Corporate Governance in Government-Linked Companies - Control Driven Or Performance Driven?

Abstract

We study the effect of the government transition on firm performance and board composition of government-linked companies (GLCs) and explore the motivations of board restructuring of GLCs. Specifically, we examine two questions: (1) what is the motivation of board restructuring, and (2) whether the change in the board composition affects the subsequent firm performance. The empirical results indicate that the policy factor is the key determinant in the board re-election of GLCs. The motivation of board restructuring after the powershift is mainly for control and spoils purposes rather than performance enhancement, which may explain why the market reacts negatively to the board restructuring announcement in GLCs. Finally, none of the board restructuring factors can explain the change in firm performance after the powershift, the only significant factor is the policy factor.

Keywords: Power Transition, Board Structure, Spoil System, Government-Linked Companies

JEL Classification: G34