Unique determinants of abnormal earnings growth in Malaysia

Abstract

Purpose – This paper aims to use Malaysian data to investigate determinants of the implied growth rate of abnormal earnings. Design/methodology/approach – The sample comprises 340 listed companies. Logistic regressions were conducted. The dependent variables, observed in 2009, distinguish companies with high versus low implied growth rates. The independent variables were observed in 2008. The independent variables of interest capture companies’ status as being Nanyang and politically connected corporations. Findings – The results suggest that in Malaysia, implied growth rates are higher for Nanyang corporations and companies with a political connection related to economic policy. Research limitations/implications – The study is limited by its one-year investigation period and blurred boundaries between types of political connections. Because these considerations bias the study against supporting the hypotheses, the significant results have enhanced credibility. The empirical proxies for implied growth rates are affected by measurement error. Hence, multiple proxies were used. Practical implications – The results suggest that Malaysian Nanyang corporations are a sound investment. The evidence also indicates that in Malaysia, government investment in listed companies enhances, rather than erodes, shareholder wealth. Originality/value – Owing to the prevalence of Nanyang companies and government investment in the private sector, the Malaysian setting is unique. The use of a broad definition of “political connections” is a unique aspect of this paper. Examination of implied equity growth rates and the proxies for the same are also original features.

A Vision for Malaysian and Other ASEAN Researchers to Contribute to the International Agency Theory-based Literature

“…Their results suggest that political connections added more shareholder value when they are longstanding and when the politically connected company employed professional managers and directors. In comparison, the findings of Sinnadurai (2016) imply that Malaysian companies with a shareholder connection related to economic policy (but not Malaysian companies with other types of political connections) enjoyed higher abnormal earnings growth rates (Ohlson, 2005). Tee et al (2017) examined the association between shareholdings by institutional investors and audit quality (measured by Vision for Malaysian & ASEAN Researchers to Contribute to Agency Theory-based Literature the amount of audit fees) and it was found that the positive association between institutional ownership and audit fees was stronger for politically connected companies.…”

“…Historically, the Chinese have been urban dwellers generating most of the nation's wealth and economic output via business enterprises. Conversely, the bumiputera have principally been poor rural dwellers with control over the nation's politics (Sinnadurai, 2016). Tensions between the two ethnic groups erupted in race riots in 1969.…”

“…This review paper explores several gaps in the literature to which Malaysian research could contribute. Research (Sinnadurai, 2016;Heng & Sieh, 2004;Gomez & de Micheaux, 2017) has investigated whether corporate political connections constitute an agency cost or an agency mechanism. Research (Sinnadurai, 2016) has also noted that Malaysian firms have many political connections and different types of political connections.…”

“…Research (Sinnadurai, 2016;Heng & Sieh, 2004;Gomez & de Micheaux, 2017) has investigated whether corporate political connections constitute an agency cost or an agency mechanism. Research (Sinnadurai, 2016) has also noted that Malaysian firms have many political connections and different types of political connections. In this context, there are also family companies which may carry a different type of agency problem that differs from non-family companies.…”

“…The studies discussed in the sections about Malaysia were identified via three principal modes: The first mode is preparation that I have conducted for workshops delivered at Malaysian universities, for staff and doctoral students, about key papers in my research areas of interest. The second mode is feedback from referees and seminar participants, obtained when Sinnadurai (2016) and Shayan Nia, Sinnadurai, Mohd-Sanusi and Hermawan (2017) were working papers. The third mode is feedback from interactions with Dynaquest Sendirian Berhad and the Malaysian Institute of Corporate Governance.…”