This study employs data on Malaysian firms from 2003 to 2011 to show that ownership by institutional investors is positively associated with audit fees, and this positive association is stronger for firms that are politically connected to the Malaysian government. The results of this study are aligned with the theories that institutional investors can play an effective monitoring role by demanding higher audit quality, particularly if their investee firms are politically connected. Additional tests reveal that the main results are largely driven by foreign institutional investors, while it is insignificant for local institutional investors. Therefore, our evidence suggests that institutional investors, particularly foreign institutions, demand increased audit effort (proxied by audit fees) as a method to monitor politically connected firms.

No abstract

Purpose The purpose of this paper is to examine the main and joint effects of politically connected firms (PCFs) and institutional monitoring on the cost of debt. Design/methodology/approach Based on a panel data set of Malaysian politically connected and non-politically connected listed firms from 2002 till 2015, the author performs regression analysis. To address the issue of self-selection, the PCFs’ equation is estimated, following Lennox et al. (2012) and Heckman (1979). Findings This paper finds that PCFs are associated with higher cost of debt. However, the positive association between PCFs and the cost of debt is attenuated by higher institutional ownership (IO). Further test reveals that monitoring by institutional investors is heterogeneous from the perspective of domicile. Local institutional investors are associated with lower cost of debt, particularly in PCFs, while foreign institutional investors are associated with higher cost of debt. Originality/value The author shows that firm outcome, i.e. cost of debt in emerging markets can differ from advanced markets due to different institutional setting. Additionally, different types of political ties can produce different firm outcomes: GLCs are associated with lower cost of debt as opposed to connected firms based on personal ties. However, agency problems in PCFs can be alleviated through effective institutional monitoring. Consistent with geographical proximity theory, local institutional investors play a more effective monitoring role in Malaysian listed firms, thus lowering cost of debt. Overall, the results contribute to deeper understanding on variation in firm outcomes between emerging and advanced markets.

This study uses Malaysian data to examine whether institutional investors affect the association between firm performance and CEO compensation. Overall, we find that total institutional investor ownership has a negative effect on the positive association between firm performance and CEO compensation, which suggests ineffective monitoring. When the institutional investors are categorized into local and foreign, we find that the negative effect is driven by local institutional ownership, consistent with the argument that foreign institutional investors are associated with better monitoring. Our results provide new insights on the association between institutional investors and the CEO compensation-firm performance relationship in an emerging economy. JEL Classifications: G34; J33.

Purpose The purpose of this study is to examine the association between family firms and audit fees in an emerging economy setting. As family firms either face Type 1 or Type 2 agency problem, it seeks to gain a better understanding on family firms in an emerging economy such as Malaysia. Additionally, this study introduces political connections to investigate whether it can moderate the association between family firms and audit fees. Political connection is chosen as an important institutional feature because of its many and well-documented politically connected firms and pervasive political patronage system in Malaysia. Design/methodology/approach Based on a dataset of 750 firms or 7,848 firm-year observations from 2002 till 2015, panel regression analysis is used to investigate the research questions. As a robustness test, Heckman’s self-selection model is used to deal with the self-selection problem. Findings The results reveal that family firms are associated with higher audit fees, indicating that Type 2 dominates Type 1 agency problems in Malaysia. This positive relationship is stronger in family firms which are older and have higher family controlling shareholding. Further, the association is exacerbated if it is also connected to the ruling elite. Originality/value This study contributes to the literature by showing that institutional feature such as family firms and political connections can produce different firm outcomes between emerging and advanced economy, particularly in auditing. This study responds to calls for more research on auditing in family firms, particularly in emerging economy.