Controlling Shareholders’ Networks and Related Party Transactions: Moderating Role of Director Remuneration in Malaysia

Mohd Mohid Rahmat, Hanis Amera Mohd Amin, Norman Mohd Saleh

Abstract


ABSTRACT

Past research argued that controlling shareholders can use their power of control to influence their networks via proxy (CSProxy) and multiple-directorship (CSMulti) to engage in related party transactions (RPT). Thus, we examine the associations between CSProxy and CSMulti, and RPTs. Additionally, directors are rewarded with remunerations, and therefore, director remuneration may be effective in minimizing agency conflict. Thus, we examine the impact of director remuneration as a moderator of the relationships between CSProxy and CSMulti, and RPT. The hypotheses are tested using a sample that consists of 622 listed companies in Malaysia over the period 2012-2014 with a total of 1,866 observations. CSProxy and CSMulti are found to have positive associations with RPTs. We also find that director remuneration is significant in moderating the CSProxy and CSMulti, and RPT relationships. This evidence suggests that director remuneration is an effective monitoring cost to minimize the abuse of RPTs by opportunistic controlling shareholders via their networking, CSProxy and CSMulti. It raises the concerns of the regulators and policy makers that controlling shareholders may utilize their posts, power, position and networks to opportunistically expropriate firm resources. Firm’s remuneration committee has to understand the importance of determining attractive remuneration that fulfils directors’ expectation and satisfaction.

Keywords: Controlling shareholder; proxy; multiple directorship; related party transactions; director remuneration

ABSTRAK

Penyelidikan lepas mendakwa bahawa pemegang saham yang mengawal boleh menggunakan kuasa kawalan mereka untuk mempengaruhi rangkaian mereka melalui proksi (CSProxy) dan berbilang pengarahan (CSMulti) untuk melaksanakan urusniaga pihak berkaitan (RPT). Kami mengkaji perhubungan antara CSProxy dan CSMulti, dan RPT. Di samping itu, pengarah diberi ganjaran, dan oleh itu, ganjaran pengarah mungkin efektif dalam meminimumkan konflik agensi. Oleh itu, kami mengkaji kesan ganjaran pengarah sebagai penyederhana terhadap hubungan antara CSProxy dan CSMulti, dan RPT. Hipotesis diuji menggunakan sampel 622 syarikat tersenarai di Malaysia sepanjang tempoh 2012-2014 yang berjumlah 1,866 pemerhatian. CSProxy dan CSMulti didapati mempunyai hubungan yang positif dengan RPT. Kami juga mendapati bahawa ganjaran pengarah adalah penting untuk menyederhanakan hubungan antara CSProxy dan CSMulti, dan RPT. Bukti ini menunjukkan bahawa ganjaran pengarah adalah kos pemantauan yang berkesan untuk meminimumkan penyalahgunaan RPT oleh pemegang saham yang mengawal melalui rangkaian mereka, CSProxy dan CSMulti. Ia menimbulkan kebimbangan kepada pengawal selia dan pembuat dasar bahawa pemegang saham yang mengawal boleh menggunakan jawatan, kuasa, kedudukan dan rangkaian mereka untuk mengaut sumber yang dimiliki oleh syarikat. Jawatankuasa ganjaran firma perlu memahami kepentingan untuk menentukan rekabentuk ganjaraan yang menarik yang dapat memenuhi harapan dan kepuasan para pengarah.

Kata kunci: Pemegang saham yang mengawal; proksi; berbilang pengarahan; urusniaga pihak berkaitan; ganjaran pengarah


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