Factors contributing to performance and risk-taking of the Malaysian listed companies

The main objective of this thesis is to examine factors influencing risk-return of 531 non-financial Malaysian listed companies representing 4779 company-year observations from 2004 to 2012. Dynamic and static panel regressions are utilized to examine the impact of standard deviation (STD) and below-mean semi-deviation (BMSD) together with other determinants on performance. Similar methods are used to investigate the impact of performance and other determinants on risk-taking behavior represented by STD and BMSD. Dynamic models reveal a significant positive (negative) influence of lagged (contemporaneous) corporate risk-taking on accounting-based performance. An inverse relationship of contemporaneous corporate risk-taking (RISKi) and performance (PERFit) supports Bowman's paradox where risk preference among managers is not static but varies according to company's situation. Financial slack and leverage are also found to be important determinants of performance supporting the implication stated in the behavioural and agency cost theories respectively. Static models show a significant positive relationship of RISKi,r on market-based performance which highlights the disappearance of a negative contemporaneous risk-return relationship once market-based data is applied. A negative impact of leverage on performance supports the pecking order theory which maintains that week performed company employs less amount of leverage. Dynamic models also report a significant positive (negative) effect of prior ROE on the STD (BMSD) of ROE supporting the implication stated in the housemoney (fi-aming) effect. Contemporaneous accounting performance, size, aspiration and leverage are also found to be influential determinants of risk-taking. Static models show a significant positive influence of PERFi on RISKiit which appear to challenge the Bowman's paradox.Meanwhile, the positive impact of aspiration and leverage on RISKiZt, supports threat rigidity hypothesis and agency theory respectively. Generally, this study finds that investors are psychologically biased in making investment decision and that BMSD is more appropriate in measuring risks because the Malaysians are more concerned about downside losses.