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

• Main Authors: Md. Rasli, Amran, Chin, Fei Goh, Khan, Saif-Ur-Rehman
• Format: Article
• Language: English
• Published: 2013
• Subjects: HD28 Management. Industrial Management
• Online Access: http://eprints.utm.my/id/eprint/49204/1/AmranRasli2013_Demystifyingtheroleofastate.pdf; http://eprints.utm.my/id/eprint/49204/; https://ideas.repec.org/a/rfe/zbefri/v31y2013i2p233-252.html
• Institution: Universiti Teknologi Malaysia

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