Independent Variables of Interest

Based on the conceptual schema as depicted in Figure 4.1 in Chapter 4 – Hypothesis

Development, the following subsections discuss the sources and measures for the

independent variables that are employed in this study. All relevant information for the measurements of the independent variables is retrieved from annual reports of the acquiring firms as at the fiscal year-end that comes immediately before the release of corporate acquisition announcements by Malaysian family-controlled firms.

5.3.2.1 Family Ownership

Within the context of Malaysian family-controlled firms, information of family ownership stakes are retrieved from Shareholding Analysis of the annual report.

Shareholding Analysis discloses both the direct and indirect shareholdings held by

substantial shareholders95 of the company. It also discloses the total shareholdings held by related family members of these substantial shareholders.

When determining family ownership in a publicly listed family-controlled firm, past studies (La Porta et al. 1999; Claessens et al. 2000; Faccio and Lang 2002; Lins 2003; Faccio and Stolin 2006) considered both direct and indirect shareholdings held by all related family members of the controlling family. Consistent with the approach used in past studies, family ownership in this study is measured by the total of both direct and indirect shareholdings held by related family members in Malaysian family-controlled

95

The definition of substantial shareholder is given in Section 69D of Companies Act 1965: a substantial

shareholder can be an individual or a corporation (whether listed or unlisted) who holds no less than an

firms. In addition, based on existing studies (McConnell and Servaes 1990; Morck et al. 1988; Anderson and Reeb 2003b; Ben-Amar and André 2006), family ownership is also squared to examine possible nonlinear relation with firm value for multivariate analysis.

The variable of family ownership that is used in both univariate and multivariate analyses is represented by Own. The variable own is measured in the form of percentage. The squared of family ownership is represented by Own2.

5.3.2.2 Family Management

Existing studies have empirically shown that active family management (when assuming the role of a CEO) by the family is an important feature in creating value for family-controlled firms (Anderson and Reeb 2003b; Villalonga and Amit 2006; Isakov and Weisskopf 2014). The variable of family management that is used in both univariate and multivariate analyses is represented by FamilyCEO to examine its relation with CAR. The dummy variable FamilyCEO equals to one when the family member takes the role of a CEO, zero otherwise. Information regarding this specific family firm feature is retrieved from the Profile of Directors in the annual reports of Malaysian family-controlled firms.

5.3.2.3 Founder-CEO and Descendent-CEO

Empirical studies reveal significant relation between active family management (by taking the position of a CEO either by founders or by the heirs) in adding value to family

firms. Studies showed significant positive relation between founder-CEO and family firm value (Anderson and Reeb 2003b). Contradictorily, studies also documented significant negative relation between descendant-CEO and family firm value (Villalonga and Amit 2006) or significant positive relation between descendant-CEO and family firm value (Sraer and Thesmar 2007). Hence, dummy variables are created to represent these specific family firm features.

In this study, information regarding the founder-CEO and descendant-CEO is retrieved from the Profile of Directors in the annual reports of Malaysian family-controlled firms. To examine separately the effect of founder-CEO and descendent-CEO on firm value, two dummy variables are generated and used in both univariate and multivariate analyses. To measure the presence of a founder-CEO, it is represented by the dummy variable F_CEO, which equals to one when founder is the CEO, zero otherwise. To measure the presence of a descendant-CEO, it is represented by the dummy variable

H_CEO, which equals to one when Heir is the CEO, zero otherwise.

5.3.2.4 Family Representatives on the Board

To determine if the presence of family on the board has effect on the wealth creation of corporate acquisition decisions of Malaysian family-controlled firms, the relevant information is retrieved from the Profile of Directors in the annual reports. A dummy variable is used to measure the relation between family representatives on the board and announcement-period CAR (Anderson and Reeb 2004). The dummy variable

Fam_Ind equals to one when the ratio of total percentage of family representatives on

the board over the total percentage of independent directors on the board is more than one. The information regarding the number of independent directors on the board is retrieved from either the Profile of Directors or the Statement of Corporate

Governance in the annual reports. The measurement used is percentage of total

independent directors on the board.

5.3.2.5 Dual Role of Family CEO-Chairman

One of the widely accepted corporate governance mechanisms is the implementation of unitary leadership on the board, where the duty of the chairman is separated from the duty of the CEO. Agency theory asserts that splitting the positions of CEO and chairman between two people improves firm performance as the board of directors can better monitor the performance of the CEO (Harris and Helfat 1998; Worrell et al. 1997; Finkelstein and D'Aveni 1994; Brickley et al. 1997; Fama and Jensen 1983b). However, due to the specific feature of family firms, the corporate governance function of a unitary leadership on the family firm board when upheld becomes futile. Specifically, the purpose of having an independent chairman and an independent CEO on the board is lost when these two positions are held by two individuals who are family related. Such traits are possible among family-controlled firms and are common among Malaysian family-controlled firms. Yet, this specific family firm feature has never been raised as a concern and has never been examined in the stream of family firm literature. To the best of our knowledge, this is the first empirical study that examines specific family firm feature relation with family firm value, within the context of corporate acquisition studies.

The term family-related CEO and chairman is used in this study to refer to this feature of family firms. To examine the relation between family-related CEO and chairman and CAR, this feature is measured through a dummy variable – F_Dual, which equals to one when the roles of CEO and chairman are held by two different individuals, who are family related. Information regarding this specific family firm feature on the dual role

of family CEO-Chairman is retrieved from the Profile of Directors in the annual reports of Malaysian family-controlled firms.

5.3.2.6 Related-Party Acquisition

To determine if the corporate acquisition performed by Malaysian family-controlled firms involve related parties who are family related, relevant information can be retrieved from the announcement. Information content of the announcement can be retrieved from the official website Bursa Malaysia – Announcement section. Related party corporate acquisitions are allowed within the context of Malaysia. Pursuant to Chapter 10 Main Market Listing Requirements of Bursa, all listing companies need to disclose corporate acquisition activities as a related party transaction to Bursa when a transaction meets the definition of a related party transaction as defined in Chapter 10.02. Pursuant to Chapter 10.02, related party transaction means a transaction entered into by the company or subsidiaries which involve the interest of a related party. Related party means a director, major shareholder or person connected with such director or major shareholder, pursuant to Chapter 1 Main Market Listing Requirements of Bursa. A dummy variable, represented by rpa, equals to one when the acquisition is a related-party corporate acquisition. For the purpose of examining related-party corporate acquisitions within the context of Malaysian family firm studies, the corporate acquisition activities involve related party when:-

iii. The director or the owner of the target firm is family related to the director or the owner of the acquirer.

iv. The director or the owner of the target firm is also the director or the owner of the acquirer.