The Influence of Ultimate Ownership Concentration on Leverage

Hong Kok Chee, Chee-Wooi Hooy, Chai-Aun Ooi

Abstract


ABSTRACT

This paper investigates the relationship between ultimate ownership concentration and the extent of leverage in the context of Malaysia. The data of this study include 478 publicly listed firms from2001 to 2012. The results show that ultimate ownership concentration has U-shaped relationship with leverage, with the turning point being at the ownership concentration of 42%. Based on signalling theory, the results show that a moderate extent of ultimate ownership concentration tends to adopt lower leverage for they have higher incentives to self-monitor managerial opportunistic decision making; by contrast,an ultimate owner who holds excessively high concentration of shareholdings shows self-benefitting behaviour, with the owner tending to adopt higher leverage to sustain the loss of firm value from expropriation. However, higher institutional ownership concentration plays a significant monitoring role over the owner’s opportunistic behaviour through the signalling of lower leverage even when the shareholding of ultimate owner is excessively large.

Keywords: Ultimate ownership; leverage; nonlinear; institution ownership; Malaysia

ABSTRAK

Kajian ini mengkaji hubungan antara pemusatan pemilikan utama and leveraj firma dalam Malaysia konteks. Kajian ini menggunakan data daripada 478 buah syarikat tersenarai dari tahun 2001 hingga 2012. Keputusan kajian ini memaparkan hubungan tersebut adalah bercorak-U, dengan titik perubahan berada pada tahap 42 peratus pemilikan utama. Mengikut teori signal, keputusan tersebut menggambarkan bahawa pemusatan pemilikan utama yang sederhana cenderung untuk menggunakan leveraj yang rendah, kerana pemilik menggunakan peranan leveraj untuk mengawasi kesempatan pengurus dalam membuat keputusan bagi kepentingan sendiri; sebaliknya, pemilik utama yang mempunyai pemusatan pemilikan yang tinggi cenderung untuk menyalahgunakan sumber firma untuk kepentingan sendiri, dengan itu, mereka suka akan leveraj yang tinggi untuk mengekalkan nilai firma. Walau bagaimanapun, pemusatan pemilikan institusi yang tinggi memainkan peranan yang penting untuk mengawasi tingkah laku pemilik yang bersifat oportunistik, di mana leveraj yang rendah telah digunakan walaupun pemusatan pemilikan utama adalah tinggi.

Kata kunci: Pemilikan utama; leveraj; nonlinear; pemilikan institusi; Malaysia


Keywords


ultimate ownership; leverage; nonlinear; institution ownership; Malaysia

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