Executive Stock Option Scheme (ESOS) and blockholder ownership as governance mechanisms on firm performance / Ahmad Ibn Ibrahimy
The Asian Crisis of late 1990s has highlighted the problems of corporate governance in South-East Asian corporations. These corporations, especially in Malaysia, are characterized by concentrated ownership with the existence of poor corporate governance structure. Thus, separation of ownership and...
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| Format: | Thesis |
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2012
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| Online Access: | http://studentsrepo.um.edu.my/3740/4/1._Title_page%2C_abstract%2C_content.pdf http://studentsrepo.um.edu.my/3740/5/2._Chap_1_%E2%80%93_8.pdf http://studentsrepo.um.edu.my/3740/6/3._References.pdf http://studentsrepo.um.edu.my/3740/7/4._Appendices.pdf http://pendeta.um.edu.my/client/default/search/results?qu=Executive+Stock+Option+Scheme+%28ESOS%29+and+blockholder+ownership+as+governance+mechanisms+on+firm+performance&te= http://studentsrepo.um.edu.my/3740/ |
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| Summary: | The Asian Crisis of late 1990s has highlighted the problems of corporate governance in South-East Asian corporations. These corporations, especially in Malaysia, are characterized by concentrated ownership with the existence of poor corporate governance structure. Thus,
separation of ownership and control may lead to agency conflicts between the majority and
minority shareholders in this region rather than the classical agency problem between managers and shareholders. Therefore, there is a need for applying proper corporate
governance mechanism tools to alleviate this agency problem that gradually exploits firm performance.
This study investigates the effects of two governance mechanism tools, namely Executive Stock Option (ESO) Granting and Blockholders, on Malaysian non-financial companies and how they affect firm performance. The pattern of ESO exercising behavior of Malaysian executives
is also taken into consideration. Besides, any time preferences and firm’s size effects on ESO
granting are examined to verify the actual motives of adopting ESOs. Finally, the study also
explores industry effects of companies which contribute to firm performance.
In view of concentrated ownership presence in Malaysia, it will be unique to analyze the
effects of ESO granting and blockholders on firm performance. A sample of 1407 observations
of 201 ESOs adopted firms is used for the period from 2002 to 2008. To determine the effects of governance mechanisms, panel data fixed effect method is employed. In addition, univariate analysis is applied to compare the consistency or differences within the results of multivariate models. Moreover, paired samples t-test reveals the motives of ESO granting and firm’s size effects.
We found a significant positive relationship between ESO granting and firm performance coupled with a modest effect of blockholder ownership while considering both market and accounting based performance measurements. The findings indicate that the adoption ESOs is closely tied to Malaysian executives with firm performance which supports convergence of interests hypothesis. Conversely, Malaysian blockholders may have little influence on executives’ decision making or they may entrench themselves to expropriate minority shareholders’ wealth. Finally, the Oil and Gas industry is found to have better performance among all other industries in Malaysia and this it may be due to better product market
competition in this industry.
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