AAMJAF Vol 1 81104 2005ASIAN ACADEMY

Topics: Palm oil, Malaysia, Oil palm Pages: 24 (8352 words) Published: November 27, 2014
AAMJAF, Vol. 1, 81–104, 2005

ASIAN ACADEMY of
MANAGEMENT JOURNAL
of ACCOUNTING
and FINANCE

FIRM SIZE, OWNERSHIP AND PERFORMANCE IN THE
MALAYSIAN PALM OIL INDUSTRY
Bala Ramasamy1*, Darryl Ong2 and Matthew C. H. Yeung3
1,2

Nottingham University Business School, Malaysia Campus, Jalan Broga, Semenyih, Selangor, Malaysia
3
School of Business, The Open University of Hong Kong, 30 Good Shepherd Street, Homantin, Kowloon, Hong Kong
*Corresponding author: bala.ramasamy@nottingham.edu.my

ABSTRACT
The objective of this study is to analyse the effects of market structure components and other performance measures to better understand the dynamics and determinants of performance within the Malaysian palm oil sector. In particular, we consider the effects of firm size and firm ownership on the level of profitability in this sector. Our findings suggest that size is negatively related to performance while privately owned plantation companies are more profitably managed. These results support the recent move by the Malaysian government to postpone the listing of the Federal Land Development Authority (FELDA), a government agency responsible for managing government land schemes and commercial development of plantations. It also lends support to the ongoing strategy of improving the performance of Government Linked Corporations (GLC) in Malaysia.

Keywords: Malaysia, palm oil, privatisation, performance

INTRODUCTION
Malaysia is the world's largest producer and exporter of palm oil, contributing almost 50% of world palm oil production in 2002 and about 58% of world exports. Malaysia has undoubtedly helped shape the status of palm oil in the global market through significant contributions and commitment to the industry. At the same time, the growing global demand for edible oils and fats has further fuelled the Malaysian palm oil industry, which has enjoyed growth over the last 81

Bala Ramasamy, Darryl Ong & Matthew C. H. Yeung

few decades, and is undeniably an important component of the Malaysian economy.
Of the 3.67 million hectares of oil palm planted in Malaysia in 2002, 60% were under private ownership, most of which are run by firms in the private sector. The largest among these companies, which are listed on the Bursa Malaysia or BM (the Malaysian Stock Exchange), are Kumpulan Guthrie Berhad, Golden Hope Plantations Berhad, Kuala Lumpur Kepong Berhad and IOI Corporation Berhad. However, most plantation companies in the industry are not entirely privately run. Permodalan Nasional Berhad (PNB), the Malaysian Government's investment arm, owns sizeable chunks of equity in Golden Hope, Kumpulan Guthrie and Sime Darby Berhad, making PNB a major shareholder in a number of big plantation players. In the public sector, the key player is the Federal Land Development Authority (FELDA), a government agency responsible for managing government land schemes and commercial development of plantations. In 2002, FELDA alone accounted for 17.7% of the total oil palm planted area in Malaysia.

The palm oil industry has been earmarked by the Malaysian Government as a critical player in its aspiration of becoming an industrialised nation (Vision 2020). Under the Third National Agricultural Policy (1992–2010), various policies have been formulated to ensure that Malaysia's position in the world's oils and fats market is not only sustained, but also enhanced and its competitive edge maintained. To pursue this goal the palm oil sector has been identified as a focus area for consolidation and restructuring. The Government's aims are: (a) to create the world's largest oil palm plantation company thereby leveraging economies of scale and hopefully become an efficient model for others to follow, (b) to enhance investors' interest and increase tradability of the stock, and (c) to spearhead efforts in creating large capitalisation stock.

Recent events indicate that activities towards these aim may well be under way. Plans to merge...


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