Effect of Block Ownership on Performance of Malaysian Property Companies

Abstract

Concentration of ownership is said to be more evident in Asian firms due to the prevalence of family-controlled and state-controlled firms. This study empirically examines the relationship between firm performance and the presence of block holders. It analyses panel data drawn from 81 Malaysian property firms studied during the period of 1999-2005. Results from ordinary least squares and two stage least squares regression within a simultaneous equation system suggests firms with high block ownership has a negative impact on firm performance. The results indicate that firm performance represented by Tobin’s Q does not reward firms with block owners as the market fears large shareholders would impose their wills in order to improve their own positions at the expense of other shareholders, thus favouring a dispersed ownership structure. However, contrasting findings were reported when an accounting measure is used as firm performance. The findings also show that causality runs in both directions indicating that block ownership is a determinant of performance and vice versa.