Insider ownership and firm performance in Malaysia

This study is based on one of the most essential criteria of the corporate governance sector, insider ownership. The research investigates the relationship between insider ownership and firm performance. Shareholding by senior management and non-executive directors has been considered as insider ownership. Return on Asset (ROA) and Tobin’s Ratio (Tobin’s Q) here are performance measuring variables. The study has been conducted for the period from 2010 to 2019 for Malaysian active firms on Bursa Malaysia. The sample firms consist of various industries to find an overall impact on the economy. The data set is a balanced panel and a two-step difference GMM (Generalized Method of Moments) is used to analyze the data for both cubic and linear equations. Since, GMM is an efficient estimator in corporate governance studies, this method can address potential endogeneity issues between insider ownership and firm performance. The chosen method GMM efficiently analyzes both linear and cubic regression. Firm size and leverage are considered control variables to determine if those impact performance. The research shows ROA is more significant than Tobin’s Q which is considered as firm performance variables with insider ownership. In the study, Senior management ownership is positively impacting firm performance ROA until the ownership becomes very highly concentrated while having no significant impact on Tobin’s Q. Additionally, non-executive director ownership positively impacts both firm performance variables ROA and Tobin’s Q before ownership reaches a cubic value. This finding aligns with the agency theory of providing ownership to insiders to mitigate agency issues and improve firm performance. Based on this analysis, policymakers are advised to grant a moderate level of ownership holdings to insiders to improve firm performance.

Text 125348 - Full Text.pdf Download (1MB) Text SPE 2023 32 - Declaration Form.pdf Restricted to Repository staff only Download (351kB) Text SPE 2023 32 - Full Text.pdf Restricted to Repository staff only Download (1MB) Official URL or Download Paper: http://ethesis.upm.edu.my/id/eprint/18855

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