Demystifying the role of a state ownership in corporate governance and firm performance: Evidence from the manufacturing sector in Malaysia

Amran Rasli (), Chin Fei Goh and Saif-Ur-Rehman Khan
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Amran Rasli: Universiti Teknologi Malaysia, Faculty of Management, Johor, Malaysia
Chin Fei Goh: Universiti Teknologi Malaysia, Faculty of Management, Johor, Malaysia
Saif-Ur-Rehman Khan: Universiti Teknologi Malaysia, Faculty of Management, Johor, Malaysia

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2013, vol. 31, issue 2, 233-252

Abstract: The aim of this research is to examine the role of state ownership in corporate governance and firm performance. We employed ordinary least squares and two-stage least squares regressions to analyze the effects of state ownership on firm performance.We go beyond existing research on state ownership by carefully disentangle investment objectives of state-controlled financial institutions. Such state ownership can be classified as profit-oriented and non-profit-oriented, in which the former consider return on investment to be the primary investment objective, whereas the latter prioritizes socio-economic development. We found that profit-oriented state ownership is an effective corporate governance mechanism and provides political patronage to the firm in the form of firm’s specific resources and credit financing. Although nonprofit-oriented state ownership firms also receive similar political patronage, they tend to be associated with inefficiencies such as the free-rider problems, bureaucracies and political intervention in firm management. We conclude that state ownership consists of heterogeneous entities with respect to corporate governance and firm performance.

Keywords: state ownership; institutional ownership; firm performance; corporate governance; ownership structure (search for similar items in EconPapers)
JEL-codes: G32 G34 O16 (search for similar items in EconPapers)
Date: 2013
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