PANGLIMA MAT BERANI: 01/02/2010

PROJECT PAPER SUBMITTED IN PARTIAL FUFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION AT GRADUATE SCHOOL OF MANAGEMENT, UNIVERSITI PUTRA MALAYSIA (2010)

ABSTRACT

This study aimed to examine the effect of managerial ownership structure on the company performance for the property company listed in Bursa Malaysia. Earnings per Share, Price Earnings Ratio and Tobin’s Q were used as proxies for dependant variables. Growth, leverage and size of the company were used as control variables for this study. This paper considered two regression tests for the company performance which are with control variables and without control variables. The data for all the variables were collected yearly from 2002 till 2005. The research methodology used is secondary data analysis via the statistical analysis using Generalize Least Square (GLS) with Cross-sectional Regression (Pooled Least Squares Method). The findings revealed that there is significant relationship between the managerial ownership and company performance when there are no interventions of control variables but there is no significant relationship (except for Tobin’s Q) when control variables is included in the test.
The significance of the study is presented to ensure the findings add value to the readers. Thus, management and shareholders in this context might peruse financial information in their role of investment, corporate planning or even risk management.

CHAPTER 1

INTRODUCTION

1.1 Introduction

Many large corporations are not run by the people who own them and most of the corporations run by the management which has been appointed by the owner or shareholders. Due to this scenario, many studies have been implemented by the researchers to investigate the relationship between the ownership, management and company performance.
Study by Berle and Means (1932) in American corporations stressed that company assets may be deployed to benefit the managers rather than the shareholders because of the little equity owned by the managers. Their view has been challenged by Demsetz (1983), who argues that the ownership structure of a corporation should be thought of as an endogenous outcome of decisions that reflect the influence of shareholders and of trading on the market for shares.
Shleifer and Vishny (1986) argue that large shareholders have the capabilities of monitoring and controlling the managerial activities, and will contribute to the company performance. The separation of ownership and management gives rise to conflict of interest between the owners and the managers, and is commonly referred to as the principal-agent problem.
According to Jensen and Meckling (1976), the cost of agency problem can be resolved if the company indicate the existence of the governance mechanism, implying that governance schemes are likely to affect a company’s performance.
In other studies by Morck and Shleifer, and Vishny (1988) found an inversed U-shaped relationship between managerial equity ownership and firm valuation for a sample of U.S. firms. The interpretation is that the company’s performance improves with a higher managerial ownership but after a certain level of point, managers become entrenched and they pursue private benefits at the expense of outside investors.
To maximize investor’s wealth is the key measured for company performance and most of the company manager will used the capital structure model to achieve this requirement. They always act in the best interest of the owners and that the primary aim of managers is to increase shareholders' wealth but some researchers have, however, argued that managers do not always do so. To measure the performance of the firm, many past researchers used stock prices as a proxy and less of them are using the accounting method such as EPS, ROA and ROE as an indicator for company performance.
The stock exchange of Malaysia was established in 1964. With the secession of Singapore from Malaysia in 1965, the Stock Exchange of Malaysia became known as the Stock Exchange of Malaysia and Singapore. In 1973, currency interchangeability between Malaysia and Singapore ceased, and the Stock Exchange of Malaysia and Singapore was divided into the Kuala Lumpur Stock Exchange Berhad and the Stock Exchange of Singapore.
On December 14, 1976 The Kuala Lumpur Stock Exchange which was incorporated as a company limited by guarantee, took over the operations of the Kuala Lumpur Stock Exchange (KLSE) Berhad. On April 14, 2004, the KLSE changed their name to Bursa Malaysia Berhad, Structure of market listing in Bursa Malaysia were divided into three criteria; Main Board Market, Second Board Market and MESDAQ Market.
By early 2009, Bursa Malaysia has done some exercise and Main Board and Second Board are mix together to be the Main Market and MESDAQ Market changed its name to ACE Market.
By the end of 2002, there were 562 companies listed in the Main Board and 294 companies in Second Board. Because of the new exercise from the Bursa Malaysia in 2009, company listed in Main Market as at 23 November 2009, are 845 companies and 114companies listed in ACE Market.
Currently, there are 87 companies which are listed under the properties sector in the Main Board and most of these companies are active as property development companies carrying out housing development. Property shares are popular among the investors and particular small investors.

One study done by K.H. Ting (2002) regarding listed property companies in Malaysia found out that there are some characteristic of Malaysian properties company, which are ;
a). Township developers
The large capitalized property companies on the Bursa Malaysia and involved in the development of residential township. The size of these townships ranges from 500 acres and above. The development period may take about ten years or more.
Ex ; SP Setia, I&P, IOI Poperties and M.K. Land

b). Development focus are in Klang Valley and major cities
Property development activities are concentrated in major urban areas in Peninsular Malaysia i.e. Klang Valley, Putrajaya, Penang and Johor Bahru where there are high concentrations of population and employment opportunities.

c). Developers of high and medium housing schemes
The townships are normally a mix of housing types ranging from low cost to high cost housing.

d). Subsidiaries of plantation holding companies
Enable the property development companies to have a steady supply of development land in the form of agricultural land from the parent companies and the establishment of land bank for future development.

e). Small market capitalization
Some of the property company owned by conglomerates and well diversified corporate companies in other sectors of Bursa Malaysia such as Berjaya Land and Boustead in Trading/Services Sector.

f). Property investment companies
The property companies which hold the property investment as an example IGB Company hold the Mid Valley Mega Mall and Plaza IGB in Kuala Lumpur.

1.2 Problem Statement

Determination of capital structure is very important for the company and consists of debts and equity. From the equity side, we could categorize into two main ownership; Institutional and individual. Some of the individual ownership also manages the firms and they play dual role in the company.
The individual who play this role is a managerial ownership. Managerial ownership is the way in which a firm is owned and managed. A company can be owned by large number of individual shareholders or small number of individual or institutional shareholders. The large numbers of shareholders have voices in many strategic decisions and have the capabilities of monitoring and controlling the managerial activities.
Meanwhile, company performance plays a big role in determination of the selected investment by the investors and the managements have to ensure the company is in a right path. Because of the separation of ownership and management, some of them lack to do so, this is called the agency problem.
In order to solve the agency problem, the owner or the shareholders provide incentives to managers to act the best shareholders’ interest by giving them an opportunity to own part of the company. However, managerial ownership may potentially incur some cost. As an example the large block shareholder would pay himself an excessive salary or invest in negative net present value. Greater shares ownership by managers will increases the power of the internal constituency but decreases the power of the external constituency in influencing company performance.
In between these two extremes, there are mixes of ownership that may have varying degrees of impact on the company performance. These conflicting views indicate that the relationship between the ownership and the company performance is essentially an empirical issue.
Many researchers have done their research based on the U.S firms such as Morck, Shleifer and Vishny (1988), McConnell and Servaes (1990) and Hermalin and Weisbach (1991), among others, empirically examine the effect of ownership structure on company performance.
However, so far, few studies have been focused on the relationship between ownership and the company’s performance in any one of specific industry/sector.
Moreover, to the knowledge of the researcher, there is no further study has been done focusing on the relationship between managerial ownership and the company’s performance on properties companies in Malaysia.

1.3 Research Questions

The aim of this study is to examine the link between managerial ownership and company performance based on accounting-based and market-based indicators. Specifically, the study attempts to answer the following question:

i. Does managerial ownership have a significant relationship with company performance?

1.4 Objectives of the Study

General Objective
The objective of this study is to examine the impact of managerial ownership on the company performance by using accounting-based and market-based performance measures as an indicator when the percentage of the managerial ownership changes and as well as to provide further insights into their relationship of firms in the property sectors.
Specific Objectives:
The specific objective of this study is to examine the relationship of managerial ownership and company performance based on three (3) measurements; Earning per share, Price earnings Ratio and Tobin’s Q.

1.5 Significance of the Study

There has been much research concerning the relationship between managerial ownership structure and company performance in Malaysia’s company context. But research in a specific industry sector is rare. This paper focuses on the property industry sector and aims to provide supplementary evidence to the literature of the impact of managerial ownership structure on company performance in Malaysia’s context.

The study between the relationship of the managerial ownership and company performances is important for several reasons. Firstly, the relationship between the managerial ownership and company performance will help the shareholders and the management to decide at what level of managerial ownership structure shall contribute the company in the track record to be in form of performance.

As for the investors and analysis, proven significant of relationship between the variables will also add value to the analysis and also the investors to make sound and explicable judgment based on facts rather than sightless bet.

1.6 Limitations of the Study

There are several limitations in this research which mainly stems from feasibility constraints. Firstly, this study will delimit its focus on only properties companies listed in Bursa Malaysia Main Market due to the limited time and resources.
Secondly, the corporate performance scope in this study is only focus in terms of accounting and market performance measures in the context financial performance and not on overall company performance. Besides, using the background of study and literature review as basis, this study is proposed and established with presumption that managerial ownership will affect the company performance.
Other limitation is the information or data would also be limited to information or data derived from Bursa Malaysia, Company Annual Reports and data available from Datastream. The study will only takes four (4) years period which is from year 2002 to 2005 to be included in the analysis.
Since this study need to be completed in specific time, only property public listed companies with appropriate information and have the four (4) years financial information from 2002 to 2005 will be examined and included in the study.

1.7 Definitions of the Terms

Managerial Ownership (MO)
It is a subset of ownership structure subject. Managerial ownership can be defined as a percentage of shares of the company that is owned by the management i.e. the Chief Executive Officer (CEO), the Directors or the Managers.

Company Performance (CP)
It is a financial performance that used accounting-based and market-based performance as an indicator. In this study three (3) measurements that reflect the above indicators that will be used are Earnings per Share (EPS), Price per Earning Ratio (P/E) and Tobin’s Q (Tobin’s Q).

Malaysian Property Public Listed Companies
Property companies that have been registered with Bursa Malaysia Securities Berhad and been listed in Main Market.

Earnings per Share (EPS)
Earnings of the company those are available for common shareholders divided by the numbers of shares of common shares outstanding.

Price per Earning Ratio (P/E)
A valuation ratio of a company's current share price compared to its per-share earnings.

Tobin’s Q
A ratio comparing the market value of a company's stock with the value of a company's equity book value. The ratio was developed by James Tobin (Tobin 1969), the ratio between two valuations of the same physical asset.

1.8 Conclusion

With the comprehensive overview of the research from the background of study, statement of problem, objectives of study and significant of the study, the following chapter of literature review profoundly delineated others’ opinions that led to the chosen problem.

CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

There are a few studies that have been conducted related to ownership structure and company performance. The separation of company ownership and control and its impact on company performance has been the subject being discussed among the past researchers. Much of the empirical research on ownership structure is based on the assumption of widely dispersed ownership structure and used the data of U.S. firms.
In the Asian context, Claessens et al (2002) studied the relationship of ownership structure and firm’s value in Eight Asian economies and found that the company’s value increases with the cash flow ownership of the largest shareholder.

2.2 Managerial Ownership

Managerial ownership is one of the ownership structures in an organization. This structure is considered as one of important elements in corporate governance. Managerial ownership will have an implication on incentives to managers and will also affect the performance and efficiency of the company. Refer to Jensen and Meckling (1976) and Holderness et al. (1999), the ownership structure is defined as the distribution of equity with regards to votes and capital but also by the identity of the equity owners.

2.3 Company Performance

From the previous literature, many researchers have used some indicators to measure the company performances, some of them used accounting profit rate or accounting based as proxies to measured the performance and some of them used market based as proxies. Tobin’s Q is very popular among the researchers.
Demsetz and Villalonga (2001) stated that there are two important aspects in which these two measures differ. One is in time perspective, for the accounting based – is a backward looking meanwhile for the market based – is a forward looking (especially Tobin’s Q).
The second difference is who is measuring the performance? For the accounting based, the accountant who is constraint by his professionalism will measured it and for the market based (especially Tobin’s Q), the investors who is constrained by their acumen, optimism or pessimism will measured it.

Table 1 below shows the summary of some previous study that has been conducted on the company performances;

Authors Performance Measure/s
Demsetz and Lehn (1985) Post-Tax Accounting Profit / Book Value of Equity
Morck, Shleifer and Vishny (1988) Tobin’ Q and Accounting Profit Rate
Mc Connell and Servaes (1990) Tobin’s Q
Hermalin and Weisbach (1991) Tobin’s Q
Holderness, Kroszner and Sheehan (1999) Tobin’s Q
Demsetz and Villalonga (2001) Tobin’s Q and Accounting Profit Rate

Table 1: Summary of some previous study (authors and their performance measure/s)

2.4 Relationship between Managerial Ownership and Company Performances

A study conducted by Jensen and Meckling (1976), interest in the relationship between company performances and the allocation of shares among the owner/shareholders has continued to evolve in the finance literature.

According to Jensen and Meckling (1976), the tendency of managers is to allocate the company’s resources based on their own interests; this decision could conflict with the outsiders’ shareholders interests. As managers’ equity ownership increases, however, their interests coincide more closely with those of outsider’s shareholders interest, and this will contribute to resolve the conflict between the managers and shareholders. Thus, managerial equity ownership helps resolve the agency problem and improve the company’s performance.

Besides that, several studies suggest that managerial ownership does not always have a positive relationship on company performances. Fama and Jensen (1983) found that managers who own enough shares to control the board of directors could expropriate the company’s wealth. For an example, they could pay their wages with high salary or invest in a negative present value. Stulz (1988) support that statement by explaining how owning large shares makes it easier for managers to be entrenched.

Hermalin and Weisbach (1987) and Morck, Shleifer and Vishny (1988) used Tobin’s Q as a proxy for company performance and as a dependant variable, and the fraction of shares owned by insiders as an independent variable, both of them found that the relationship between Q ratio and the degree of insiders ownership is not linear; in some range of insider ownership, Q ratio is positively related to the insider ownership, but in other range, a negative relationship is found.

A study by Mc Connell and Servaes (1990) found that Q ratio is positively related to the degree of institutional ownership, indicating the positive effect of institutional ownership on company performance. They also suggest that managers’ entrenchment would be more difficult when there is an element of institutional ownership in the company ownership structure. Both of them find an inverted U-shaped relation between Q ratio and managerial ownership, with an inflection point between 40% and 50% ownership.

Study in US for the 142 NYSE companies by Hermalin and Weisbach (1991) found that Q ratio rises with ownership up to stake of 1%; the relation is negative in the ownership of 1-5%, becomes positive again in the ownership range 5-20%, and turns negative for ownership levels exceeding 20%.

In a related study, Demsetz and Lehn (1985) used a simple linear relationship between profit rate and ownership by large shareholders and they found no correlation. They used a measured of the profit rate on a fraction of shares owned by five largest shareholdings interests, in which ownership structure is treated as an endogenous variable.

Shleifer and Vishny (1986) supported the findings of Berle and Means (1932), both of them examined the importance of the large shareholders (their role play) and how the price of the company’s shares increases as the proportion of shares held by the large shareholders increases. In theoretically, they also argue for a positive relationship between the managerial ownership and the company performance.

Thomas and Pederson (2000) examined the impact of managerial ownership at the international level on company’s performance in 435 of the largest European companies. They found positive relationship between ownership concentration and market to book value of equity ratio, and profitability as measured by return on assets, but leveling off for high ownership share.

Study by Claessens, Djankovic and Lang (2002) for the relationship between ownership structure and company performance of 1301 publicly traded companies in eight East Asian countries found that company’s value increase with the cash flow ownership of the largest shareholder. The study in China‘s context by Sun and Huang (1999) found that Tobin’s Q rises with the number of shares owned by the first large shareholders. The empirical study by Chen and Xu (2001) shows that in the industries where there is no government intervention, the number of shares owned by the first large shareholder is positively related with the company performance.

Lloyd, Jahera and Goldstein (1986) used the total return from the stock ownership as a company performance measurement, and they related inside ownership – defined as the percentage of stock held by directors and officers – to stock returns, and found no significant results. In other study conducted by Kesner (1987), using the proportion of stock held by members of the board of directors, and he found no significant results between ownership and performance.

Han and Suk (1998) using stock returns as a measured of company performance and they examined the effect of managerial ownership. From their study, they found that the level of managerial ownership is positively related to stock returns. They also suggest that as managers’ ownership increases, their interest coincide more with those of outside shareholders. But that excessive managerial ownership has negative impact on stock returns, simultaneously it will harm’s company performance due to managerial entrenchment. They also found that institutional managerial ownership have positive relationship with company performances because of active monitoring by these institutions.

From the accounting indicators measurement that was conducted by Wu and Cui (2002) for their study the effect of ownership structure on a company performance. They found that there is a positive relationship between ownership concentration and accounting profits, indicated by ROA (return on asset), ROE (return on equity), but the relation is negative with respect to the market value measured by P/E ratio (price per earning) and M/B (market to book value).

Another study that was conducted by Jahmani and Ansari (2006) on the impact of managerial ownership on risk-taking and company performance by using data for 30 randomly selected U.S. companies from four different industries found that there is no significant relationship between managerial ownership and risk-taking and company performance. They used accounting indicators; Operating Margin (OM), Return on Asset (ROA) and Return on Equity (ROE) to measure the impact of managerial ownership on company performance. They also found that managerial ownership does not change the risk level that managers are willing to take.
Research that was conducted in China’s listed property companies by Q. Ke and D. Isaac (2007) shows that ownership concentration has a positive association with company performance. Also they stated that shareholding is positively related to company performances.

Other research by Core and Larcker (2002) also provide evidence of increased accounting profitability, measured as Return on assets, following adoption of target ownership programs. Their result is consistent with the claim that managerial ownership is a means to align the interests of management and owners. They stated that agency costs are a subset of the factors that influence profitability, while profitability should increase as agency cost decrease. Profitability, therefore, is a less than ideal proxy for agency cost.

In Malaysia context, Noor, Said and Redzuan (1999) focused on the issue of insider share ownership and performance in the context of ownership structure. They evaluate the managerial ownership with performance based on their Earning per Share, Price earnings Ratio and Tobin’s Q.

Based on the previous literatures, it can be said that there is a relationship between managerial ownership and the company performance.

CHAPTER 3

METHODOLOGY

3.1 Introduction

Company performance can be measured by using various techniques. Company performance measurement can be a quantitative or qualitative characterization of performance. However, quantitative performance measurement is argued to provide a better view on company performance. Quantitative performance refers to physical measurement that enables investors to evaluate business activities through financial statements of the company.

Refer to Will G Hopkins (1998); explain that the aim of quantitative research is to determine the relationship between an independent variable and a dependent variable. Meanwhile, based on Hair et al. (2003), qualitative methods are only appropriate when the objectives are to discover and identify new ideas. Quantitative approach is appropriate when the research objectives are to predict, to verify and to gain significant insights on the relationship of the variables.

This chapter also discusses the research methodologies for this study and the process of operation towards the research. The principal facets concerned are data description, research procedures and instrument and data analysis.

3.2 Research Framework

The following framework is used as guidance to explore the relationship between the independent variable and dependent variable. The independent variable for this paper is managerial ownership which is represented by MO while the dependent variable for this paper is company performance. Company Performance is represented by CP.

MANAGERIAL OWNERSHIP (MO) CORPORATE PERFORMANCE (CP)

Percentage of share hold by managerial: EPS
i. <5% P/E RATIO ii. 5%-25% TOBIN'S Q iii. >25%

Figure 1: Research Framework

3.3 Variables
Independent variable is a variable that is manipulated by the researcher and it is a presumed cause, whereas, the dependent variable is the response measured and it is the presumed effect. In this study, the independent variable would be the managerial ownership (MO) while the dependent variable would be the company performance (CP). Control Variables are also used in this study and they represented the factors that will also reflect the dependant variable. Three (3) control variables that will be used are; Company Growth – CV1, Company Leverage – CV2 and Company Size – CV3. Proxies are used to represent both the independent and dependent variable. The selected proxies are as below:

VARIABLES PROXIES
Managerial Ownership Managerial Ownership of less than 5%
Managerial Ownership of between 5% to 25%
Managerial Ownership of more than 25%

Company Performance Earnings per Share (EPS)
Price Earning (PE) Ratio
Tobin’s Q
Figure 2: Variables and Proxies

3.4 Methodology

This research revisit the study conducted by Noor, Said and Redzuan (1999), applying the similar models to Malaysian public listed companies. The research seeks to add to the limited studies regarding the relationship between MO and CP in the Malaysian context.
This study uses a combination of time-series and cross-section data. The panel data analysis will be applied. This study has used accounting and market based indicator; earnings per share (EPS), price earnings (PE) ratio and Tobin’s Q as a proxy for company performance.
The Tobin’s Q is estimated by summing up market value of equity and book value of total debts, divided by book value of total assets. In computing the company’s Tobin’s Q, the study does not calculate the replacement cost for two reasons;
i. Replacement cost values are not generally available
ii. The way company calculates their depreciation is vary from one to another.
Besides the ownership of the company, several other factors may affect the performance of a company. These factors, which are observable measures of intangible assets, may affect the Tobin's Q and PE. For the purpose of this study, these factors have been identified and included in the subsequent single regression model as control variables. These factors are denoted as CV1, CV2 and CV3 as follows:

CV1 (Growth) = Reserve (or retained earnings); (RES/TA)
This ratio is used to control the effect of dividend policy of the company.

CV2 (Leverage) = Long Term Liability; (LTL/TA)
This ratio is used to control the effect of the capital structure policy.

CV3 (Size) = Size; (Market capitalization)
(Share Price x No. of Shares Outstanding)
This size is used to control the effect of the company’s equity value.

3.5 The Hypothesis

The null hypothesis of the study is developed to cater the regression model. The null hypotheses are:
H1o: There is no significant relationship between EPS and MO.

H2o: There is no significant relationship between PE and MO.

H3o: There is no significant relationship between Tobin’s Q and MO

The following single cross-sectional regression analysis is used to test the above hypothesis:
y = a + βx + ε,
where
y = EPS, P/E ratio or Tobin's Q
x = level of ownership which is separated into three categories, and they are as follows:
MO <5% = board ownership of less than 5% MO 5% to 25% = board ownership of between 5 - 25% MO >25% = board ownership of more than 25%

b = the estimate from the regression model,

e = the stochastic error term.

The regression model, with the control variables included, becomes:

y = a + β1C1 + β2C2 + β3C3 + β4x + ε

3.6 Data Collection

This study will adopt the secondary data collection techniques because it will provides larger and higher quality databases since secondary data usually have a pre-established degree of reliability and validity.
The data will be collected using these three sources:
1) Company’s Annual Report
2) Bursa Malaysia
3) DataStream

The data will be collected and examined on annual basis for four (4) successive years starting from year 2002 to year 2005. The data collected are based on the requirements in calculating the Earning per Share, Price Earnings and Tobin’s Q ratio which are related to the main variables in this study. These include the total assets and total debt, equity capital and reserves, long term liability and stock prices of each company.

3.7 Data Description

This research involves panel data which comprise 70 firms studied in the period of 2002 to 2005. The population consists of firms listed under the property sector on the main board of the Bursa Malaysia. The Bursa Malaysia defines property firms as firms engaging in activities such as property development and construction, property investment, property management, hotels and leisure.

Initially the sample consisted of 87 property firms which is currently the total number of listed property firms. Since the study covers a period of 4 years, the availability of the annual reports, which is the main source of information, is a deciding factor as to whether a particular company can be included.

This would mean companies that were de-listed or newly listed during the study period are excluded. Furthermore since the analysis employs a balanced panel data only firms that existed during the entire sample period are included in the sample.

Subsequently, 17 firms were eliminated resulting in a final sample of 70 companies. Altogether the data sample consists of 280 company-year observations.

CHAPTER 4

FINDINGS AND DISCUSSION

4.1 Introduction

This chapter describes the findings obtained through data analysis. Further discussion regarding the facts acquired from the statistical analysis is being explicated in detail. Hence, the findings are chronologically being expounded according to the objectives and hypothesis from previous chapters.

4.2 Analysis on the Relationship between Managerial Ownership and Company Performances

4.2.1 Normality Data Test

The data that are gathered from the source are percentage of MO shares, EPS, P/E ratio and Tobin’s Q from each of the company that is listing under the property sector in the main market, Bursa Malaysia. The data need to run normality test first in order to move to the next step. The normality test will verify the data distribution which later will determine the types of the regression model to be used. By using E-Views software two tests are conducted. First, data is tested by individual and later by group. The results for normality test are shown below:

INDIVIDUAL TEST

EPS P/E RATIO TOBINS Q MO CV1 CV2 CV3
Mean 0.028843 9.226942 0.524212 9.552951 0.134760 0.142592 3.09E+08
Median 0.032625 9.725907 0.495078 1.203750 0.190928 0.109024 1.64E+08
Maximum 0.357750 66.59183 1.258963 60.28000 0.715360 0.769634 2.05E+09
Minimum-1.185250-67.14254 0.000000 0.000000-1.407484 0.000000 4070000.
Std. Dev. 0.193302 15.45074 0.224710 14.96226 0.314217 0.145923 4.30E+08
Skewness-3.533168-1.000221 0.729272 1.779599-1.930302 1.940378 2.937430
Kurtosis 23.52591 12.37272 3.917570 5.392131 9.749996 7.869467 11.25407

Observations 70 70 70 70 70 70 70

GROUP TEST

From the observation, all of the data for each variable are found to be not normally distributed. The data will be considered normally distributed at the range of:

SKEWNESS : RANGE +- 1.96
KURTOSIS : RANGE +- 2.00

Skewness is a measure of symmetry, or more the lack of symmetry. A distribution, or data set, is symmetric if it looks the same to the left and right of the center point.
Meanwhile, Kurtosis is a measure of whether the data are peaked or flat relative to a normal distribution. That is, data sets with high kurtosis tend to have a distinct peak near the mean, decline rather rapidly, and have heavy tails. Data sets with low kurtosis tend to have a flat top near the mean rather than a sharp peak.

4.2.2 Cross-sectional Regression Test Without Control Variables
Generalize Least Square (GLS) with Cross-sectional Regression using Pooled Least Squares Method is used to determine the relationship between Managerial Ownership with EPS, PE ratio and Tobin’s Q. This test is conducted without the existence of control variables. For the purpose of this study, 95% of significant level of confidence is used in examining the relationship.

Result Summary
Independent Variable EPS P/E Ratio Tobin’s Q
MO < 5% 0.0227 3.4713 0.2094 Prob. Value 0.1220 0.0207* 0.0000* R2 0.0108 -0.0537 -4.5614 5%< MO < 25% 0.0048 1.0461 0.0385 Prob. Value 0.0006* 0.0045* 0.0000* R2 -0.0161 -0.0740 0.0486 MO > 25% 0.0011 0.1937 0.0153
Prob. Value 0.0115* 0.0014* 0.0000*
R2 0.0234 0.0475 -0.3339
*indicates significant at error 5% or 0.05
Table 2: Cross-sectional Regression of EPS, PE ratio and Tobin’s Q on Managerial Ownership without Control Variables

a. EPS
Result from column 2 in Table 2, shows that there is no significant relationship between EPS and MO for the ownership below 5%. For each 1% increase in MO of between 5 – 25%, EPS increased at an average rate of 0.0048. As ownership increases beyond 25% and above, EPS seems to increases again but at a slower rate of 0.0011. There is an inverse relationship for MO 5-25% that was shown by negative R2 but move positively for MO above 25%.

b. P/E Ratio

Relationship between the P/E ratio and MO presents a different pattern from that exhibited with EPS, as can be seen from column 3 of Table 2. All of the MO levels have significant relationship with the P/E ratio. This could be seen from the MO <5%, 1% increased in MO, the P/E ratio is drastically increased by 3.4713. As for the MO 5-25% and beyond 25%, the P/E ratio is increased 1.0461 and 0.1937 respectively. c. Tobin’s Q For Tobin’s Q, it displays the same result as was given by the P/E ratio. Tobin’s Q increases at an average rate of 0.2094 for MO between 0 to 5%, and continue increased at a slower rate at 0.0385 for MO between 5 to 25% and 0.0153 at MO beyond 25% and above. There is inverse relationship that was shown by negative R2 for MO < 5% and MO >25%.

4.2.3 Cross-sectional Regression Test with control variables

For the second test, Generalize Least Square (GLS) with Cross-sectional Regression using Pooled Least Squares Method is also used to determine the relationship between Managerial Ownership with EPS, PE ratio and Tobin’s Q.
But, this test is conducted with the existence of control variables;
CV1- Growth,
CV2- Leverage and
CV3- Size
For the purpose of this study, 95% of significant level of confidence is used in examining the relationship.

Result Summary
Independent
Variable EPS P/E Ratio Tobin’s Q
MO < 5% 0.0088 1.6501 0.0583 Prob. Value 0.5624 0.3170 0.0013* R2 0.1417 -0.0260 -0.8309 5%< MO < 25% -0.0008 0.6311 0.0222 Prob. Value 0.6484 0.3379 0.0000* R2 0.4127 -0.1213 0.5914 MO > 25% -0.0005 0.1033 0.0110
Prob. Value 0.4632 0.3424 0.0000*
R2 0.3383 0.0265 0.1404
*indicates significant at error 5% or 0.05
Table 3: Cross-sectional Regression of EPS, PE ratio and Tobin’s Q on Managerial Ownership with Control Variables

Table 3 presents the results of the regression model with control variables. The patterns on board ownership effect exhibited by EPS, PE ratio and Tobin’s Q are the different with exhibited by Table 2, and they are as follows:
a. EPS

From the results obtained, it can be seen that EPS don’t have any relationship with MO at all three levels. But, EPS rises as MO increases from 0% to 5% at an average of 0.0088 and falls as ownership rises further to 25% and beyond 25% at an average of 0.0008 and 0.0005 respectively.

b. P/E Ratio

The results for PE ratio show that the same result as for the EPS. There is no significant relationship between P/E ratio and MO at all three levels.
The results for PE ratio show that it rises as MO increases from 0% to 5% and up to level more than 25%.

c. Tobin’s Q

The result observed that for the relationship between MO and Tobin’s Q with the existence of control variables, at every levels of MO, there are significant relationships with Tobin’s Q for all the sectors examined. Its show that as MO increase, Tobin’s Q also increase but at a lower rate. Hence, it shows that although with the existence of control variables, MO still has a significant relationship with Tobin’s Q regardless at any levels of ownership.

4.3 Conclusion

Based on the test conducted without the existence of control variables, Table 4 (below) shows which hypotheses (null hypotheses) to be rejected accordance to the levels of MO.

MO < 5% MO 5% - 25% MO > 25%
H1o Not to be rejected Rejected Rejected
H2o Rejected Rejected Rejected
H3o Rejected Rejected Rejected

Table 4: Lists of hypotheses to be rejected and not be rejected accordance to the test of significant relationship between MO and CP without the existence of CV1, CV2 and CV3

Table 5 shows which hypotheses to be rejected accordance to the levels of MO with the existence of control variables.

MO < 5% MO 5% - 25% MO > 25%
H1o Not to be rejected Not to be rejected Not to be rejected
H2o Not to be rejected Not to be rejected Not to be rejected
H3o Rejected Rejected Rejected

Table 5: Lists of hypotheses to be rejected and not to be rejected accordance to the test of significant relationship between MO and CP with the existence of CV1, CV2 and CV3

Based on the result conducted in Table 2 and 4, it can be concluded that without the control variables, null hypothesis can be rejected for H1o (except for MO < 5%), H2o and H3o. This is because the MO has a significant relationship with all the proxies of the dependant variable. Besides that, on the test conducted in Table 3 and 5, null hypothesis, H1o and H2o, cannot be rejected because it shows there is no significant relationship between EPS, PE Ratio and MO. However, for null hypothesis, H3o, it can be rejected because the results show there is significant relationship between Tobin’s Q and MO. In conclusion, control variables that have been used; (Growth, Leverage and Size) have influenced in determining the performance of the company. CHAPTER 5
CONCLUSION AND RECOMMENDATION

5.1 Introduction

This concluding chapter elicited the essence of the study. The summary generally describes how the research has been conducted while the conclusion portrayed the outcome. This chapter would end with some recommendations to the managers and shareholders, investors and finally to future researchers to incessantly contribute to the literatures.

5.2 Summary
This study is purposely intended to find the relationship between the managerial ownership and the company performance for the property sector company in Main Market, Bursa Malaysia. This will help the managers to identify whether the changes in the managerial ownership will contribute to the performance of the company, especially for the property sector companies.

To accomplish this purpose, the objectives are developed as a guide for overall process. The objective of this study is to examine the impact of managerial ownership on the company performance by using accounting based and market-based performance measures as an indicator when the percentage of the managerial ownership changes and as well as to provide further insights into their relationship of firms in the property sectors.
After that, the problem statement, significant of the study and the limitation of the study are developed to ensure the study goes smoothly and without any problem arise during the process.
The data for the managerial ownership was gathered from the Annual Report of the companies and data for the EPS, P/E Ratio and Tobin’s Q were gathered from reliable a source which is DataStream. Data are collected from year 2002 to 2005.
After data has been collected, the data then are synchronized to ensure the data matching each other. After that, the data are tested for normality test to ensure whether the data is normally distributed or not. Then, the method will be choosing based on the result.
As a result, Generalize Least Square (GLS) with Cross-sectional Regression using Pooled Least Squares Method is used to determine the relationship between Managerial Ownership with proxies of the company performance. For the purpose of this study, 95%of significant level of confidence is used in examining the relationship. The data then are organized accordingly to ensure the readers are easy to understand. Most of the analyses are done by using software named E-Views which can provide a better analysis when dealing with time series data.

5.3 Conclusion

In the previous chapter, two test have been conducted and the outcome shows that managerial ownership in a property companies in Bursa Malaysia have a significant relationship with the company performance when there is no intervention of the control variables but from the second test included the control variables which are; company growth, company leverage and size of the company shows that there is no relationship (except Tobin’s Q) between the managerial ownership and company performance.
In conclusion, control variables that have been used; (Growth, Leverage and Size) have influenced in determining the performance of the company.

5.4 Recommendations
Having those finding, recommendations are proposed to justify the significance of the study. The recommendations are discussed under different focus subjective to the comprehensibility for management, shareholders and investors. Recommendations for the first three groups intend to suggest practicable practices. For future researchers, the area of studies appealing for further investigation is presented.

5.4.1 Management and Shareholders

In the chapter 1, the significance of the study is presented to ensure the findings add value to the readers. Thus, management and shareholders in this context might peruse financial information in their role of investment, corporate planning or even risk management.
The relationship between the managerial ownership and company performance will help the shareholders and the management to decide at what level of managerial ownership structure shall contribute the company in the track record to be in form of performance.
In the role of management, the findings that showed there are no significant relationships between the managerial ownership and company performance can conclude that the managers should review their policy on the ESOS (employee scheme on shares).

5.4.2 Investors and Analysis

For the investors and analysis, proven significant of relationship between managerial ownership and company performance will also add value to the analysis and also the investors to make sound and explicable judgment based on facts rather than sightless bet.

5.4.3 Future Researchers

As per literatures for similar objectives of studies showing outcomes on different scopes and scales, this research revisit the study conducted by Noor, Said and Redzuan (1999), applying the similar models to Malaysian public listed companies. The research seeks to add to the limited studies regarding the relationship between Managerial ownership and Company performance in the Malaysian context.
From a methodology perspective, other tools or software may be adopted other statistical technique that is more reliable. A thorough analysis on data of both variables can be operated by running the wider range of years and for the whole companies in the main board of Bursa Malaysia.
The ultimate essence to bring out from this study is the proven that managerial ownership itself in the property sector in main market of Bursa Malaysia have no significant relationship with the company performance and there is other variables that could influenced the performance of the company.

With that, the thesis is brought to a close.

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PANGLIMA MAT BERANI

Sunday, 21 February 2010

TUMBANGNYA PAKATAN PERAK DAN BN BERKUASA KEMBALI

Tuesday, 2 February 2010

EXAMINING THE RELATIONSHIP BETWEEN MANAGERIAL OWNERSHIP AND COMPANY PERFORMANCE IN MALAYSIAN PROPERTY COMPANIES