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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Amran Rasli & Chin Fei Goh & Saif-Ur-Rehman Khan, 2013. "Demystifying the role of a state ownership in corporate governance and firm performance: Evidence from the manufacturing sector in Malaysia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 31(2), pages 233-252.
    • Handle: RePEc:rfe:zbefri:v:31:y:2013:i:2:p:233-252
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    state ownership; institutional ownership; firm performance; corporate governance; ownership structure;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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