysian publicly listed companies for 11 years of secondary data from 2005-2015. -Agency theory.
-Regression Analysis.-Descriptive Statistics.-The results found that shareholders with concentrated ownership play an important role in determining dividend payout and driving the performance of firm.-The empirical results showed a negative relationship between ownership concentration and dividend payout.-Next, findings found a positive relationship between ownership concentration and firm performance as the shareholders can implement effective monitoring activities on the management and other controlling shareholders who may have different objectives toward the firm.
Table 1: The Summary of Literature Review (Continued)Author(s), Date Data Used Theory(s) Used Method(s) Used Major Findings-Country: Malaysia. -The results also revealed that a high degree of ownership concentration is less likely to pay dividend as the most of the shareholders prefer to use the cash flow to invest in different projects that are more profitable rather than pay dividend to the minority shareholders.-In whole, ownership concentration is associated with low dividend payout, but it improves firm performance.-In conclusion, the findings of this study suggested that ownership concentration may also be an effective monitoring mechanism.CONCLUSIONIn conclusion, this paper is aim to study the relationship of ownership, governance of firms and their impacts on firm performance in Malaysian listed trading and service firms. The reason for selecting Malaysia because Malaysia is one of the emerging countries and it is an on-going developing country. Malaysia has a constant growth in Gross Domestic Product (GDP) and there are many factors contributed to Malaysian economy.
By considering the issues of ownership and governance of firms that are receiving great attention by public and concern by worldwide, this study select ownership stuructures, firm governance and firm performance variables to conduct this research. Ownership is crucial to many organizations, in the rush to make things happen, many organizations often forget or simply deciding not to take the time to build ownership (Sevier, 2014). Meanwhile, governance of firms aims to increase the accountability of companies and avoid large-scale disasters. In this study, the theories and concept used are agency theory, stakeholder theory, the concept of ownership, the idea of corporate governance and the concept of firm performance. Agency theory occupies the core position in the literature of corporate governance and it is used to comprehend the nexus between agents and principals and governance of firms can be used to change the rules that are operate by agents and restore the interests of the principals.
Mean while, the problem agency theory is agency cost that is due to or arise from the outsider of ownership which is known as the separation of ownership and control. The separation of ownership and control means that the shareholders have little or no direct control over the management decision in the publicly held firms which may lead to the potential conflict of interests among the directors and the shareholders.Although there was a large number of empirical study on the title of the influence of ownership structure and governance of firms towards performance of firms has been published by many researchers, but there were only few studies that have shown the impact of ownership structure on the performance of firms in Malaysian companies and scholars have found that the relationship between ownership, governance of firms and performance of firms are different across countries and over time (Hu ; Izumida, 2008 and Chen ; Yu, 2012).
Therefore, this paper intends to fill this research gap by investigating the influence of ownership structure and the governance of firms towards performance of firm. However, in order to achieve objectives, relevant methods will be conducted to examine the relationship between the series in term of long run and short run by employing the relevant methods form the previous studies. Thus, the new empirical findings of this study can provide the policy makers better suggestions and enable the policy makers to come out with the more efficient policies to address the problems in a better way.
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