Corporate governance, ownership concentration and firm performance in a developing financial market

Abstract

This paper seeks to examine the role of blockholders (majority shareholders) in affecting the value of a firm (BVF) in the developing (Malaysian) financial market characterized by the existence of additional imperfections in this market. The data is collected by using stratified random sampling for the firms listed in the Kuala Lumpur Securities Exchange for the years 2000-2003 to perform multiple regression analysis. The results of the study suggest that blockholders play a negative role in affecting the firms' value explaining market operations in the selected market, and contradicting the foundation of the developing market and convergence of interest hypothesis. In addition, the bigger board, liquid market, correct valuation of securities and effective utilization of assets improve shareholders' value in the selected financial market. This paper contributes to the literature by performing a comprehensive study on the poorly researched topic of the BVF relationship. Furthermore, a correct proxy to value a firm is used and additional tests for robustness are performed to provide valid results on this relationship. Finally, the role of additional imperfections and implications of different management theories in explaining the BVF relationship is also provided in this study. The results provide new insights and highlight the importance of corporate governance provisions relevant for the firms of the developing market. The results of the study can be used by the regulatory regime to make effective corporate governance policies.