Ownership Structure and Bid-Ask Spread: Evidence from Malaysian Market

Abstract

Liquidity is a vital feature of any financial market. It reflects the attractiveness of a capital market and the confidence of investors. Malaysia is an emerging market, where family firms control 65% of firms, while government-linked corporation dominated 70% of market capitalization. This research aims to investigate the relationship between ownership structure, namely family ownership, conglomerate ownership, government ownership, foreign ownership, and dispersed ownership, towards market liquidity, measured as bid-ask spread. The study uses a total sample of 206 Malaysia manufacturing firms from 2011 to 2015. Despite the findings that show family, government, and dispersed ownership have an insignificant positive relationship with the bid-ask spread, and these imply the severity of information asymmetry despite its significant is lesser. However, conglomerate ownership and foreign ownership significantly and negatively affecting bid-ask spread, suggesting a lower agency cost and information asymmetry in this market. A lower conglomerate firm’s bid-ask spread indicates the creation of an internal capital market which reduce agency cost in this structure. The negative and significant relationship in foreign ownership suggesting foreigner investors emphasis the value of transparency and reduce the cost of the transaction in the market. The research provides theoretical implications about the determinants that affect the bid-ask spread and thus affect the market liquidity. The study provides the insights to the understanding of the influences of the ownership structure to the market liquidity.