Dividends, ownership structure and board governance on firm value: empirical evidence from Malaysian listed firms / Zunaidah Sulong, Fauzias Mat Nor

This paper aims to examine the effects of dividends, types of ownership structure
and board governance on Malaysian firm’s value using sample of 406 listed
firms on the Main Board of Bursa Malaysia. A cross-sectional analysis for the
years 2002 and 2005 was utilised. Both direct effects as well as the moderating
effects of board governance with dividends and types of ownership structure
are examined. The moderating relationship is considered in order to investigate
the board governance role after the implementation of the Malaysian Code of
Corporate Governance through the amendments of Bursa Malaysia Listing
Requirements in 2001. Result from the direct effect reveals that dividend has
a significant positive effect to firm value in both years, thus supporting the
expected hypothesis. This finding is consistent with the view that dividends
mitigate agency costs of free cash flow problem, therefore, increase firm value.
The finding also suggests that dividends among Malaysian listed firms can
play its important monitoring role in reducing agency costs. However, contrary
to expectation, government ownership indicates significantly positive
relationship. Correspondingly, the result implies that investors in the
Malaysian market do value the higher standards of corporate governance
reform found in the government-controlled firms. In addition, foreign
ownership has a negative significant relationship to firm value which is also
contrary to what is expected. Surprisingly, results on ownership concentration
and managerial ownership provide insignificant effect to firm value for both
years. Of particular interests are the results of moderating effects, the result
reveals that board duality has significantly moderated the relationship between
dividends and firm value with a lower coefficient positive effect as expected.
Thus, support the expected hypothesis. As expected, the result from the
moderating effect of board duality with government ownership in year 2002 provided negatively significant result. However, both results of board duality with
dividends and government ownership provide insignificant effect for the year 2005.
Further, the interaction term between dividends with board independence was positively
significant for the year 2005. Whereas, the interaction term between dividends and
board size showed significantly lower coefficient positive moderating effect for both
years. Finally, the inclusion of board size interaction term to foreign ownership provided
significantly negative moderating effect in year 2002. Overall, findings from this paper
reveal that good board governance; particularly board independence and board size
can enhance the monitoring role of dividends, government, and foreign ownership in
reducing agency costs, thus increasing firm value.