IDEAS home Printed from https://ideas.repec.org/p/hit/hitcei/2001-9.html
   My bibliography  Save this paper

Capital Structure and Investment Behaviour of Malaysian Firms in the 1990s: A Study of Corporate Governance before the Crisis

Author

Listed:
  • Suto, Megumi
  • 首藤, 惠
  • ストウ, メグミ

Abstract

This is an empirical study analyzing the corporate finance and governance structure in Malaysia before and after the financial crisis of 1997, utilizing the agency cost approach. The contribution of this paper is to link the corporate governance mechanism with the role of banks and corporate ownership structure taking into account the institutional framework and historical background of the Malaysian financial system. Based on data for 375 non-financial KLSE (Kuala Lumpur Stock Exchange) listed companies during fiscal years 1995-99, our analysis is organized into three parts. Section 2 outlines characteristics of corporate finance in Malaysia in the 1990s using aggregated time-series data. Section 3 examines determinants of capital structure via cross-sectional regressions in terms of dependency on banks, availability of internal funds, ownership concentration, ethnic ownership structure, industry effects, etc. And in section 4, we estimate simple investment functions with panel data in order to examine the effects of debt financing on corporate investments before the crisis. Empirical results show that the commitment of banks to finance corporate debt as well as lending obviously increased debt ratios. Ownership concentration mitigates conflict between managers and owners. Foreign ownership also contributed to a reduction in the agency costs of equity financing. However, increasing ownership by native Malays (Bumiputera), both the direct and indirect holding of corporate shares, played no significant role in disciplining corporate management. Finally, high dependency on debt led to excessive corporate investment before the crisis. These results imply that the concentration of risks on the banking sector and social policy advocating the dispersion of corporate ownership weakened the corporate governance mechanism, thereby exacerbating the distress of Malaysia's corporate sector during the financial crisis.

Suggested Citation

  • Suto, Megumi & 首藤, 惠 & ストウ, メグミ, 2001. "Capital Structure and Investment Behaviour of Malaysian Firms in the 1990s: A Study of Corporate Governance before the Crisis," CEI Working Paper Series 2001-9, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hitcei:2001-9
    as

    Download full text from publisher

    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/13972/wp2001-9a.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mark J. Roe, 1997. "The Political Roots Of American Corporate Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(4), pages 8-22, January.
    2. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1990. "Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 105-126, National Bureau of Economic Research, Inc.
    3. Wiwattanakantang, Yupana, 1999. "An empirical study on the determinants of the capital structure of Thai firms," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 371-403, August.
    4. Shyam-Sunder, Lakshmi & C. Myers, Stewart, 1999. "Testing static tradeoff against pecking order models of capital structure," Journal of Financial Economics, Elsevier, vol. 51(2), pages 219-244, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mieno, Fumiharu & 三重野, 文晴 & ミエノ, フミハル, 2004. "Fund Mobilisation and Investment Behavior in Thai Manufacturing Firms in the Early 1990s," CEI Working Paper Series 2004-14, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    2. Stijn Claessens & Joseph P. H. Fan, 2002. "Corporate Governance in Asia: A Survey," International Review of Finance, International Review of Finance Ltd., vol. 3(2), pages 71-103, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2012. "Financing of firms in developing countries : lessons from research," Policy Research Working Paper Series 6036, The World Bank.
    2. Huang, Guihai & Song, Frank M., 2006. "The determinants of capital structure: Evidence from China," China Economic Review, Elsevier, vol. 17(1), pages 14-36.
    3. Koh, SzeKee & Durand, Robert B. & Watson, Iain, 2011. "Seize the moment: Opportunism in Australian capital markets," Pacific-Basin Finance Journal, Elsevier, vol. 19(4), pages 374-389, September.
    4. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1993. "The Choice Between Public and Private Debt: An Analysis of Post-Deregulation Corporate Financing in Japan," NBER Working Papers 4421, National Bureau of Economic Research, Inc.
    5. Charles W. Calomiris, 1993. "Corporate-Finance Benefits from Universal Banking: Germany and the United States, 1870-1914," NBER Working Papers 4408, National Bureau of Economic Research, Inc.
    6. Bülent Köksal & Cüneyt Orman, 2015. "Determinants of capital structure: evidence from a major developing economy," Small Business Economics, Springer, vol. 44(2), pages 255-282, February.
    7. Fumiharu Mieno, 2006. "Fund Mobilization and Investment Behavior in Thai Manufacturing Firms in the Early 1990s," Asian Economic Journal, East Asian Economic Association, vol. 20(1), pages 95-122, March.
    8. Allen N. Berger & Gregory F. Udell, 1994. "Lines of credit and relationship lending in small firm finance," Proceedings 52, Federal Reserve Bank of Chicago.
    9. Andrey Pavlov & Panikkos Poutziouris & Khaled Soufani, 2004. "Evaluating Flexibility in Small Firm Financing," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 9(1), pages 73-97, Spring.
    10. Wenlian Gao & Feifei Zhu & Kai Chen, 2023. "The role of bank lenders in firm leverage adjustments," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(1), pages 63-97, February.
    11. Randall S. Kroszner & Philip E. Strahan, 1999. "Bankers on Boards: Monitoring, Conflicts of Interest, and Lender Liability," NBER Working Papers 7319, National Bureau of Economic Research, Inc.
    12. Bolaji Tunde Matemilola & Rubi Ahmad, 2015. "Debt financing and importance of fixed assets and goodwill assets as collateral: dynamic panel evidence," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 16(2), pages 407-421, April.
    13. Dimitrios Vasiliou & Nikolaos Eriotis & Nikolaos Daskalakis, 2009. "Testing the pecking order theory: the importance of methodology," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 1(2), pages 85-96, June.
    14. Jarko Fidrmuc & Philipp Schreiber & Martin Siddiqui, 2018. "Intangible Assets and the Determinants of a Single Bank Relation of German SMEs," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 4(1), pages 5-30.
    15. Deesomsak, Rataporn & Paudyal, Krishna & Pescetto, Gioia, 2004. "The determinants of capital structure: evidence from the Asia Pacific region," Journal of Multinational Financial Management, Elsevier, vol. 14(4-5), pages 387-405.
    16. Hege, Ulrich, 2003. "Workouts, court-supervised reorganization and the choice between private and public debt," Journal of Corporate Finance, Elsevier, vol. 9(2), pages 233-269, March.
    17. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-753, May.
    18. Saurabh Chadha & Anil K. Sharma, 2015. "Capital Structure and Firm Performance: Empirical Evidence from India," Vision, , vol. 19(4), pages 295-302, December.
    19. Wu, Xueping & Yao, Jun, 2012. "Understanding the rise and decline of the Japanese main bank system: The changing effects of bank rent extraction," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 36-50.
    20. Pelger, Ines, 2012. "Male vs. female business owners: Are there differences in investment behavior?," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62016, Verein für Socialpolitik / German Economic Association.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hit:hitcei:2001-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Reiko Suzuki (email available below). General contact details of provider: https://edirc.repec.org/data/cehitjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.