Recent studies of corporate ownership structure demonstrate that dispersed ownership structure is far from a norm around the world. The majority of corporations in most countries exhibit concentrated ownership (Du and Dai, 2005). Concentrated ownership here can be related to family-owned firm, where individuals and close family members having accumulated large interest in the firm. In Malaysian context, Tam and Tan (2007) reviewed studies by Zhuang et al. (2001) and Claessens et al., (2000) that, in 1998, more than forty percent of substantial shareholders are held by single large shareholder. Individual or family shareholders are predominant as large shareholders in Malaysia. Rapid growth of Malaysia’s economy was not able to disperse the ownership concentration in Malaysian firms (Tam and Tan, 2007). This not an encouraging development as it would lead to various agency problems. The financial crisis in late 1990s has highlighted the problems of corporate governance in South East Asian corporations, which of particular concern are ownership structure which was overly concentrated (Driffield, 2007). Corporate ownership structure has been cited as one of the reason for risky capital structure of South East Asian corporations prior to crisis (Du and Dai, 2005). 26
Cash flow right refers to right to claim dividends, whereas control right refers to right to vote by common stock shareholder (Du and Dai, 2005). Block shareholders, who has the control right, are able to exert their control for proper and wise capital structure decision to be decided and implemented (López-de-Foronda et al., 2007). This is able to avoid managers from venturing into projects that has risky potentials (Miguel and Pindado, 2006). Study in transition economies proved that concentrated ownership tends to reduce debt financing (Nivorozhkin, 2005). Therefore, in determining the effect of different types of ownership structure towards the capital structure, the study by Zou and Xiao (2006) would be most relevant. In the study, they have studied the relationship between ownership structure and financial leverage of public listed firms in China. The study was done to ascertain the managerial incentives to raise equity in view of high agency problems in the country. The ownership structure is classified into three large categories, which includes family-owned, state-owned and foreign owned. If any of these entities has 5% or more share in the firm, it is classified according to the respective entity. The 5% cut-off value for determination of major shareholder is based on studies done by Samad (2004). Additionally, according to the Bursa Malaysia requirement, substantial shareholders are those who has more than 5% stake in a corporation and names of these shareholders are reported the companies’ annual reports.
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