Family Firms, Banks And Firm Value: Evidence From Malaysia

Abstract

Liew, C.Y. and Devi, S.S. (2021), "Family firms, banks and firm value: Evidence from Malaysia", Journal of Family Business Management, Vol. 11 No. 1, pp. 51-85. https://doi.org/10.1108/JFBM-03-2019-0015

Purpose – This paper examines the relationship between the number of domestic banks that the firm engages with and firm value and how this relationship is moderated by ownership concentration at low and very high level on a sample of Malaysian family and non-family firms.

Design/methodology/approach – For hypotheses testing, panel data analysis using the fixed effects model (FEM) is used because the FEM can address any endogeneity problems effectively (Chi, 2005). The panel data regression is conducted on both family firms and non-family firms.

Findings – We find that there is a significant negative relationship between the number of domestic banks engaged by family firms, operating in industries where these firms do not have absolute monopoly, and firm value. However, there is no evidence that this significant negative firm value effect is stronger in family firms compared to non-family firms. Furthermore, the significant positive moderating effect of ownership concentration on this relationship within family firms in such industries is evident only at low level of ownership concentration. Interestingly, at very high level of ownership concentration, this significant positive moderating effect becomes negative. There is no evidence that these significant moderating effects are stronger in family firms compared to non-family firms.

Research limitations/implications – This research has focused only on family and non-family firms.

Practical implications – An implication of this research is that there is a need for the capital market
regulators to introduce appropriate policies to deter family firms from having a close relationship with domestic banks as well as monitor the number of domestic banks engaged by such firms. There may be policy implications for consideration by the Central Bank of Malaysia as well.

Originality/value – This research provides some insights to both academia and industry regarding the consequences of domestic banking relationship and different levels of concentrated ownership in family firms in an emerging market. These insights can help improve the corporate governance as well as ownership structure of Malaysian public-listed family firms which dominate the capital market. Our findings refute the argument by Peng and Jiang (2010) by demonstrating that corporate reputational effects may be a substitute for institutional deficiencies.

Keywords: Corporate Governance, Banks, Family Firms, Agency Problems

JEL Classification: G34