CORPORATE GOVERNANCE, OWNERSHIP STRUCTURE AND CORPORATE DIVERSIFICATION: EVIDENCE FROM THE MALAYSIAN LISTED COMPANIES

Abstract

Previous research has contributed much to our understanding of the relationship between corporate diversification strategy and corporate governance quality. The majority of published works has been on sophisticated and mature markets in first world nations. This paper extends previous knowledge by examining this relationship in a developing country. Malaysia is a developing country that provides a rich setting for corporate governance research.The structure of the business environment and the availability of published data make it an interesting research site.The results showed that outside blockholding especially non-institutional blockholding was negatively associated with diversification.However, evidence of significant relationship between managerial ownership and diversification was not found although the directions were generally as expected.Similarly, good corporate governance was shown to reduce diversification activities.The variable for separate board structure was consistently significant in most of the estimations.However, the other measure of corporate governance namely the proportion of outside directors was not as significant as might be expected. The study opens the way for a richer understanding of the links between corporate governance, ownership structure and corporate diversification in a developing country.

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