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Title: Do foreign ownership and foreign directorship matter for return on equity? Evidence from Malaysian listed companies

Authors: Peck Ling Tee; Chee Seong Lim; Nai Chiek Aik

Addresses: Department of Economics, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman, Lot PT21144, Jalan Sungai Long, Bandar Sungai Long, 43000, Cheras, Selangor, Malaysia ' Department of Economics, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman, Lot PT21144, Jalan Sungai Long, Bandar Sungai Long, 43000, Cheras, Selangor, Malaysia ' Department of Economics, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman, Lot PT21144, Jalan Sungai Long, Bandar Sungai Long, 43000, Cheras, Selangor, Malaysia

Abstract: The Malaysian Government has liberalised its restrictions on foreign equity ownership in local companies to enhance the country's competitiveness against regional neighbours in attracting more FDI inflows. With an overall panel of 4,176 firm-year observations drawn from a sample of 348 Malaysia-listed companies over the period 1999-2010, fixed-effect panel data regression found that percentage of foreign equity ownership, appointment of foreign chairman and appointment of foreign chief executive director did not have any significant relationship with firm's return on equity (ROE). However, increase in percentage of foreign directors sitting on a company's board significantly improved ROE. Besides, only when foreign investors have dominant (above 50%) voting rights, ROE increased. After categorised firm-year observations into five SIC-defined sectors, manufacturing sector sub-panel yielded similar results as overall panel. In contrast to overall panel, construction and wholesale trade sectors sub-panels showed the appointments of foreign chairman and foreign chief executive director negatively influenced ROE.

Keywords: foreign equity ownership; FOWN; foreign chairman; FCHM; foreign executive director; FEXD; return on equity; ROE; upper echelon theory; agency theory; Malaysia.

DOI: 10.1504/IJBGE.2017.085237

International Journal of Business Governance and Ethics, 2017 Vol.12 No.1, pp.47 - 64

Available online: 07 Jul 2017 *

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