Variation of Ownership Structure and Firm Efficiency: An Empirical Evidence

Abstract

Firm ownership structure in Malaysia has changed as business organizations flourish and the national economy grows. In addition, it has also changed due to economic transition, industrialization and privatization policies implemented by the government over the past four decades. Firms with different ownership structures could be argued to have different levels of efficiency. Highly concentrated firms are expected to be more efficient as this type of ownership structure may alleviate the conflict of interest between managers and shareholders. In Malaysia, public-listed firms have been found to have highly concentrated ownership structure. However, whether this evidence holds for every industry has not been established. Hence, the objective of this paper is to investigate whether there are variations in ownership structure and firm’s efficiency across sectors. To achieve this objective, the frequency distributions of ownership structure were calculated and firms’ efficiency scores for consumer products, industrial products, construction and trading/services sectors were measured. Data Envelopment Analysis (DEA) under the assumptions of constant returns to scale (CRS) and variable returns to scale (VRS) was employed to estimate firms’ efficiency scores. A sample of 156 firms listed on the Kuala Lumpur Stock Exchange (KLSE) was selected using the stratified random sampling method. The findings have shown that there are variations in firm ownership structure and efficiency across sectors. This study has shown that firms with high ownership concentration appear to experience a higher efficiency compared to firms with low ownership concentration. Therefore, the government should ensure that Malaysian firms enhance their corporate governance practices in order to improve efficiency.