IMPACT OF CORPORATE GOVERNANCE ON FIRMS PERFORMANCE:
CASE OF FAMILY FIRMS IN MALAYSIA
CHAPTER 1: INTRODUCTION
1.0 Background of Study
For many years and in many economies, most of business activity was accompanied by proprietorships, partnerships, or closed corporations. In these forms of organizations, a small and closely related group of individuals belongings the same family or co-operating in business for lightly periods runs the firm and share the profit. A lot of attention, has focused on the relationship between ownership structure and corporate performance for instance, a research agenda on the implications of ownership structure on corporate governance by La Porta et al ...view middle of the document...
The nature of relationship between ownership and financial performance is key issue for governance, thus, ownership structure plays an important role in governance and performance of firms as its function as monitoring and governance mechanism for the board and further enhance firms performance. The proposition of this view come from Fama and Jensen (1983) and Short et al (2002).
In Malaysia, debates on corporate governance get a wide attention after the East Asian Financial crisis in middle of 1997.Thus, the government has taken few steps to review and the Malaysian Institute of Corporate Governance (MICG). A few authorities, namely the Malaysian Institute of Accountants (MIA),the Kuala Lumpur Stock Exchange (KLSE) and the Securities Commission (SC) have introduces certain requirement to enhance good corporate governance. For the family owned business, good governance make all the difference with effective governance practices, family firms are likely to do more strategic planning and succession planning. More previous research found that the family business ownership grow faster and live longer based on the research from Leach and Leahy (1980) on 325 of large UK industrial firm found that the family firm has higher valuation ratio, greater profit margin, high return on shareholder`s capital, high growth rate scales and high growth rate of net asset compare to non family firms.
These family firms have a great sense of family attachment and majority of the ownership are in the hand of family members. In Malaysia, family firm contribute more than half of Malaysian`s Gross Domestic Product (GDP) (Ngui , 2002).Family firm are found different from non-family firms in term of ownership structure, management style, motivation of founders, family culture and decision making (Gomez Mejia, Tosi and Hinkin 1987, Whisler 1998, Daily and Dollinger 1992, Chua, Crisman and Chang 2005). In term of performance, findings between family firms and non- family firm performance were mixed. From the research by Anderson and Reeb, 2003, Miller and Breton- Miller 2006, Villanlonga and Amit 2006 found the family firms outperform than non-family firms, meanwhile, research from the other countries such as Europe, Australia, Chile found the results be varied. In summary, studies in family firm is less get attention in Malaysia context, and since most Malaysian companies are owned by family firms groups, thus it is motivate this research to be done and with purpose to explore the relationship of family firm and corporate governance and its effect on 5 years performance of 18 family firms in Malaysia from 2008 to 2013.
1.1 Definition of Corporate Governance
Corporate Governance can be describe as ``overall control`` of business activity including the incorporation of company objectives, planning, management structure to serve the interest of various stakeholder (Steiner and Steiner, 2006), indeed Shleifer and Vishny 1996 stated the corporate governance...