تاثیر اهرم و مهارت های مدیریتی در بازده سهامداران

The recent financial crisis that saw an increase in the risk premium and shareholders’ return around the world is partly caused by the management use of excessive leverage. This paper investigates the effect of leverage and managerial skills on shareholders’ return. Our regression analysis that accounts for managerial skill factors reveals that leverage has a positive relationship with shareholders’ return. Similarly, managerial skills have a positive relationship with shareholders’ return. Based on the findings, the study suggests that leverage and managerial skills may be priced in equity valuation. We develop an index measure of managerial skills and use the upper-echelon theory of the management literature to explain how managerial skills relate to shareholders’ return.

Over the years, finance researchers have identified reliable factors such as leverage, tax, price-to-book ratio and size as some of the variables that affect the shareholders’ return. Nonetheless, managerial skill factor has been frequently omitted because it is unobservable and difficult to measure which explains why these variables are frequently omitted in return model. Pandey, 2005, and Jacobson, 1990, argue that failure to account for unobservable firm-specific factors in a return model would lead to omitted variable bias. Moreover, the inferences we make based on a model that does not account for these unobservable firmsspecific factors would be incorrect. Despite the difficulty of dealing with unobservable factors that affect shareholders’ return, studies in this area which concern with the problem created by omitted variable bias, have used techniques designed to control for the influence of unobservable firm-specific factors in a return model (Pandey, 2005 and Jacobson, 1990). Specifically, the role of unobservable firm-specific factors such as managerial skills has been ignored in the literature, but managerial skills could have a strong influence on the shareholders’ return. Do leverage and managerial skills affect shareholders’ return in Malaysia? In order to investigate the effects of leverage and managerial skills on shareholders’ return in Malaysia, we select the top 400 listed firms as our sample framework. We focus on listed firms because they provide direct setting for us to empirically investigate how leverage and managerial skills affect shareholders’ return within the Modigliani and Miller’s, (1958 and 1963) risk-return relationship framework. Listed firms provide a good setting because valuation is attached to listed firm stock. In Malaysia, there are cases of firms that have financial distress problems and financial practices that do not justify continuous trading. This has prompted Bursa Malaysia to introduce Practice Note No. 4/2001[PN4] and Practice Note No. 17/2005 [PN17] in order to provide a comprehensive plan to help listed firms with signs of financial distress to improve their operating conditions (Alifiah et al., 2011). The use of high leverage leads to the financial distress problem, and we may attribute it to a failure on the part of top management to maintain sustainable leverage level. Consistent with risk-return relationship, shareholders demand higher returns to compensate them for added financial risk caused by the management use of high leverage. We hope this study can fill in the gap in the executive leadership and in Malaysia firm’s asset valuation and capital structure literature through systemic assessment of relationship between top management team’s characteristics and shareholders’ return. It is well established in the upper-echelon perspective that the maximization of shareholders’ return is a reflection of top management skills. Thus, investigating the effect of leverage and managerial skills on shareholders’ return adds new insight to the relationship between return and leverage from Malaysia perspective. The rest of the paper is organized as follows: section two reviews relevant literature, section three describes method and data, section four discusses the results and section five provides concluding remarks.

This study investigates the effects of leverage and managerial skills on shareholders’ return. We use fixed effects panel and regression analysis that account for managerial skills. The results show that long-term debt has a significant and positive relationship with shareholders’ return. Similarly, total debt has a significant and positive relationship with shareholders’ return. The results are robust using random effects panel and system generalize method of moment as a robust check. Furthermore, managerial skills are significant and positively related to shareholders’ return. The relationship between managerial skills and shareholders’ return can be explained using the upper-echelon theory that argues demographic attributes of top management such as education level and years of experience (a measure of managerial skills) affect their strategic choices. Educated and experienced top managers have high-risk tolerance level since they are better able to analyze expected risk and outcome of their strategic decision. The results imply that leverage may be an important risk factor to be priced in equity valuation, especially in the Malaysian context. The results make economic sense because shareholders are expected to demand higher returns to compensate them for the added financial risk. George and Hwang, 2007, also note that risk of bearing financial distress costs is priced in equity valuation. Similarly, our study implies that shareholders should be sensitive to the proportion of financial leverage use by top managers, especially at a higher leverage level because the value of their investment may be adversely affected. Furthermore, the results reveal thatsize as a control variable has the expected sign (positive sign) and may be a potential determinant of shareholders’ return in Malaysia. Large empirical studies agree that bigger firms are able to generate more earnings. This explains the positive relationship between size and shareholders’ return. The significant positive relationship between managerial skills and shareholders’ return implies careful selection of top management because they exert significant influence on the shareholders’ return. Moreover, our study suggests that policy makers (i.e. Government) could consider management skill factor as an important input on the recent efforts to revitalize the private sector in economic transformation program. The study contributes to the literature in two ways. Firstly, the paper develops an index measure of top management skills for Malaysian firms and uses the upper-echelon theory from the literature in management to explain how managerial skills relate to shareholders’ return. Secondly, we add managerial skill factor to basic Modigliani and Miller’s model and investigate their proposition in a fast growing country like Malaysia. We use fixed effects panel and regression that account for managerial skill factor as our main method. Also, we assume that the variables are exogenous. However, robust check using the system Generalized Method of Moment (GMM) reveals the relevance of dynamic models. System GMM controls for endogeneity problem and it accounts for unobservable effects such as managerial skills. Thus, dynamic modeling may be necessary. Additionally, future empirical research needs to place emphasis on the role of unobservable firmspecific factors such as managerial skills in equity valuation model, especially in the context of Malaysia. Perhaps, studies that build on this research and give fresh insight to explain the relationship between managerial skills and shareholders’ return will be informative.