Can Ownership Concentration and Structure be Linked to Productive Efficiency?: Evidence from Government Linked Companies in Malaysia

This paper examines the ownership concentration and structure, and analyzes its impact on firm productive efficiency. A stochastic frontier model with inefficiency effects is fitted to an unbalanced panel dataset of 31 government-linked companies (GLCs) listed at Malaysia's Stock Exchange (Bursa Malaysia) over a period of 12 years (2001-2012). The results of the analysis reveal the government's shareholdings have significantly improve productive efficiency over time, although the link is weak. The insignificant positive link between ownership concentration and inefficiency, and between board ownership and inefficiency, imply high ownership concentration and board ownership are not effective corporate governance mechanism in improving efficiency. Although there is a strong evidence to show government ownership is positively related to productive efficiency, having high ownership concentration tend to influence inefficiency, concurring earlier studies that highly concentrated shareholding with complex pyramidal and cross-holdings ownership can signal underlying performance vulnerability in the long run. The study also observes that gradual but slow improvement in the GLCs efficiency levels, and that output generation has been labour-using and capital-saving over time.