Title: Dispelling the myth of a value premium: contrary evidence of Malaysian crony capitalism
Authors: Muhammed-Shahid Ebrahim; Robert Hudson; Abdullah Iqbal; Mohamed Eskandar Shah MohdRasid
Durham University Business School, University of Durham, Mill Hill Lane, Durham DH1 3LB, UK
Hull University Business School, University of Hull, Hull HU6 7RX, UK
Kent Business School (Medway), University of Kent, Canterbury, Kent CT2 7PE, UK
International Centre for Education in Islamic Finance (INCEIF), Lorong Universiti A, 59100 Kuala Lumpur, Malaysia
Abstract: This paper contradicts the existence of a universal value anomaly by studying Malaysia, a country with a unique institutional setting. We investigate this counter-example to attribute the anomaly to: 1) the leverage effect of value firms; 2) the investment pattern of growth firms; 3) the economic environment. We find that the value premium cannot be ascribed solely to risk as it is time varying and dependent on the attributes of the companies. Our results illustrate that small cap value firms perform relatively well during favourable economic conditions. In contrast, large cap growth firms perform better than their counterparts (i.e., large cap value firms) in economic upturns as they are preferentially awarded projects to revive the nation's growth.
Keywords: asset pricing; growth stocks; multifactor models; value premium; value stocks; Malaysia; crony capitalism; investment patterns.
Int. J. of Banking, Accounting and Finance, 2016 Vol.7, No.1, pp.1 - 33
Date of acceptance: 31 May 2016
Available online: 14 Sep 2016