Directors' incentive and technical efficiency of government linked companies in Malaysia: A Stochastic Frontier Analysis

摘要

This paper examines directors' incentive, a key corporate governance mechanism, and analyze its impact on technical productive efficiency. Using stochastic frontier production model, the parameters are fitted simultaneously with the inefficiency effects to an unbalanced panel dataset of 31 GLCs listed at Malaysia's Stock Exchange (Bursa Malaysia) for a period of 9 years (2001–2009). After controlling for industry and firm size, results show the level of directors' remuneration is positively linked to efficiency. Positive link is also found between percentage of executive ownership and efficiency. Share option granted to the directors, however, is found to be negatively related to efficiency, suggesting this form of long-term incentives, is not contributing to the sustainable growth of the GLCs. Although larger GLCs are positively linked to efficiency, financial GLCs however, have negative impact on efficiency which could probably be due to congested labour input hence the need to enhance knowledge based and ICT investments.