Difficulties in being responsible institutional investors: evidencefrom Malaysia

Abstract

Purpose The purpose of this paper is to ascertain whether institutional investors in Malaysia faced limitations when they are involved in the corporate governance of their investee companies. Design/methodology/approach A qualitative approach, consisting of a series of interviews with senior investment managers of different type of institutional investors, was chosen. In total, 18 interviews were conducted over a period of two months, which is thought to sufficiently provide the answers to the research purpose. Findings The interviews revealed there are difficulties in monitoring all investee companies due to lack of time and resources. Traditional measures such as company financial performance and dividend policy, continued to be favored and rigorously monitored. The overdependence on hard criteria may be a result of a culture of overly rewarding beneficiaries and a lack of expertise in being involved in specialized company areas such as strategy. Strict regulations hamper effort to be more involved in governing investee companies. Research limitations/implications The research used interviews and generalization may become an issue. In addition, access to many managers depended on recommendations, and the respondents are selected to represent the different types of institutional investors. Originality/value Investigation into factors that may limit institutional investors’ involvement in corporate governance in Malaysian public listed companies, especially from a more qualitative viewpoint, is lacking. In addition, this paper advances the understanding of shareholder activism by adding to the literature by exploring the issue in a specific emerging markets context.

Ethical commitment, institutional investors and financial performance: Malaysian evidence

“…However, the findings cannot prove that institutional investors can enhance company performance. These findings align with previous studies that argue that Malaysian institutional investors lack the motivation to monitor due to a lack of resources and have dispersed in business (Annuar, 2019; Chang, 2015; Katan & Mat Nor, 2015). When segregating the sample base on the pre‐MCCG 2017 and post‐MCCG 2017 period, institutional investors are found to strengthen the association between ethics and company profitability during pre‐MCCG 2017.…”

“…Another monitoring mechanism is institutional investors. The agency theory recognises the role of the institutional investors as efficient monitors that can improve investors' protection, transparency and performance (Annuar, 2019). The MCCG recognises that institutional investors have an extensive role in monitoring companies.…”

“…The findings are consistent with prior empirical evidence in Malaysia, that there is little evidence to suggest that institutional investors play a significant role in influencing the performance of companies (Abdulsamad & Wan Yusoff, 2016; Chang, 2015; Katan & Mat Nor, 2015). Such evidence could be due to the lack of stakes in investee companies, limited resources and pursuit of short‐term objectives (Annuar, 2019). For example, large institutions are more attracted to companies that have diversified businesses (Saleh et al, 2010).…”

“…However, studies based on Malaysian data suggest a lack of evidence on how institutional investors relate to the performance of companies (Abdulsamad & Wan Yusoff, 2016; Chang, 2015; Katan & Mat Nor, 2015). Such evidence could be due to the lack of stakes in investee companies, limited resources and pursuit of short‐term objectives (Annuar, 2019).…”

“…Institutional investors play a role in monitoring managers to ensure they perform best practises in corporate governance (Hashim & Devi, 2012). However, institutional investors were also revealed to have scant motivation to monitor investing companies and were only interested in business relationships with those companies (Annuar, 2019), which contradicts the regulators' expectations. Annuar (2019) added that ineffectiveness in monitoring is due to a lack of expertise, constraints in terms of resources, and low motivation, as they hold low stakes in the companies.…”