Board attributes and foreign shareholdings in Malaysian listed firms

Abstract

This study examines the association between foreign shareholdings and several characteristics of board of directors in the context of a developing capital market. Using data of 777 listed firms on Bursa Malaysia for the financial year 2008, the study predicts that foreign shareholdings are positively related to board independence, multiple directorships, and financial literacy of the board of directors. The study finds a strong positive relationship between multiple directorships and foreign shareholdings. Contrary to our expectation, the association between board financial literacy and foreign shareholdings is negative and significant. With regard to the link between board independence and foreign shareholdings, we find weak evidence to support our prediction that there is positive relationship between board independence and foreign shareholdings. The multivariate results also show strong positive relationships between foreign shareholdings and number of foreign directors on boards, and between foreign shareholdings and audit quality. The study also documents a significant negative association between foreign shareholdings and firm size, and between foreign shareholdings and book-to-market ratio. The findings of the study supports the view that multiple directorships is an important asset to firms in emerging markets partly due to limited pool of potential talents and experts

Moderation of directors' education on board busyness-firm efficiency

“…Therefore, the results of the higher mean number of external directorship and higher percentage of busy directors likely due to the more lenient recommendations on multiple directorship limits in developing countries than in developed countries. The results are consistent with past findings; directors are permitted to hold directorships with lenient limitations in developing countries because of the constraints on the supply of managerial labour and the institutional differences of developing countries including weak legal protection, an underdeveloped capital market, as well as more concentrated and significant stock ownership (Sarkar and Sarkar, 2009; Lei and Deng, 2014; Yatim et al , 2016).…”

“…The issue of busyness typically attracts regulators, for example, the National Association of Corporate Directors (1996), to recommend the rule-of-thumb limit of three external directorships for each director in the US. As a consequence of the constraints on the supply of the managerial labour, as well as institutional differences, the directorship restrictions in developing countries vary from those of developed countries (Sarkar and Sarkar, 2009; Lei and Deng, 2014; Yatim et al , 2016). However, so far, the studies on board busyness using cross-country data are still limited (Adams et al , 2010).…”

Firm Efficiency of East Asia Countries: The Impact of Board Busyness

“…The results of higher percentage of busy directors in the context of developing countries are perhaps due to the much lenient recommendations on multiple directorships limitation in developing countries than in developed countries. These findings are in line with previous studies, such as Sarkar and Sarkar (2009) and Yatim et al (2016), documenting that the directors are allowed to hold directorships with lenient limitation in the developing countries due to the constraints on the supply of the managerial labour and the institutional differences, including weak legal protection, underdeveloped capital market as well as more concentrated and significant stock ownership.…”

“…Third, the negative results of BBDUM3 are relatively more significant in developing countries (as compared to developed countries). The results indicate that the detrimental effect of busy boards could be more pronounced in the context of developing countries with relatively weak corporate governance policies (Yatim et al, 2016). Therefore, the results call for regulators and government policymakers to review the restrictions on board busyness and multiple directorships, especially in the context of developing countries.…”

“…Accordingly, National Association of Corporate Directors (1996) recommended the rule of thumb of three directorships on each director in the USA, for instance. However, the directorship restrictions on developing countries are different from developed countries, as a result of the constraints on the supply of the managerial labour and institutional differences (Lei & Deng, 2014; Sarkar & Sarkar, 2009; Yatim, Iskandar, & Nga, 2016).…”