Abstract
Objectives: This study examines the effects of RPT and corporate governance factors in the firms’ daily Cumulative Abnormal Return of the stock price (CAR) in the emerging market of Bursa Malaysia. Methods/Analysis: This event study used a sample of 422 RPTs engaged by public listed firms in Malaysia. Univariate analysis (t-test) is used to determine the RPT’s announcement effect on CAR in short horizon window, and the OLS regression to investigate the relationships between firm’s CAR and the corresponding exogenous variables of Minority Shareholder Watchdog Group (MSWG) activism, RPT types and size, and the state of firm’s corporate governance. Findings: Overall, this study pioneered a contribution, in Malaysian context, to the existing pool of literature on expropriation of minority shareholders via RPT. It directly measures the firm’s CAR around the firm’s RPT announcement period. Prior to this research, results with regards to expropriation of minority investors in the presence of RPT remain mixed and unclear in the Malaysian security market. It is also the first study to test and examine the impact of MSWG activism on the firm’s CAR in response to the announcement effect of various types of RPT. The results shows significant negative CAR in the post-announcement of RPT, indicating governance discount of stock prices by the market in realizing occurrence of expropriation. The regression result shows controlling shareholder’s ownership and the divergence of control to cash right have a significant positive association with expropriation of minority investors. It also provides evidence on the mitigating effect of MSWG activism on the controlling shareholders’ expropriating behavior. Finally, past findings on the significance of board independence is reinforced by the result of this study. Novelty/ Improvements: This event study provides a comprehensive treatment of RPT associations with expropriation by controlling shareholders, firm’s characteristics and the effectiveness of corporate governance practices in Malaysian listed firms. Keywords: CAR, MSWG, Related Party Transaction
Highlights
Quality of minority interest protection is a key to growth and development of a country’s security market
The overall mean frequency of firms covered by Minority Shareholder Watchdog Group (MSWG) Activism is 40%, in which more sensitive Related Party Transaction (RPT) such as asset sales and cash receipts, which are non-operating activities, induced a higher level of activism at 50.6% and 60% respectively
This shows that in general, the market realized the occurrence of expropriation by controlling shareholders only after the formal announcement of RPT, which supports the study of expropriation in Hong Kong market, where they found investors could not predict the firm’s expropriation prior to the announcement of the RPT17
Summary
Quality of minority interest protection is a key to growth and development of a country’s security market. For a capital market to be globally competitive and at par with international jurisdiction, it needs to be recognized as a premier and stable market, which is well-regulated from an investor protection perspective[1,3,4]. This is in line with the Berle and. The function of minority shareholder rights protection is governed by both firm-level and country-level variables in capital market.[7] differences in the maturity, size, socio-political setting and efficiency of the stock markets in the world have resulted in variation of protection they provide in financial contracting[3,4,8].
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