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

• Main Authors: Amran Rasli, Chin Fei Goh, Saif-Ur-Rehman Khan
• Format: Article
• Language: deu
• Published: Faculty of Economics University of Rijeka 2013-12-01
• Series: Zbornik radova Ekonomskog fakulteta u Rijeci : časopis za ekonomsku teoriju i praksu
• Subjects: state ownership; institutional ownership; firm performance; corporate governance; ownership structure
• Online Access: https://www.efri.uniri.hr/sites/efri.uniri.hr/files/cr-collections/2/05-rasli-feigoh-khan-2013-2.pdf

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.