The Role of Managerial Ownership in the Association between Goodwill and Firm Value

Abstract

This study aims to determine whether managerial ownership of Malaysian firms listed on the main board of Bursa Malaysia moderates the relationship between goodwill disclosure and firm value based on signaling and agency theory. In this quantitative study that uses a deductive approach, the analysis is based on the annual reports of 2,070 firms listed on the Bursa Malaysia website for the years from 2009 through 2011. Multiple regression was applied to analyze the data. The results show a positive and significant relationship between reported goodwill and firm value during these three years. However, when managerial ownership is included as a moderating variable, results show a significant negative association between reported goodwill and firm value. Results should alert Malaysian firms to the importance of understanding investors’ reactions towards a firm’s reported goodwill amounts. A high goodwill amount is not necessarily a good sign about a firm in the presence of high managerial ownership. Elevated levels of managerial ownership may not be seen as positive signs, even for family-owned firms in Malaysia. This is probably because managers are always perceived to be protecting their wealth rather than the firm’s overall wealth.