Do foreign ownership and foreign directorship matter for return on equity? Evidence from Malaysian listed companies

Peck Ling Tee, Chee Seong Lim and Nai Chiek Aik

International Journal of Business Governance and Ethics, 2017, vol. 12, issue 1, 47-64

Abstract: The Malaysian Government has liberalised its restrictions on foreign equity ownership in local companies to enhance the country's competitiveness against regional neighbours in attracting more FDI inflows. With an overall panel of 4,176 firm-year observations drawn from a sample of 348 Malaysia-listed companies over the period 1999-2010, fixed-effect panel data regression found that percentage of foreign equity ownership, appointment of foreign chairman and appointment of foreign chief executive director did not have any significant relationship with firm's return on equity (ROE). However, increase in percentage of foreign directors sitting on a company's board significantly improved ROE. Besides, only when foreign investors have dominant (above 50%) voting rights, ROE increased. After categorised firm-year observations into five SIC-defined sectors, manufacturing sector sub-panel yielded similar results as overall panel. In contrast to overall panel, construction and wholesale trade sectors sub-panels showed the appointments of foreign chairman and foreign chief executive director negatively influenced ROE.

Keywords: foreign equity ownership; FOWN; foreign chairman; FCHM; foreign executive director; FEXD; return on equity; ROE; upper echelon theory; agency theory; Malaysia. (search for similar items in EconPapers)
Date: 2017
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