Recent studies of corporate ownership structure

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).
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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.