Ervina Binti Alfan

Family Firms, Expropriation and Firm Value: Evidence from Related Party Transactions in Malaysia

We examine the relationship between related party transactions (RPTs) and firm value and how this relationship is moderated by ownership concentration using a sample of 379 listed family and 151 non-family firms for the period 2007 to 2009. Ordinary Least Square Pooled Model as well as Fixed Effects Model panel data regressions are used in the data analysis. For family firms, we find that RPTs reduce firm value (proxied by Tobin’s Q and market-to-book value). Further, controlling shareholders’ ownership has a significant positive moderating effect on this relationship. However, for non-family firms, there is no significant evidence of firm value reduction and positive moderating effect respectively. We conclude that expropriation via RPTs is stronger in family firms compared to non-family firms. Additionally, an increase in controlling shareholders’ ownership helps mitigate this expropriation and this mitigating effect is stronger in family firms compared to non-family firms. The implications for the capital market regulator are discussed in this paper.

Antecedents of Ethnic Diversity: The Role of Nomination Committees

The role of the nomination committee (NC) in the selection of members of various ethnic groups for board membership has increased significantly as a result of the global financial crisis of 2008. A company board that comprises directors who come from all the three major ethnic groups (Malay, Chinese and Indian Malaysians) increases the efficiency of the board in its monitoring and advising roles. According to the Malaysian Code of Corporate Governance (MCCG 2012), the NC shall be responsible for the appointment and recognition of candidates of diverse backgrounds into the board and committee. With that in mind, this paper examines the presence of Malay, Chinese and Indian directors in a nomination committee and its impact on the ethnic diversity of its board. This paper also examines the influence of the executive directors who are members in the nomination committee on the nomination process. For this purpose, 393 (50%) Malaysian listed companies were selected from the three year period of 2011 to 2013. Only non-financial companies were included because other companies such as finance have a different set of regulations in Malaysia. In this study, descriptive statistics, correlation and multiple regression were used for the purpose of revealing important significance of the variables used. In order to control possible endogeneity issues, the GMM estimator was also administered. The regression results of the ethnic diversity model are statistically significant, showing that, a higher proportion of Malay and Chinese directors in a nomination committee has negative relationships while a higher proportion of Indian directors in a nomination committee increases their representation on the board. However, the proportion of executive directors in the nomination committee was found to have a significant impact on the director nomination process of Malay, Chinese and Indian directors. In order to test the robustness of the model, several sets of measures were used. In conclusion, it is deduced that the results of this study support the social identity theory and power struggle; it shows the importance of diversity within the nominating committee of Malaysian companies. The result also reveals that unbiased and effective board mix enhances the strategic decision-making process of the board.

Independent Directors’ Tenure, Related Party Transactions, Expropriation and Firm Value: Evidence from Malaysian Firms

This paper examines whether independent directors’ tenure moderates the relationship between related party transactions and firm value and whether controlling shareholders’ ownership moderates this moderating effect in Malaysian firms. The results show that independent directors’ tenure negatively moderates the relationship between related party transactions and firm value. However, controlling shareholders’ ownership positively moderates this moderating effect. It is also found that the negative moderating effect of independent directors’ tenure and the positive moderating effect of controlling shareholders’ ownership are stronger in family firms compared to non-family firms. The research results are robust against the control of technology companies.

The Ability of Analysts' Recommendations to Predict Optimistic and Pessimistic Forecasts

Previous researches show that buy (growth) companies conduct income increasing earnings management in order to meet forecasts and generate positive forecast Errors (FEs). This behavior however, is not inherent in sell (non-growth) companies. Using the aforementioned background, this research hypothesizes that since sell companies are pressured to avoid income increasing earnings management, they are capable, and in fact more inclined, to pursue income decreasing Forecast Management (FM) with the purpose of generating positive FEs. Using a sample of 6553 firm-years of companies that are listed in the NYSE between the years 2005–2010, the study determines that sell companies conduct income decreasing FM to generate positive FEs. However, the frequency of positive FEs of sell companies does not exceed that of buy companies. Using the efficiency perspective, the study suggests that even though buy and sell companies have immense motivation in avoiding negative FEs, they exploit different but efficient strategies, respectively, in order to meet forecasts. Furthermore, the findings illuminated the complexities behind informative and opportunistic forecasts that falls under the efficiency versus opportunistic theories in literature.