CORPORATE GOVERNANCE AND FINANCIAL CONSTRAINTS IN FAMILY CONTROLLED FIRMS: EVIDENCE FROM MALAYSIA
The hypothesis of financial constraints suggests that firms will be denied profitable investment due
to inaccessible to external capital markets as debt and equity financing are no longer perfect
substitutions after firms utilize internal capital. In view of reduced investments during global
financial crisis in 2008-2009, the study investigates 157 firms, whether they face the issues of
financial constraints in Malaysia. In general, non-family firms rely heavily on the external debt
market while family controlled firms utilizing internal cash and reducing their dependence on debt
market for their investments, confirming financial constraints in family firms. However, the
presence of CEO duality does not exaggerate the problem of financial constraints, but rather leads
family firms to become stagnant in their investments. Independent directors appear to be
ineffective in governing family firms in issuing finances for investment. Apparently, their presence
in family firms reduces firms’ investment opportunities either through internal cash and external
debt financing, which could reduce shareholders’ value in the long-term.
Keywords: Investments; Financial Constraints; Corporate Governance; Duality; Independent
Director; Family Controlled firms.
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