Pyramid Ownership Structure & Value Relevance of Earnings Information

Although the value-relevance of earnings information has been widely explored, the study in this area however has focused on the context of value relevance with a dispersed ownership structure, and has overlooked the distinct context of value relevance of concentrated ownership structure especially in Malaysian context. To address this significant gap in the prior research, this study attempts to ascertain whether higher level of cash flow rights in the hand of ultimate controlling owner enhance the value relevance of earnings information in pyramid structure particularly for Malaysian public listed firms. Panel Generalized Least Square (GLS) estimation is used for 136 firms listed in the Main Market of Bursa Malaysia Berhad (BMB) by employing earnings-return model. The findings are quite notable as they do confirm the proposed hypotheses, through a series of statistically significant results. The effectiveness of the governing mechanisms such as higher level of cash flow rights provides avenue to curb expropriation activity as well as opportunistic earnings management. Such an approach will increase the usefulness of this study from a standard setting perspective.