Title: Does Mobility of Corporate Governance Reduce Financial Constraints Issues in Family Controlled Firms
Abstract: International investors are able to promote good corporate governance practices around the world and exert improvement in governance structure. This mobility of corporate governance requires interplay of foreign ownership and institutional factors in different markets. This study aims to investigate whether there is a mobility of corporate governance effects of foreign ownership on local large ownership firms, which face financial constraints for investments. An effective mobility of corporate governance brings to the improvement in investments by using external capital for investments. The study tests this proposition on Malaysia family firms, which have low cash flow. The sample comprises 265 firms from 2008 to 2014. The findings confirm a few issues. First, family firms in Malaysia face financial constraints, which lead to the issues of low investment in the country. CEO’s duality and independent directors, both corporate governance mechanisms are not effective in ensuring efficient financing for investment. Second, the influence of foreign ownership on corporate governance is not straightforward. They are an interplay between foreign owner and large shareholder in family firms in improving corporate governance mechanism for an effective financing. Foreign ownership could exert an improvement in CEO’s duality when their controlling stake is less than 11% and the large shareholder’s interest is less than 15%. The non-linear interplay between large shareholders and foreign ownership are observed when large shareholders’ interest is less than 10% and more than 40%, respectively.
Publication Year: 2018
Publication Date: 2018-01-25
Language: en
Type: article
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