The influence of ownership, control, governance and diversification on the performance of family-controlled firms in Malaysia

Abstract

This study explores how a concentrated ownership structure and the underlying firm strategies/activities or practices influence the performance of family-controlled publicly-listed firms in Malaysia. Specifically, it aims to enhance our understanding of how differing types of significant owners, control-enhancing means, business groups and firm diversification affect firm performance within a national corporate governance system characterized by pervasive political involvement in business. It also aims to enhance out understanding of the role of board independence in moderating the above effects. the distinctiveness of this study arises from its approach of considering ownership structure and the underlying firm strategies/activities or practices in an integrated manner with particular emphasis on their inter-relationships. Multivariate with moderate regression analysis were utilized as primary tools of analysis. Based on a sample of 314 firms, major findings include (i) the proportion of family equity ownership positively influences corporate performance, (ii) group-affiliated firms generally under-perform non-group affiliated firms, (iii) the heterogeneity of business groups results in considerable differences in performance. Specifically, size of business group has a negative moderating effect on the firm diversification-performance relationship, (iv) profit redistribution occurs in firms that have a high level of family ownership and that are affiliated to large business groups, (v) board independence in general lacks effectiveness in moderating the influence of firm strategies or activities on firm performance. In terms of practical/managerial implications, the study demonstrates (i) the importance of conceptualising corporate governance in a broader sense, particularly in emerging economies such as Malaysia, (ii) how policymakers and regulators may identify and better monitor firms that are more likely to expropriate investors and/or exhibit governance problems, and (iii) a potentially fruitful approach to be adopted by investment professionals in selecting firms with better overall governance structures and performance that enhance their investment returns, particularly in the long term