Managerial ownership and corporate performance: Evidence from Malaysia

Abstract

The present study analyzes the causal relationship between managerial ownership and corporate performance in an emerging market setting. We analyze 606 non-financial firms listed on the Bursa Malaysia (formerly Kuala Lumpur Stock Exchange) for the year financial year 2004. We find that total directors' percentage shareholding on boards of Malaysia (of 32%) is substantially higher than that is reported in case of US and UK. Further analysis shows that managerial ownership as measured by total percentage shareholding of directors has no influence on corporate performance. We analyze the endogeneity of directors' total ownership, corporate value and investment using simultaneous equations analysis. Market capitalization as expected has a negative impact on managerial ownership. The finding implies that as firm size increases risk-averse managers may not want to concentrate their personal wealth in a single firm thus leading to diffusion of ownership. The present study also finds that Tobin's Q has no significant influence on managerial ownership. In summary, managerial ownership has no significant impact on corporate value and investment and in turn corporate performance has no influence on managerial ownership. Perhaps political connections may have a pervasive influence on corporate decisions in Malaysia as suggested by Johnson and Mitton (2005).