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Ethnicity, politics and firm performance: Evidence from Malaysia

Listed author(s):
  • Gul, Ferdinand A.
  • Munir, Sa'adiah
  • Zhang, Liang

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0927538X16301883
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Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

Volume (Year): 40 (2016)
Issue (Month): PA ()
Pages: 115-129

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Handle: RePEc:eee:pacfin:v:40:y:2016:i:pa:p:115-129
DOI: 10.1016/j.pacfin.2016.10.005
Contact details of provider: Web page: http://www.elsevier.com/locate/pacfin

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  1. Bliss, Mark A. & Gul, Ferdinand A., 2012. "Political connection and cost of debt: Some Malaysian evidence," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1520-1527.
  2. Fan, Joseph P.H. & Wong, T.J. & Zhang, Tianyu, 2007. "Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms," Journal of Financial Economics, Elsevier, vol. 84(2), pages 330-357, May.
  3. Aggarwal, Rajesh K. & Meschke, Felix & Wang, Tracy Yue, 2012. "Corporate Political Donations: Investment or Agency?," Business and Politics, Cambridge University Press, vol. 14(01), pages 1-38, April.
  4. Ronald C. Anderson & David M. Reeb & Arun Upadhyay & Wanli Zhao, 2011. "The Economics of Director Heterogeneity," Financial Management, Financial Management Association International, vol. 40(1), pages 5-38, March.
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  6. Amy J. Hillman, 2000. "The Resource Dependence Role of Corporate Directors: Strategic Adaptation of Board Composition in Response to Environmental Change," Journal of Management Studies, Wiley Blackwell, vol. 37(2), pages 235-256, March.
  7. repec:cup:jfinqa:v:46:y:2011:i:06:p:1865-1891_00 is not listed on IDEAS
  8. Eitan Goldman & Jörg Rocholl & Jongil So, 2009. "Do Politically Connected Boards Affect Firm Value?," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2331-2360, June.
  9. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
  10. Ferdinand A. Gul, 2006. "Auditors' Response to Political Connections and Cronyism in Malaysia," Journal of Accounting Research, Wiley Blackwell, vol. 44(5), pages 931-963, December.
  11. MARA FACCIO & RONALD W. MASULIS & JOHN J. McCONNELL, 2006. "Political Connections and Corporate Bailouts," Journal of Finance, American Finance Association, vol. 61(6), pages 2597-2635, December.
  12. Anderson, Ronald C. & Mansi, Sattar A. & Reeb, David M., 2004. "Board characteristics, accounting report integrity, and the cost of debt," Journal of Accounting and Economics, Elsevier, vol. 37(3), pages 315-342, September.
  13. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
  14. Joseph P. H. Fan & T. J. Wong, 2005. "Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia," Journal of Accounting Research, Wiley Blackwell, vol. 43(1), pages 35-72, March.
  15. Aggarwal Rajesh K. & Meschke Felix & Wang Tracy Yue, 2012. "Corporate Political Donations: Investment or Agency?," Business and Politics, De Gruyter, vol. 14(1), pages 1-40, April.
  16. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February.
  17. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
  18. Kim, Incheol & Pantzalis, Christos & Park, Jung Chul, 2013. "Corporate boards' political ideology diversity and firm performance," Journal of Empirical Finance, Elsevier, vol. 21(C), pages 223-240.
  19. Michael L. Lemmon & Michael R. Roberts & Jaime F. Zender, 2008. "Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure," Journal of Finance, American Finance Association, vol. 63(4), pages 1575-1608, August.
  20. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, Oxford University Press, vol. 120(4), pages 1371-1411.
  21. Fung, Simon Y.K. & Gul, Ferdinand A. & Radhakrishnan, Suresh, 2015. "Corporate political connections and the 2008 Malaysian election," Accounting, Organizations and Society, Elsevier, vol. 43(C), pages 67-86.
  22. David A. Carter & Betty J. Simkins & W. Gary Simpson, 2003. "Corporate Governance, Board Diversity, and Firm Value," The Financial Review, Eastern Finance Association, vol. 38(1), pages 33-53, February.
  23. Yangmin Kim, 2005. "Board Network Characteristics and Firm Performance in Korea," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(6), pages 800-808, November.
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