Journal Screenshot

International Journal of Academic Research in Accounting, Finance and Management Sciences

Open Access Journal

ISSN: 2225-8329

The Effects of Blockholding's Interlocking Directorates and Corporate Policies on Information Asymmetry

Dayang Nur Fa’izah Binti Abang Ahad, Josephine Tan Hwang Yau

http://dx.doi.org/10.6007/IJARAFMS/v14-i3/22222

Open access

This study investigates the influence of blockholding interlocking directorates on information asymmetry within Malaysian listed firms, a crucial aspect of corporate governance. Understanding the interactions between ownership structures, corporate policies, and information asymmetry is essential for enhancing transparency in emerging markets. Data from the top 100 companies on Bursa Malaysia, spanning 2010 to 2018, were analyzed using a robust econometric approach. The findings reveal that blockholding interlocks are negatively related to information asymmetry, suggesting they help reduce information opacity. In contrast, institutional ownership shows a positive and significant relationship with information asymmetry, while managerial and individual ownership exhibit negative but insignificant relationships. Additionally, investment policy is positively linked to information asymmetry, whereas financing and payout policies show negative but insignificant relationships. These results underscore the varying impacts of ownership types and corporate policies on information asymmetry, providing insights into how corporate governance practices can enhance transparency. Future research could explore other governance mechanisms and different market conditions to expand on these findings.

Affleck-Graves, J., Callahan, C. M., Chipalkatti, N., Affleck?Graves, J., Callahan, C. M., & Chipalkatti, N. (2002). Earnings Predictability, Information Asymmetry, and Market Liquidity. Journal of Accounting Research, 40(3), 561–583. https://doi.org/10.1111/1475-679X.00062
Agrawal, A., Catalini, C., & Goldfarb, A. (2015). Crowdfunding: Geography, social networks, and the timing of investment decisions. Journal of Economics & Management Strategy, 24(2), 253–274.
Alzeaideen, K. A., & Al-Rawash, S. Z. (2014). The effect of ownership structure on share price volatility of listed companies in Amman Stock Exchange. Research Journal of Finance and Accounting, 5(6), 192–201. https://core.ac.uk/download/pdf/234629859.pdf.
Amihud, Y., & Jegadeesh, N. (2005). Institutional ownership and liquidity. Journal of Financial Markets, 8(3), 191-212.
Amran, N. A., & Ahmad, A. C. (2013). Ownership structure and the extent of concentration ownership: Evidence from Malaysia. Journal of Business and Policy Research, 8(1), 32-48.
Attig, N., Fong, W.-M., Gadhoum, Y., & Lang, L. H. P. (2006). Effects of large shareholding on information asymmetry and stock liquidity. Journal of Banking & Finance, 30(10), 2875–2892.
Beltran, D. O., & Thomas, C. P. (2012). Could Asymmetric Information Alone Have Caused the Collapse of Private-Label Securitization? FRB International Finance Discussion Paper, (1010).
Bertrand, M., & Mullainathan, S. (2003). Are Emily and Greg more likely to vote than Lakisha and Jamal? The New England Economic Review, 88(1), 1-23.
Bollen, N. P. B., & Pool, V. K. (2008). Conditional return smoothing in the mutual fund industry. Journal of Financial and Quantitative Analysis, 43(2), 267-298.
Botosan, C. A., & Plumlee, M. A. (2002). A re-examination of disclosure level and the expected cost of equity capital. Journal of Accounting Research, 40(1), 21-40.
Byun, H.-Y., Hwang, L.-S., & Lee, W.-J. (2011). How does ownership concentration exacerbate information asymmetry among equity investors? Pacific-Basin Finance Journal, 19(5), 511–534.
Caiazza, R., Volpe, T., & Foss, N. J. (2022). The impact of family ownership on corporate governance: Evidence from family firms. Journal of Family Business Strategy, 13(2), 100456.
Carter, D. A., McNulty, J. E., & Verbrugge, J. A. (2004). Do Small Banks have an Advantage in Lending? An Examination of Risk-Adjusted Yields on Business Loans at Large and Small Banks. Journal of Financial Services Research, 25(2), 233–252. https://doi.org/10.1023/B:FINA.0000020663.21079.D2
Chen, C. R., Steiner, T. L., & Whyte, A. M. (1998). The investment opportunity set, managerial incentives, and the relation between internal and external investment. Journal of Business, 71(4), 581-599.
Cheryta, A. M., Moeljadi, D., & Indrawati, K. (2017). The effect of leverage, profitability, information asymmetry, and firm size on cash holding and firm value of manufacturing firms listed at Indonesian Stock Exchange. International Journal of Research in Business Studies and Management, 4(4), 21–31.
Coffee, J. C., Jr. (2005). Interlocking Directorates and the costs of corporate governance. In K. J. Hopt, E. Wymeersch, & H. Kanda (Eds.), Corporate governance in context: Corporations, states, and markets in Europe, Japan, and the US (pp. 235-259). Oxford: Oxford University Press.
Coles, J. L., Lemmon, M. L., & Meschke, F. (2012). Structural models and endogeneity in corporate finance: The link between managerial ownership and corporate performance. Journal of Financial Economics, 103(1), 149-168.
Dahya, J., Lonie, A. A., & Power, D. M. (1996). The case for separating the roles of chairman and CEO: An analysis of stock market and accounting data. Corporate Governance: An International Review, 4(2), 71-77.
Das, S., & Ghosh, S. (2017). Earnings potential and stock returns: Empirical evidence from India. Global Business Review, 18(2), 412-427.
Demsetz, H. (1986). Corporate control, insider trading, and rates of return. The American Economic Review, 76(2), 313–316. https://www.jstor.org/stable/1818787
Dewayanto, T., Rahmawati, R., & Suhardjanto, D. (2020). Institutional Ownership, Blockholder Ownership, and the Board’s Tenure to Disclosure of Corporate Governance. Ekuilibrium?: Jurnal Ilmiah Bidang Ilmu Ekonomi, 15(1), 83. https://doi.org/10.24269/EKUILIBRIUM.V15I1.2272
Fan, J. P. H., & Wong, T. J. (2002). Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of Accounting and Economics, 33(3), 401–425. https://doi.org/10.1016/S0165-4101(02)00047-2
Flaherty, S., Li, J., & Small, K. (2006). Evidence on board size and information asymmetry: a capital markets perspective. Journal Corporate Ownership & Control, 4, 248–256.
Golder, P. N., & Tellis, G. J. (1997). Will it ever fly? Modeling the takeoff of really new consumer durables. Marketing Science, 16(3), 256-270.
Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1–3), 405–440.
Heflin, F. L., Shaw, K. W., & Wild, J. J. (2005). Disclosure Policy and Market Liquidity: Impact of Depth Quotes and Order Sizes*. Contemporary Accounting Research, 22(4), 829–865. https://doi.org/10.1506/EETM-FALM-4KDD-9DT9
Ho, P. and Taylor, G., 2014. The Impact of Governance and Ownership Structure on Disclosure Patterns Transcending Major Regulatory Change in Malaysia. Corporate Ownership & Control. 12 (1): pp. 114-125.
Ichimura, H., Matsushita, R., & Suzuki, K. (2020). Earning potential and information asymmetry in the Japanese stock market. Journal of Financial Markets, 45, 100536.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Johri, D. C., Saraf, V., & Ghosh, A. (2014). Corporate Policy-its Determinants and Importance in Present Corporate Scenario. International Journal on Emerging Technologies, 5(1), 14.
Kaplan, S. N., & Strömberg, P. (2009). Leveraged buyouts and private equity. Journal of Economic Perspectives, 23(1), 121-146.
Kini, O., & Mian, S. (1995). Bid-ask spread and ownership structure. Journal of Financial Research, 18(4), 401–414.
La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. The Journal of Finance, 54(2), 471-517.
Li, K., Luo, Y., & Zhao, X. (2018). Institutional ownership and information asymmetry: Evidence from the Chinese stock market. Journal of Corporate Finance, 48, 179-202.
Lode, N. A., & Bajrei, S. S. S. (2018). Are corporate governance mechanisms associated with information asymmetry level among UAE listed companies? Journal of Business Management and Accounting (JBMA), 105–120.
Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. The Journal of Business, 34(4), 411–433.
Muiruri, W. C. (2014). The effect of firm size on information asymmetries surrounding earnings disclosure of firms listed at the Nairobi Securities Exchange. Retrieved from http://erepository.uonbi.ac.ke/handle/11295/77885
Mustapha, M., & Ahmad, A. C. (2011). Agency theory and managerial ownership: evidence from Malaysia. Managerial Auditing Journal, 26(5), 419–436. https://doi.org/10.1108/02686901111129571
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147-175.
Nartea, G. V., & Wu, Y. (2019). The information content of earnings potential in global equity markets. International Review of Economics & Finance, 59, 102-114.
Omari, J., Fazlzadeh, A., & Nahidi, M. N. (2014). The relationship between ownership concentration and information asymmetry considering level of voluntary disclosure of firms listed in Tehran Stock Exchange. Research Journal of Recent Sciences, 3(4), 40–46.
Paramanantham, V., Hassan, S., & Zakaria, Z. (2018). Ownership concentration and firm performance: Evidence from Malaysian publicly listed companies. Journal of Advanced Research in Business and Management Studies, 13(1), 78-89.
Petersen, M. A., & Rajan, R. G. (1994). The benefits of lending relationships: Evidence from small business data. The Journal of Finance, 49(1), 3-37.
Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. Harper & Row.
Scott, J. (1997). Big Business and Corporate Power. In J. Scott (Ed.), Corporate Business and Capitalist Classes (pp. 1–20). Oxford University Press.
Seyhun, H. N. (1988). The information content of aggregate insider trading: Contrasting recent results. Journal of Business, 61(1), 1-24.
Tresna, P. V, & Ekaputra, I. A. (2017). Impact of foreign institutional and individual ownership on stock return volatility in Indonesia. In Competition and Cooperation in Economics and Business (pp. 211–219). Routledge.
Turnbull, S. (1997). Corporate governance: Its scope, concerns, and theories. Corporate Governance: An International Review, 5(4), 180-205.
Westphal, J. D., Boivie, S., & Chng, D. H. M. (2006). The strategic impetus for social network ties: reconstituting broken ceo friendship ties. Strategic Management Journal, 27(5), 425–445. https://doi.org/10.1002/SMJ.525
Yau, J. T. H., Goe, Z. Q., Hamdan, R., Liwan, A., Kueh, J. S. H., Razali, M. W., & Abdullah, M. A. (2019). The Effects of Ownership Structures on Firm Information Asymmetry in Malaysia. International Journal of Academic Research in Business and Social Sciences, 9(9), 950-977.
Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2), 185-211.

Ahad, D. N. F. B. A., & Yau, J. T. H. (2024). The Effects of Blockholding’s Interlocking Directorates and Corporate Policies on Information Asymmetry. International Journal of Academic Research in Accounting, Finance and Management Sciences, 14(3), 253–276.