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Ethnicity, politics and firm performance: Evidence from Malaysia

Author

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  • Gul, Ferdinand A.
  • Munir, Sa'adiah
  • Zhang, Liang

Abstract

Motivated by the inconclusive evidence on the role of ethnic diversity of directors and the limited research, this study examines whether there is an association between board ethnic diversity in Malaysian firms and firm performance. We find that the association between ethnic diversity of boards and firm performance is non-linear; at low levels of ethnic diversity there is a positive association but at higher levels of ethnic diversity, the association is negative. However, when we split the sample into politically and non-politically connected firms, we find that this association only holds for non-politically firms. Further, when we split our politically connected sample into Malay and non-Malay dominant boards, we find generally, that in both groups of firms, board ethnic diversity does not influence firm performance. Overall, these results suggest that the presence of political connection could undermine the role of ethnic diversity in influencing firm performance.

Suggested Citation

  • Gul, Ferdinand A. & Munir, Sa'adiah & Zhang, Liang, 2016. "Ethnicity, politics and firm performance: Evidence from Malaysia," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 115-129.
    • Handle: RePEc:eee:pacfin:v:40:y:2016:i:pa:p:115-129
    DOI: 10.1016/j.pacfin.2016.10.005
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    Cited by:

    1. Badru, Bazeet O. & Ahmad-Zaluki, Nurwati A. & Wan-Hussin, Wan Nordin, 2017. "Board characteristics and the amount of capital raised in the Malaysian IPO market," Journal of Multinational Financial Management, Elsevier, vol. 42, pages 37-55.
    2. Truc (Peter) Do, 2023. "The impact of board ethnic diversity on executive pay‐to‐performance sensitivity: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3643-3674, September.
    3. Liao, Jing & Smith, David & Liu, Xutang, 2019. "Female CFOs and accounting fraud: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 449-463.

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    More about this item

    Keywords

    Corporate governance; Ethnicity; Politically connected firms; Firm performance; Malaysia;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M19 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Other

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