Open AccessExternal monitoring, managerial ownership and firm performance in Malaysian capital market: a GMM based panel data approach
Author(s) -
Huson Joher Ali Ahmed,
I.K.M. Mokhtarul Wadud
Publication year - 2009
Publication title -
corporate ownership and control
Language(s) - English
Resource type - Journals
eISSN - 1810-0368
pISSN - 1727-9232
DOI - 10.22495/cocv7i1p12
Subject(s) - simultaneity , panel data , business , incentive , accounting , sample (material) , industrial organization , microeconomics , economics , econometrics , chemistry , physics , classical mechanics , chromatography
This study re-examines whether the structure of share ownership by both directors and institutional ownership provides explanation for firm performances. These relationships are modelled and estimated using GMM based dynamic panel data over a period from 1997 to 2001 with a sample of 100 CI components companies listed on Main Board of Malaysia. The findings provide strong evidence of simultaneity between firm performance and managerial ownership. Although an insignificant relationship between firm performance and institutional ownership is observed, the institutional holdings provide strong substitute for managerial ownership with a strong negative relationship between managerial ownership and institutional ownership. This is in line with the managerial incentive hypothesis, which suggests that manager’s share in the firm’s ownership leads to better performance and the monitoring substitute hypothesis, which suggests that managerial ownership could be effectively replaced by institutional ownership.