Ownership structure, corporate governance and corporate performance in Malaysia

Abstract

Purpose: Following the 1997 Asian financial crisis, the Malaysian Government introduced new regulations on corporate governance, recognizing the importance of restoring market confidence. The purpose of this paper is to evaluate the impact of the implementation of these new regulations on corporate performance.Design/methodology/approach: Regression analysis was performed to examine factors influencing corporate performance. Ownership structure was represented by director ownership, foreign ownership and government ownership, and corporate governance was proxied by board size and independence. Corporate performance was measured by Tobin's Q.Findings: Using data from the year 2001 annual reports of 87 non‐financial listed companies included in the composite index, the results showed that none of the corporate governance variables was statistically significant in explaining corporate performance. Nonetheless, two ownership variables, namely the government as a substantial shareholder and foreign ownership, were statistically significantly associated with Tobin's Q.Research limitations/implications: The regulations on corporate governance were implemented in 2001, perhaps it was too early to analyze results for the financial year 2001 as regulatory changes may take a few years before it could be expected to show positive or intended results.Practical implications: An implication of this finding is that regulatory efforts initiated after the 1997 financial crisis to enhance corporate transparency and accountability did not appear to result in better corporate performance.Originality/value: This is one of the few studies which investigates the impact of regulatory actions on corporate governance on corporate performance immediately after its implementation.