Unique determinants of abnormal earnings growth in Malaysia
Abstract
Purpose
This paper aims to use Malaysian data to investigate determinants of the implied growth rate of abnormal earnings.
Design/methodology/approach
The sample comprises 340 listed companies. Logistic regressions were conducted. The dependent variables, observed in 2009, distinguish companies with high versus low implied growth rates. The independent variables were observed in 2008. The independent variables of interest capture companies’ status as being Nanyang and politically connected corporations.
Findings
The results suggest that in Malaysia, implied growth rates are higher for Nanyang corporations and companies with a political connection related to economic policy.
Research limitations/implications
The study is limited by its one-year investigation period and blurred boundaries between types of political connections. Because these considerations bias the study against supporting the hypotheses, the significant results have enhanced credibility. The empirical proxies for implied growth rates are affected by measurement error. Hence, multiple proxies were used.
Practical implications
The results suggest that Malaysian Nanyang corporations are a sound investment. The evidence also indicates that in Malaysia, government investment in listed companies enhances, rather than erodes, shareholder wealth.
Originality/value
Owing to the prevalence of Nanyang companies and government investment in the private sector, the Malaysian setting is unique. The use of a broad definition of “political connections” is a unique aspect of this paper. Examination of implied equity growth rates and the proxies for the same are also original features.
Keywords
Acknowledgements
The author is grateful to Dr Neoh Soon Kean from Dynaquest Sendirian Berhad for allowing the use of data from Dynaquest (2008, 2009). The author is also thankful to Ms Wong Ping Ling and other analysts from Dynaquest Sendirian Berhad for directly providing some of the data. The author would like to express appreciation to Mergent Online and Bursa Malaysia for providing annual report data; appreciate the feedback from Robert Biscontri, Graeme Harrison, Cameron Morrill, Janet Morrill, Neoh Soon Kean, Asheq Rahman, Naguleswari Sinnadurai and two anonymous referees; and to participants at seminars at the following institutions: Macquarie University, the University of Manitoba, the University of Winnipeg, Deakin University, the University of Western Australia and the University of Malaya.
Citation
Sinnadurai, P.T. (2016), "Unique determinants of abnormal earnings growth in Malaysia", Pacific Accounting Review, Vol. 28 No. 1, pp. 16-37. https://doi.org/10.1108/PAR-09-2013-0093
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited