The Effect of Company Size and Leverage Towards Company Performance After Malaysian Economic Crisis

International Journal of Management and Innovation Volume 6 Issue 2 (2014)
The Effect of Company Size and Leverage towards

Company Performance: After Malaysian Economic Crisis
Issham Ismail, Universiti Sains Malaysia, Malaysia
Abstract
The study will explore the relationship between company performance with the size
and leverage of the company after the Malaysian economic crisis period. Later, the
study will measure the relationship between company performance and size of the
company with different type of ownership such as foreign, non foreign, government,
non government, institutional and individual holding companies. The finding reveals
that size had negative effect towards company performance. While foreign holding
companies that increase in size lead to an increase in company values. Contrary,
Malaysian companies with government as stakeholders tends to have lower company
performance if the size is increasing. Consequently, the study also found an increase
in size of institutional holding companies tends to destroy the EVA values compared
to individual holding companies. In turn, the leverage ratio is not related to an
increase in the value of the companies since there is no relationship between EVA and
leverage of the companies.
Keywords: Size; Leverage; EVA; Company performance and ownership
Introduction
This study is to explore the effect of size and leverage of the company towards
the company performance after the economic crisis in 1997 in Malaysia. Malaysia has
been hit with the worst ever economic crisis in 1997-1998. Many have blamed poor
corporate governance as a reason. Mitton (2002) said weak corporate governance has
frequently been cited as one of the causes of the East Asian financial crisis of 1997 -
1998. While weak corporate governance may not have triggered the East Asian crisis,
the corporate governance practices in East Asia could have made countries more
vulnerable to a financial crisis and could have exacerbated the crisis once it began.
Many believe that if the firm size is big it will lead to the strong corporate
governance and will lead to better company performance. They said that size of the
company will play a crucial factor in the study as it can affect company performance.
Drew et al. (2003) found those small firms are more risky than big firms. Fama and
French (1992) had also concluded that firm size plays a role in explaining the
variation in company performance. Gu (2003) had found that firm size has a positive
impact on the returns in Chinese stock market. Most believe that the bigger the size of
32
the company the better the company performance will be. While studies by Luttman
and Silhan (1995) had noted that financial leverage indicates a positive association
with corporate earning variability. Dhatt et al. (1997) findings indicate that firms with
greater financial leverage and small capitalisation have higher market values relative
to sales and book values.
The study will explore the relationship between EVA (as company performance
indicator) with the size of the company and leverage of the company after the
Malaysian economic crisis period. Later, the study will measure the relationship
between company performance and size of the company with different type of
ownership such as foreign, non foreign, government, and non government,
institutional and individual holding companies.
Size of the Company

Size of the company has in the past played a crucial factor affecting EVA and
form a vital part of the study. A larger company is expected to have lower risk, since
the company is believed to be more stable, usually governed and regulated to adhere
to vast number of rules and regulations. Prior to pre crisis period, Bursa Malaysia had
classified the size of companies in terms of the total capital market value of the
company and segregate the companies via two type of boards, to be exact Main and
Second Board. Generally, the impact of size on stock performance is known as “size
effect”.
Cohen and Levinthal (1990) observe firm’s overall capacity is going to be much
greater in a larger firm than in a smaller firm based on their ability to exploit external
knowledge for the production of innovations and for operational purposes. Further,
such information and knowledge can be qualitatively exploited in a superior manner
in a larger firm because of the greater variety and competence of personnel available
in the larger firms. Therefore, performance parameters may be enhanced.
Fama and French (1992) have concluded that firm size and book-to-market
equity has exhibited a correlation in explaining the variation in stock returns
compared to beta, which has little or no ability in describing the variation in stock
returns.
Chan et al. (1993) has studied the ability of fundamentals to predict the stock
return in Japan. Their findings had revealed a significant relationship between stock
returns in the Japanese market and four fundamental variables, namely earnings yield,
size, book-to-market ratio and cash flow yield.
Haveman (1993) found, through analysing a sample of firms in the savings and
loans industry, that there is a positive relationship between size and change,
33
particularly if larger size means the possession of a greater variety and, of course,
quantity of resources.
Kimmel et al. (1995) has studied the “effect of risk on the use of
performance-contingent compensation”. They anticipated that firms with highly
variable returns are less likely to employ performance contingent compensation
contracts. In their study, firm size varies significantly across the return variance
groups.
Jensen et al. (1997) had studied the evidence that size and price-to-book-value
ratio are significantly related to company performance. They found that size and
price-to-book factors in stock returns are significant across all levels of systematic
risk. The significance of these factors was shown to be related to monetary conditions
and when they control for the stringency of monetary policy, they found it significant
and consistent small firm and low price-to-book effects only during expansive
monetary policy periods. In restrictive periods, neither size nor price-to-book ratio is
significantly or consistently related to returns.
Further, Kim (1997) had studied the explanatory power of beta, firm size,
book-to-market equity, and the earnings-price ratio for average stock returns. Kim
found that firm size effect is marginally significant when monthly returns are used but
not significant when using quarterly returns.
Majumdar (1999) found that size is not a significant negative explanatory
variable, In other words, when it comes to particular capabilities, big firms are as
good as small firms, and there are no differences in resource utilisation patterns
between small and large firms. The data does reveal that giants can and have learned
to dance. Firms are bundles of resources, and, therefore, the greater mass of resources
available to larger firms can enhance learning abilities.
Akdeniz et al. (2000) studied the expected stock returns in Istanbul Stock
Exchange from January 1992 until December 1998. The study was on the impact of
firm size on average monthly stock return and to determine if there was a
correspondingly relationship to size effect. Companies were ranked with respect to
size in a given month, and assigned to one of five size quintiles. Average returns, beta,
E/P, and book-to-market for each size portfolio were also listed. Average returns over
the full sample, on the other hand, had generally decreased with size. On average,
portfolios of smaller firms earned higher returns as compared to the bigger one. The
size effect almost disappears during the period between July 1995 and December
1998, despite a strong manifestation in the earlier period. Book-to-market revealed a
negative correlation to size.
34
Michelson et al. (2000) had studied whether the stock market response to
accounting performance measures is related to the “smoothness” of companies'
reported earnings. When size is considered, market returns are higher for small
companies than for large companies. There is also a significant relationship between
the type of industry and income smoothing. Overall, the results indicated that there is
a strong significant relationship between cumulative abnormal returns, income
smoothing, firm size, and industry.
However, Prevost et al. (2002) found that firm size has a strong negative
association with Tobin’s Q which is significant at the 1% level. Additionally, they
find that size and future growth are significant determinants of firm performance in
New Zealand. This demonstrates that a size effect is present in New Zealand, as has
been well documented in the US and elsewhere.
Xu (2003) examined the ability of Probability Index (Pr) measure in predicting
stock returns and the relationship between Pr and risk factor beta and size of the
company. Regression of actual returns against size of firm has, resulted in significant
correlation between company performance and the size of the firm. On the other hand,
when the size was controlled, the relationship between stock returns and beta becomes
insignificant.
Gomes et al. (2003) had found that size serves as a more accurate measure of
systematic risk than beta and hence outperforms it in a cross-sectional regression. Size
and book-to-market are correlated with the true conditional market beta and able to
predict stock returns. These findings suggest that the empirical success of size and
book-to-market can be consistent with a single-factor conditional CAPM model.
Mabert et al. (2003) found that enterprise size played an important role in ERP
implementations on several key dimensions. Research shows that size is a key factor
in the implementation approach for company-wide systems. Larger companies report
better improvements in the close of the financial cycle. A greater number of large
companies report benefits in financial management and personnel management than
small companies.
Hughes et al. (2003) investigated how current asset size, recent asset acquisitions,
and recent asset sales are related to financial performance. They found that increased
asset size obtained through internal growth, not by acquisitions, is associated with
better performance at most banks. When performance is measured by Tobin_s Q ratio,
increased asset-size is significantly associated with better performance in banks with
larger investment opportunities. It appears that an increase in assets is associated with
better financial performance at most banks.
35
Gu (2003) had found that firm size has a positive impact on the returns in
Chinese stock market. Chinese investors are risk averse and have more confidence in
large companies since large companies are usually believed to be less risky and
disseminate more information to investors, which is perceived to be less risky.
Drew et al. (2003) conducted a study on stock return of the Shanghai Stock
Exchange, China to examine whether firm size has an impact on performance and
whether firm size is determined by seasonal factors. They also concluded that smaller
firms tend to be riskier than big firms. A small firm and low book to market equity
firms had generated are correlated (superior returns) to the market portfolio in China.
Leverage
Holthausen and Larcker (1996) said that leverage has potentially positive
incentive effects because of the discipline imposed by the requirement to continually
generate sufficient cash to meet principal and interest payments, but there is also the
potential for negative incentive effects. For example, conflicts of interest between
shareholders and debt holders could cause managers to choose projects that reduce
firm value but that make shareholders better off vis-a-vis the debt holders (Jensen and
Meckling, 1976).
In addition, leverage could affect project selection by managers due to
managerial risk aversion. In particular, managers might avoid high net present value
projects that are very risky and instead take lower-risk projects with potentially lower
net present values. Thus, high leverage could cause risk-averse managers to alter their
investment decisions in such a way as to decrease the riskiness of the assets of the
firm in order to reduce the likelihood of default.
Coupling high leverage with high managerial equity ownership makes the
manager's equity claim more risky than it would be with lower leverage, thus
providing an indirect effect of increased leverage on a manager's willingness to take
risky projects. Whether increased leverage and more concentrated equity ownership
provide positive incentive effects is, largely, an empirical issue.
Very high leverage and concentrations of ownership constitute a relatively poor
incentive structure, reducing these attributes of organisational structure should
increase performance and the coefficients on leverage and the ownership variables
would be negative. Leverage is the descriptive variable of the study since Ou and
Penman (1989) identify twenty-eight financial ratios to be significant earnings
predictors in the two periods and these variables include measures of a firm's liquidity,
activity, performance, profitability, leverage, and dividends. Mitton (2002) identified
that a firm’s debt ratio “i.e. leverage” as a control variable of his study.
36
Jensen (1986) and Stulz (1990) concluded that financial leverage prevents
management from taking on suboptimal investment projects. In contrast, Kaplan and
Zingales (1997) argue against the disciplinary role of debt, finding that the least
financially constrained firms are most sensitive to cash flow availability in making
their investment decisions.
Greater financial leverage may affect managers and reduce agency costs through
the threat of liquidation, which causes personal losses to managers of salaries,
reputation, perquisites, etc. (Grossman and Hart, 1982; Williams, 1987).
Ball et al. (1993) had claimed that leverage does affect the level of stock risk and
expected return, which raises the potential for another form of relation between
changes in earnings and stock returns, while leverage has a negative impact on
changes in earning.
Luttman and Silhan (1995) argued that financial leverage will give a positive
association with corporate earning variability (EVAR) and EVAR affects earnings
predictability and the firm’s value. Thus the level of financial leverage had impacts
upon company performance.
Harrison et al. (1995) conducted a study on the relationship between
diversification and performance. They concluded that leverage is important since
firms sometimes accomplish diversification through acquisitions that are heavily debt
financed, and the correspondingly high interest payments can reduce profitability
levels.
Dhatt et al. (1997) had studied the relationship between stock returns and
potential explanatory factors in Korea. Among other findings, the study indicates that
firms with greater financial leverage and small capitalisation have higher market
values relative to sales, and book values. Further, longer existing firms tend to have
less financial leverage and lower market values. However, Switzer (1999) indicates
that, the performance of the merged firms typically improved following their
combination. The results are not sensitive to factors such as offer size, industry
relatedness between the bidder's and the target's businesses or bidder leverage.
Safieddine and Titman (1999) found that there was a positive relation between
the targets’ takeover company and their leverage. In contrast, as suggested by Stulz
(1988), Harris and Raviv (1988) and Israel (1992), a target’s total leverage is
significantly and negatively correlated to long-term stock performance of target firms
that stayed independent following the takeover. This result supports the dominant
effect of leverage as a managerial entrenchment device, as predicted by Dann and
DeAngelo (1988). Earlier work by Dann and DeAngelo (1988) assigns just the
37
opposite role to debt. According to this alternative view, managers use debt to
entrench themselves.
Howell and Stover (2001) discovered corporate governance and managerial
behavior, both in terms of entrenchment and financial leverage, have been
individually shown to directly affect firm performance and to indirectly affect it
through influence on other determinants of performance. Empirical studies of both
non financial and financial firms have largely reported governance, entrenchment and
financial leverage as individual determinants of firm performance. The linkage
between managerial behavior and leverage extends to performance.
Ofek’s (2002) observations reveal that higher pre-distress leverage increases the
probability of operational actions, particularly asset restructuring and employee
layoffs. Higher pre-distress leverage also increases the probability of financial actions
such as dividend cuts. On the contrary, Jensen (1989) argues that higher pre-distress
leverage increases the speed with which a firm reacts to poor performance.
Jacquemine and Ghellinck (2002) in their study explore to what extent large
French firms in the hands of wealthy families have performed in a significantly
different manner from non-familial firms. They found that differences in financial
structure explicitly leverage did not affect the result that wealthy families performed
in a significantly different manner from non-familial firms.
Ko¨ke (2002) examined the determinants of acquisition and failure for a large
sample of German corporations, separately for public and private corporations. Both
types of firms are more likely to be acquired or to fail when performance is poor,
leverage is high, and firm size is small. One reason is that the causes of corporate
failure and control transfers are similar. Ko¨ke also believed the capital structure
related to performance as a determinant of firm failure or changes in ownership.
Yoshikawa and Phan, (2003) included financial leverage, measured as the ratio
of debt to total assets, was included as variable in their study because high debt levels
can significantly impact management behavior and thus firm performance (Jensen,
1986).
Jandik and Makhija (2004) found significant increases in the level of target
leverage have been previously documented following unsuccessful takeover attempts.
This increased leverage may signal managerial commitment to improved performance,
suggesting that corporate performance and leverage should be positively related. If,
however, the increased leverage leads to further managerial entrenchment, then
corporate performance and leverage should be negatively related. However their
findings revealed that the relation between corporate performance and leverage is
negative, as predicted by a dominant entrenchment effect. Further, Jandik and
38
Makhija (2004) stated leverage-increasing firms with primarily increases in bank

leverage (bank debt/total assets) have significantly less negative long-term
performance compared to the firms with leverage increases mainly due to non-bank
sources.
Berger and Bonaccorsi (2006) said corporate governance theory predicts that
leverage affects agency costs and thereby influences firm performance. Theory
suggests that the choice of capital structure may help mitigate these agency costs.
Under the agency costs hypothesis, high leverage or a low equity/asset ratio reduces
the agency costs of outside equity and increases firm value by constraining or
encouraging managers to act more in the interests of shareholder (Jensen and
Meckling, 1976; Harris and Raviv, 1988 and Myers, 2001).
Other empirical studies such as Altman (1968) and Powell (1997) on firm failure
confirm this role of financial pressure. Hence, they expect that firms with higher
leverage are more likely to be takeover targets or candidates for failure. Results from
Ko’ke study explain survival, acquisition, and failure as public or private corporations
are more likely to be acquired or fail when performance is poor or leverage is high.
This is consistent with the findings of other studies (Altman, 1968; Powell, 1997;
Denis and Sarin, 1999 and Maksimovic and Phillips, 2001).
Research Methodology
The size of the company will be measured by using the market value of the
equity of the company since many researchers (Drew et al., 2003; Clark and Wójcik,
2005; Gomes et al., 2003; Xu, 2003) have used the market value of equity in their
studies when measuring the size of the company. While for the leverage calculation is
the total debt over total equity. This calculation was adopted from studies by Dhatt et
al. (1997); Harrison et al. (1995) and Ball et al. (1993).
This study will apply panel pool regression by using pooled time-series,
cross-sectional on the data analysis with common and period specific coefficients.
The heteroscedasticity obstacle will be solved by using the advanced technique of
panel pool regression analysis from the latest econometric software. By using this tool,
the data analysis is much more prudent because the analysis will regress data on cross
sectional and time series simultaneously (Gujarati, 2003). For panel pool regression
analysis, 245 main board listed companies’ data for year 1999 - 2002 are used. The 4
year study period has been chosen since the period is considered as the post crisis
economic period.
Results
39
Based on the table 1, it has been found that size has significant negative
correlation with EVA at coefficient of -0.045877. These results are consistent with
Fama and French (1992); Chan et al. (1993); Kimmel et al. (1995); Xu (2003) and
Gomes et al. (2003) that size have significant relationship with company performance
indicators.
On the contrary, Mabert et al. (2003) had observed that larger companies report
better improvements in the close of the financial cycle, report benefits in financial
management and personnel management compared to smaller companies. Hughes et
al. (2003) found that size is significantly associated with better performance with
larger investment opportunities, while Haveman (1993) found that there is a positive
relationship between size and company performance as a larger size indicated the
possession of a greater variety and, of course, adequate quantity of resources. Cohen
and Levinthal (1990) observed that bigger firms are better in exploiting external
knowledge to produce innovation and for operational purposes, such information and
knowledge can be qualitatively exploited in a superior manner because of the greater
variety and competence of personnel available within the larger firms, therefore,
performance parameters may be enhanced. In turn, Gu (2003) found that investors are
risk averse and have more confidence in large companies since large companies are
usually believed to be less risky and provide more information to investors, which
tends to reduce risk, thus size and performance tend to be positively correlated.
However, the finding for Malaysian public listed companies did not support the
above observations, as it revealed that size was negatively correlated with
performance. It is noted that in contrast to the above studies, that Drew et al. (2003) in
their studies revealed negative correlations to size, supporting these findings. They
found small firms are more risky than big firms. Further, a small firm and low book to
market equity firms had generated superior returns to the market portfolio. In turn
studies by Majumdar (1999) found big firms are as good as small firms, and there are
no differences in resource utilisation patterns between small and large firms. Firms
are bundles of resources, and, therefore, a greater mass of resources available to larger
firms can enhance learning abilities. This is partly due to the top management’s
preoccupation with growing in size rather than in value. (Isa and Lo, 2001)
Isa and Lo (2001) found that size was negatively correlated to EVA over 1999 -
2002, which was the post crisis period or recovery period. They found that most
companies were still not able to make an investment which that would yield a higher
return than what they should pay to their stakeholders, or returns were below their
cost of capital. Most companies during that period still had excess resources. The
selection of investment is scrutinised thoroughly since most companies had been more
40
cautious, in addition stringent rules were also introduced in relation to investment.

The cautiousness could have dampened the ability of companies to generate higher
returns. As a result, most of the bigger companies had failed to utilise the resources as
compared to smaller companies. An excess of under-utilised resources could produce
result lower EVA to the company.
Based on Table 2, panel pool regression analysis for period of 1999 to 2002 (4
years), size of the foreign holding companies and non-foreign holding companies
were statistically significant at p-values 10% with coefficient correlations of foreign
holding companies size with EVA being positively correlated, while coefficient
correlation for non-foreign holding companies size to stock return exhibited a
negative correlated. It could be said that the status of foreign or non-foreign holding
company may not be statistically significant in explaining EVA. Based of these
findings, it could be concluded that for foreign holding companies, any increase in the
size of company will be compensated with incremental increase in the value of the
company conversely, as compared to non-foreign holding company where all the
incremental increase in size of the company will decrease the value of the company. It
is also believed that for foreign holding companies, the expansion in size will be
based on the return that will be produced (due to the increments in size) and the return
preferred is always higher than cost of capital.
Based on Table 3, panel pool regression analysis for the period 1999 - 2002 (4
years), the size of the government holding companies and non-government holding
companies are negatively correlated with the EVA. Based on these findings, it is
concluded any increment in size of the company for government holding companies
will decrease or destroy the value of the company, and to a greater degree, than
companies without government holding. It also leads to findings that an expansion of
size government holding companies tends to increase the cost of capital in greater
proportion to the any returns it generates.
Based on Table 4, panel pool regression analysis for period of 1999 to 2002 (4
years), size of the institutional holding companies and individual holding companies
are negatively correlated to the EVA value. The findings reveal that for any
incremental increase in size of the company for institutional holding companies, it
displays a decrease in the value of the company; such destruction in value is greater as
compared to the decrease in value for individual companies.
However, leverage is not statistically significant at p-values 10% over years 1999
- 2002. Thus, it can be concluded that leverage does not affect EVA for companies
listed in Bursa Malaysia.
41
Table 1. Panel Pool Regressions with Common Coefficients between Descriptive

Variables and EVA for the Year 1999 - 2002
Dependent Variable: EVA
Total pool (balanced) observations: 980
Variable Coefficient Standard Error t-Statistic Probability
SIZE -0.045877 0.003101 -14.79300 0.0000

LEVERAGE -653556.0 718529.0 -0.909575 0.3633
FOREIGN 1.00E+08 31351096 3.197327 0.0014
GOVERNMENT -73532007 34103171 -2.156163 0.0313
DIVERSIFICATION -60810425 25117273 -2.421060 0.0157
TYPE OWNERSHIP -38689066 28906623 -1.338415 0.1811
C -17208963 26789187 -0.642385 0.5208
R-squared 0.223684 F-statistic 46.72597

Adjusted R-squared 0.218897 Prob(F-statistic) 0.000000

Variables and EVA with Interaction between Foreign and Size Variables for the Year
1999 - 2002
SIZE -0.076689 0.003556 -21.56895 0.0000

LEVERAGE -712378.3 653463.2 -1.090158 0.2759
GOVERNMENT 8802948. 31181453 0.282314 0.7778
FOREIGN 13107655 28835826 0.454561 0.6495
FOREIGN*SIZE 0.079481 0.005744 13.83745 0.0000
TYPE OWNERSHIP -41895332 25930164 -1.615699 0.1065
C 1950115. 24068709 0.081023 0.9354
Weighted Statistics

42

Variables and EVA with Interaction between Government and Size Variables for the
Year 1999 - 2002
SIZE -0.001923 0.004226 -0.454978 0.6492

LEVERAGE -656257.7 657669.2 -0.997854 0.3186
GOVERNMENT 47478658 32033575 1.482153 0.1386
FOREIGN 46213448 28584036 1.616757 0.1063
GOVERNMENT*SIZE -0.078243 0.005668 -13.80461 0.0000
TYPE OWNERSHIP -33714979 26102241 -1.291651 0.1968
C -34683889 24221403 -1.431952 0.1525


Variables and EVA with Interaction between Type of Ownership and Size Variables
for the Year 1999 - 2002
SIZE -0.015356 0.014144 -1.085712 0.2779

LEVERAGE -614147.0 717150.8 -0.856371 0.3920
GOVERNMENT -73394938 34071975 -2.154115 0.0315
FOREIGN 1.00E+08 31322066 3.207698 0.0014
TYPE
OWNERSHIP*SIZE -0.032019 0.014469 -2.212856 0.0271
TYPE OWNERSHIP -20944153 29975184 -0.698716 0.4849
C -33041884 27703127 -1.192713 0.2333

Conclusions
Following the economic crisis year 1999 - 2002 this study found that the size of
companies is negatively correlated to EVA, increments in the size of public listed
company Malaysia tend to destroy company’s values, only companies with foreigners
43
as stakeholders exhibit a tendency to increase the companies’ value through the

expansion of size. It is believed at this stage, most companies were unable to make
returns on their investments, after paying stakeholders, or tend to make returns below
their cost of capital. Over this period, any increase in size tended to reduce EVA
values maybe because companies exhibited a failure to utilise their capital resources
during this time. Excess resources that were not utilised produced lower EVA. It
appears that top management in Malaysia is geared towards growth in company size
rather than value (Isa and Lo, 2001). Further, this is consistent with the study by Drew
et al. (2003) that small firms are more prone to risk compared to big firms, where high
risk is meant to be compensated by higher returns
The findings also consistent with Aoki (2002), Gedajlovic and Shapiro (2002),
Kang and Shivdasani (1995) and Prowse (1990) that foreign shareholders are more
effective in driving firm performance and results reveal that foreign holding
companies that increase in size lead to an increase in company values. While
Malaysian companies with government as stakeholders tends to have lower company
performance if the size is increasing. Consequently, the study also found an increase
in size of institutional holding companies tends to destroy the EVA values of the
company compared to individual holding companies.
In turn, the study also indicated that the leverage ratio is not related to an
increase in the value of the companies since there is no relationship between EVA and
leverage of the companies.
References
Akdeniz L, Altay-Salih A, & Aydogan K. (2000). A cross-section of expected stock
returns on the Istanbul stock exchange. Russian & East European Fin. & Trad.
36(5), 6-21.
Altman, E. (1968). Financial ratios, discriminant analysis, and the prediction of
corporate bankruptcy. J. Fin. 23, 589-609.
Aoki, H. (2002). Impacts of firm performance and corporate governance on board
reforms: The determinants of introducing executive officer system. Nihon Keiei
Gakkaishi. J. Bus. Manag. 8, 3-14.
Ball R, Kothari SP, & Watts RL. (1993). Economic determinants of the relation
between earnings changes and stock returns. Acc. Rev. 68(3), 622-638.
Berger, A. N, Bonaccorsi Di P. E. (2006). Capital structure and firm performance: A
new approach to testing agency theory and an application to the banking industry.
J. Bank. & Fin.34(3), 1065-1102
44
Chan, L. K. C., Hamao, Y, & Lakonishok J. (1993). Can fundamentals predict

Japanese stock returns?. Fin. Analys. J. 49(4), 63-69.
Clark GL, & Wójcik D. (2005). Financial valuation of the German model: The
negative relationship between ownership concentration and stock market returns,
1997-2001. Econ. Geo. 81(1): 11-29.
Cohen WM, & Levinthal DA (1990). Absorptive capacity: A new perspective on
learning and innovation. Admin. Sci. Quarterly. 35(1): 128-152.
Dann LY, & Deangelo H (1988). Corporate financial policy and corporate control: A
study of defensive adjustments in asset and ownership structure. J. Fin. Econ.
20(1/2), 87-98.
Denis, D.J, & Sarin A. (1999). Ownership and board structures in publicly traded
corporations. J. Fin. Econ. 52, 187-223.
Dhatt, M. S, Kim, YH, & Mukherji, S. (1997). A fundamental analysis of Korean
stock returns. Fin. Analys. J. 53, 75-80.
Drew, M.E, Naughton T, & Veeraraghavan M. (2003). Firm size, book-to-market
equity and security returns: Evidence from the shanghai stock exchange. Austral.
J. Manag. 28(2): 119-141.
Fama EF, & French KR (1992). Common risk factors in the returns on stocks and
bonds. J. Fin. Econ. 33(1993): 3-56.
Gedajlovic E, & Shapiro DM (2002). Ownership structure and firm profitability in
Japan. Acad. Manag. J. 45: 565
Gomes J, Kogan L, & Lu Z (2003). Equilibrium cross Section of returns. J. Politic.
Econ. 111(4): 693-732.
Grossman SJ, &Hart OD (1982). Takeover bids, the free-rider problem, and the
theory of the corporation. Bell J. Econ. 11: 42-64.
Gu AY (2003). State ownership, firm size, and IPO performance: Evidence from
Chinese 'A' share issues. American Bus. Rev. 21(2): 101-108.
Gujarati ND (2003). Basic econometrics 4th Edition. Mcgraw Hill
Harris M, & Raviv A (1988). Corporate control contests and capital structure. J. Fin.
Econ. 20: 55-86.
Harris R (1996). A study in sniping. CFO: The Magazine for Senior Financial
Executives. 12(1996): 44-62.
Harrison JS, Hall EH, & Nargundkar R (1995). Resource allocation as an outcropping
of Strategic consistency: Performance implications. Academy Manag. J. 36:
1026-1051.
Haveman HA (1993). Organizational size and change: Diversification in the savings
and loan industry after deregulation. Administ. Sci. Quarterly, 38(1): 20-50.
45
Holthausen RW, & Larcker DF (1996). The financial performance of reverse

leveraged buyouts. J. Fin. Econ. 42(1996): 293-332.
Howell JC, & Stover RD (2001). How much do governance and managerial behavior
matter in investment decisions? Evidence from failed thrift auctions. J. Corp. Fin.
8(2002): 195-211.
Hughes JP, Lang WW, Mester LJ, Moon C, & Pagano M (2003). Do bankers sacrifice
value to build empires? Managerial incentives, industry consolidation, and
financial performance Q. J. Bank. & Fin. 27(2003): 417-427.
Isa M, & Lo W (2001). Economic value-added in the Malaysian listed companies: A
preliminary evidence. Capita. Market. Rev. 9(1 and 2): 83-89.
Israel R (1992). Capital and ownership structures, and market for corporate control.
Rev. Fin. Studi. 5: 181-198.
Jacquemine A, & Ghellinck De E (2002). Familial control,size and performance in the
largest french firms. Europ. Econ. Rev. 13(1): 81-91.
Jandik T, & Makhija AK (2004). Debt, debt structure and corporate performance after
unsuccessful takeovers: Evidence from targets that remain independent. J. Corp.
Fin. 11(5): 882-914.
Jensen GR, Johnson RR, & Mercer JM (1997). New evidence on size and
price-to-book effects in stock returns. Fin. Analys. J. 53(6): 34-41.
Jensen MC (1989). Eclipse of the public corporation. Harvard Bus. Rev. 5: 61–74.
Jensen MC (1986). Agency costs of free cash flow, corporate finance and takeovers.
American Econ. Rev. 76(2): 323-335.
Jensen MC, & Meckling WH (1976). Theory of the firm: Managerial behavior,
agency costs, and ownership structure. J. Fin. Econ. 3: 305-317.
Kang J, & Shivdasani A (1995). Firm performance, corporate governance and top
executive turnover in Japan. J. Fin. Econ. 38: 29-41.
Kaplan SN, & Zingales L (1997). Do investment-cash flow sensitivities provide
useful measures of financing constraints? Quarterly J. Econ. 112. 169– 215.
Kim D (1997). A reexamination of firm size, book-to-market, and earnings price in
the cross-section of expected. J. Fin. & Quanti. Analys. 32(4): 463-477.
Kimmel P, Kren L, & Schadewald M (1995). Effect of risk on the use of
performance-contingent compensation. J. Manageri. Fin. 21(3): 36-49.
Ko¨Ke J (2002). Determinants of acquisition and failure: Evidence from corporate
Germany. Structur. Chang. Econ. Dynamic. 13(2002): 457–484.
Luttman SM, & Silhan P A (1995). Identifying factors consistently related to value
line earnings predictability. The Fin. Rev. 30(3): 445-453.
46
Mabert VA, Soni A, & Venkataramanan MA (2003). The impact of organization size
on enterprise resource planning (ERP) implementations in the US manufacturing
sector. Omega 31(2003): 235-256.
Majumdar SK (1999). Suggish giants, sticky cultures, and dynamic capability
transformation. J. Bus. Ventur. 15: 59–78.
Maksimovic V, & Phillips G (2001). The market for corporate assets: Who eEngages
in mergers and asset sales and are there efficiency gains?, J. Fin. 56(6):
2019-2037.
Michelson SE, Jordan-Wagner J, & Wootton CW (2000). The relationship between
the smoothing of reported income and risk-adjusted returns. J. Econ. & Fin.
24(2): 141-162.
Mitton T (2002). A cross-firm analysis of the impact of corporate governance on the
East Asian financial crisis. J. Fin. Econ. 64: 215-221.
Ofek E (2002). Capital structure and firm response to poor performance: An empirical
analysis. J. Fin. Econ. 34: 3-18.
Ou J, & Penman S (1989). Accounting measurement, price-earnings ratio, and the
information content of security prices. J. Acc. Resear. 27(3): 111-131.
Ou J, & Penman S (1989a). Financial Statement Analysis and the Prediction of Stock
Returns. J. Acc. Econ. 11: 295-306.
Maksimovic V, & Phillips G (2001). The market for corporate assets: Who engages in
mergers and asset sales and Are there efficiency gains? J. Fin. 56(6): 2019-2032.
Powell RG (1997). Modelling takeover likelihood. J. Bus. Fin. Amount. 24:
1009-1018.
Prevost AK, Rao RP, & Hossain M (2002). Determinants of board composition in
New Zealand: A simultaneous equations approach. J. Empiric. Fin. 9(2002):
373-392.
Prowse SD (1990). Institutional investment patterns and corporate financial behavior
in the United States and Japan. J. Fin. Econ. 27: 43-61.
Safieddine A, & Titman S (1999). Leverage and corporate performance: Evidence
from unsuccessful takeovers. J. Fin. 54: 547-558.
Stulz RM (1988). Managerial control of voting rights: Financing policies and the
market for corporate control. J. Fin. Econ. 20: 25-36.
Stulz, RM (1990). Managerial discretion and optimal financing policies. J. Fin. Econ.
26: 3-17.
Switzer JA (1999). Evidence on real gains in corporate acquisitions. J. Econ. & Bus.
48(5): 443-452.
Williams J (1987). Perquisites, risk, and capital structure. J. Fin. 42: 29-37.
47
Xu L (2003). Financial statementanalysis and beta and size effect. Int. J. Commer. &
Manage. 13(1): 103-119.
Yoshikawa T, &Phan PH (2003). The prformance implications of ownership-driven
governance reform. European Manage. J. 21(6): 698-712.
Zingales L (1997). Survival of the fittest or the fattest? Exit and financing in the
trucking industry. J. Fin. 53(3): 905-938.
48
Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.

The Effect of Company Size and Leverage Towards Company Performance After Malaysian Economic Crisis

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The Effect of Company Size and Leverage Towards Company Performance After Malaysian Economic Crisis

Uploaded by

Copyright:

Available Formats

International Journal of Management and Innovation Volume 6 Issue 2 (2014)

The Effect of Company Size and Leverage towards

Issham Ismail, Universiti Sains Malaysia, Malaysia

Size of the Company

Makhija (2004) stated leverage-increasing firms with primarily increases in bank

cautious, in addition stringent rules were also introduced in relation to investment.

Table 1. Panel Pool Regressions with Common Coefficients between Descriptive

Variable Coefficient Standard Error t-Statistic Probability

SIZE -0.045877 0.003101 -14.79300 0.0000

R-squared 0.223684 F-statistic 46.72597

Table 2. Panel Pool Regressions with Common Coefficients between Descriptive

Variable Coefficient Standard Error t-Statistic Probability

SIZE -0.076689 0.003556 -21.56895 0.0000

R-squared 0.358123 F-statistic 77.47275

Table 3. Panel Pool Regressions with Common Coefficients between Descriptive

Variable Coefficient Standard Error t-Statistic Probability

SIZE -0.001923 0.004226 -0.454978 0.6492

R-squared 0.354048 F-statistic 76.10799

Table 4. Panel Pool Regressions with Common Coefficients between Descriptive

Variable Coefficient Standard Error t-Statistic Probability

SIZE -0.015356 0.014144 -1.085712 0.2779

R-squared 0.227285 F-statistic 40.84325

as stakeholders exhibit a tendency to increase the companies’ value through the

Chan, L. K. C., Hamao, Y, & Lakonishok J. (1993). Can fundamentals predict

Holthausen RW, & Larcker DF (1996). The financial performance of reverse

You might also like