The Impact of Family Ownership on Dividend Policy and Board Independence: Empirical Evidence from Malaysia

Abstract

The impact of family ownership on the dividend policy and board independence in Malaysia was examined through this study. The type of agency relationship in the firm controlled by the family shareholders would determine the direction of the relationship in this study. The final data of the study consists of 712 firms listed on the main market of Bursa Malaysia over the period 2010-2014. The controlling family shareholders were found to pay high dividends as they need to safeguard reputation as the high dividend payer and they were not involved in expropriation activities. High dividends can also satisfy the income needs of the family shareholders. However, the family shareholder may pay high dividends to themselves; hence indirectly they were into the expropriation activities. Further, they also assembled weaker board structure (lower board independence) to facilitate their expropriation activities. The role of independent directors as an internal governance provider will be restricted by them. Therefore, the prevalence of the concentrated and controlling ownership of family shareholders in Malaysia could still create Type 2 agency conflict even in the case where high dividends were paid.