Abstract
This paper presents the relationship between different types of blockholders with information asymmetry in Malaysian firms. To be more specific, this study divides the ownership structures into managerial blockholder, institutional blockholder and individual blockholder and ownership concentration while holding firm size and trading volume as control variables. On the other hand, the stock volatility and bid-ask spread are used as a proxy for information asymmetry. A sample of the top 150 largest public listed firms in term of market capitalisation is chosen from Bursa Malaysia from 2011 to 2015. Panel regression analysis is used to examine the data. The results show managerial blockholders, firm size and trading volume significantly influence information asymmetry. While institutional blockholders, individual blockholders and ownership concentration exhibit no relationship with information asymmetry. The study from this result can be useful for investors and the policymakers in Malaysia as it gives a clearer picture and more understandings on ownership structures and information asymmetry in the Malaysia market.
Highlights
According to Jensen and Meckling (1976)’s Agency Theory, the managers will not always act in the best interest of shareholders due to conflict of interest
According to Zhou (2011) who found a significant positive relationship in insider and information asymmetry, managerial shareholders do have information advantage compared to outsider shareholders, and by utilising this information, they can make abnormal high profits on the expenses of individual shareholders
Leong and Horwitz (2004) examined Hong Kong Market, and stated when the ownership of managerial is below 25% the disclosure of firms increased, which indicates that the interest between manager and shareholders is aligned and conflict reduces; but when the managerial ownership exceeds 25% the agency problem changes from vertical to horizontal, and the disclosure decreased (The managerial ownership in our sample is 24.73%)
Summary
According to Jensen and Meckling (1976)’s Agency Theory, the managers will not always act in the best interest of shareholders due to conflict of interest. It can be concluded that managerial ownership does reduce agency cost, but at the same time, it increases the conflict with minority shareholders This raised another question of does the other type of block holders have the same effect on the information asymmetry. The existence of large investors such as institutional investors, family investors and individual investors are hypothesised to create or increase information asymmetry due to their higher incentives to gather information and more access to information This can significantly affect the price of the stock in the market since whenever there is an information asymmetry between those well-informed investors and minority investors, the price will be distorted. Insider trading is not allowed all market around the world, but this is still rampant in the market
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