The Effect of the Largest Shareholders Control Rights and Cash Flow Rights on Accounting Performance
Sami RM Musallam
This paper investigates the effect of largest shareholders Control Rights (CRs) and Cash Flow Rights (CFRs) on accounting performance using a panel data of 1716 company-year observations from non-financial companies listed on the Main Board of Bursa Malaysia over the period of 2000 to 2009. The results of Weighted Least-Squares (WLS) show that the effect of divergence of the largest shareholders CRs divided by their CFRs and the largest shareholders CRs are positive and significant on accounting performance while the effect of the largest shareholder CRs exceeding its CFRs and the ratio of CRs to CFRs of the largest shareholders are insignificant on accounting performance. This paper provides evidence that the divergence of the largest shareholders CRs from their CFRs leads to increase the incentive for expropriation of minority shareholders and decrease accounting performance of Malaysian listed companies. This evidence expands the understanding of the specific roles of investors’ protection in shaping corporate finance or governance, by clarifying their role in delivering value to outside shareholders.