GLCs are controlled by the Malaysian government via the Government-Linked Investment Companies (GLICs). GLICs are investment arms of the government that allocate government funds to the GLCs. In addition to having ownership in GLCs, the Malaysian government also has an influence in the appointment of members of the board of directors and senior management positions. The government also has a controlling stake in making major decisions-e.g. contract awards, strategy, restructuring and financing, acquisition and divestments. As such, government intervention in GLCs is common not only in Malaysia but also other countries. The issue is, does intervention by the government creates value for GLCs?
Research findings suggest that there are two opposing schools of thoughts. According to the first, companies with government intervention are better governed (Ramirez and Tan, 2004; Ang and Ding, 2006). More specifically, these companies are not only under the watchful eyes of the public, i.e. namely investors and shareholders, but also the government. In contrast, the second school of thought belief that companies in private hands are more competitive and have more incentive to innovate and contain costs ( Dewenter and Malatesta, 2001; Sun and Tong, 2002).
A recent research by Lau and Tong (2008), published in International Applied Economics and Management Letters, found that government intervention improves firm value. Results of this study provide preliminary evidence on the effectiveness of the ownership and control structure of Malaysian GLCs in creating shareholders’ wealth. Such finding is consistent with the government’s aim of building up the nation through GLCs. The Malaysian government’s priority is economic development. In order for GLCs to contribute towards the country’s economic development, GLCs need to create value and enhance their stakeholders’ wealth.