Controlling Shareholders and the Implied Cost of Equity of Malaysian Firms

Abstract

This study examines the impact of concentration of ownership on implied cost of equity capital of Malaysian listed firms over the 2004-2009 period. We analysed the impact of a higher degree of voting rights by the controlling shareholders, the identity of the controlling shareholders, and the moderating effect of controlling shareholders’ involvement in management. Our results show that a higher ownership concentration by controlling shareholders reduces the implied cost of equity capital. The result shows that foreign firms significantly underperformed against firms controlled by other types of controlling shareholders, including government and family firms. In addition, we found that involvement in management can further increase the implied cost of equity capital if foreign controlling shareholders controlled above 50 per cent of voting rights, while the implied cost of equity capital of family and government controlled firms is not affected by their presence in company’s top management.