The Influence Of Director Ownership on the relationship between firm's Financial Performances (FP) and Social Peformance (SP): Malaysian Evidence

Abstract

The slack resource theory is argued that companies who are financially strong would have slack resources that would provide the opportunity to invest in social activities for community, employee, and environment. If slack resources are available from previous financial performance, better financial performance would be a predictor for better social performance. However, past studies have documented inconsistent evidence of the relationship between with financial performance (FP) and social performance (SP). To improve the theoretical framework, this study introduces moderator variables, director ownership that expected to enhance the relationship between financial and social performance. This argument is on their ability of influencing company decision making since they are the owner of company. They have voting right to make decision this will help to the increase of slack resources allocation in social activity. Past study documented positive relationship between director ownership and social performance this provide evidence that when director of company have positive view toward SP this will help to increase to allocation available slack resources in social activity that will lead better SP. Sample of this study comprises of 262 public listed companies in Bursa Malaysia for the year 2012. The results of the regression analysis provide a support for slack resource theory, that is, financially strong companies have a positive and significant relationship with social performance. Furthermore this study is expected to supports the board ownership in influencing the relationship. This study contributes new knowledge by introducing director ownership as moderator of the relationship between social performance and financial performance.