Indian Journal of Science and Technology

Abstract

Objectives: This study examines the effects of RPT and corporate governance factors in the firms’ daily Cumulative Abnormal Return of the stock price (CAR) in the emerging market of Bursa Malaysia. Methods/Analysis: This event study used a sample of 422 RPTs engaged by public listed firms in Malaysia. Univariate analysis (t-test) is used to determine the RPT’s announcement effect on CAR in short horizon window, and the OLS regression to investigate the relationships between firm’s CAR and the corresponding exogenous variables of Minority Shareholder Watchdog Group (MSWG) activism, RPT types and size, and the state of firm’s corporate governance. Findings: Overall, this study pioneered a contribution, in Malaysian context, to the existing pool of literature on expropriation of minority shareholders via RPT. It directly measures the firm’s CAR around the firm’s RPT announcement period. Prior to this research, results with regards to expropriation of minority investors in the presence of RPT remain mixed and unclear in the Malaysian security market. It is also the first study to test and examine the impact of MSWG activism on the firm’s CAR in response to the announcement effect of various types of RPT. The results shows significant negative CAR in the post-announcement of RPT, indicating governance discount of stock prices by the market in realizing occurrence of expropriation. The regression result shows controlling shareholder’s ownership and the divergence of control to cash right have a significant positive association with expropriation of minority investors. It also provides evidence on the mitigating effect of MSWG activism on the controlling shareholders’ expropriating behavior. Finally, past findings on the significance of board independence is reinforced by the result of this study. Novelty/ Improvements: This event study provides a comprehensive treatment of RPT associations with expropriation by controlling shareholders, firm’s characteristics and the effectiveness of corporate governance practices in Malaysian listed firms.

Keywords: CAR, MSWG, Related Party Transaction