Int. Journal of Business Science and Applied Management, Volume 13, Issue 1, 2018

Firm performance, retrenchment strategy and different

ownership structure: Evidence from public listed companies

in Malaysia

Lik-Jing Ung

Faculty of Economics and Busines, Universiti Malaysia Sarawak

Kota Samarahan, Sarawak 94300, Malaysia

Tel: +60 82-584 488

Email: unglikjing@hotmail.com

Rayenda Brahmana*

Faculty of Economics and Business, Universiti Malaysia Sarawak

Tel: +60 82-584 408

Kota Samarahan, Sarawak 94300, Malaysia

Email: brkhresna@feb.unimas.my

Chin-Hong Puah

Faculty of Economics and Business, Universiti Malaysia Sarawak

Tel: +60 82-584 492

Kota Samarahan, Sarawak 94300, Malaysia

Email: chpuah@feb.unimas.my

*Corresponding author

Abstract

This research aims to investigate the relationship between retrenchment strategy and firm performance

for a sample of 119 listed firms in Malaysia over the period 2008–2015. Using robust panel regression,

we find that retrenchment strategy contributes positively to firm performance. Our research further

indicates that controlling shareholders plays a significant role in the association between retrenchment

strategy and firm performance, in which retrenchment strategy decreases the performance of family and

government-linked firms. Our findings contribute to Malaysian firms, government, and policymakers

by showing that retrenchment strategy may harm the performance of firm if the firms are family firms

or government-linked firms.

Keywords: retrenchment, controlling shareholder, firm performance, corporate governance

Lik-Jing Ung, Rayenda Brahmana and Chin-Hong Puah

1. INTRODUCTION

In the current downtrend economy condition, each firm has to have survival capabilities. Strategic

management and finance literatures document retrenchment strategy is one way to keep firms afloat

against the roaring tide (Ung et al, 2018). Retrenchment strategy is a common strategy used by

organizations in facing bad financial performance (Morrow et al, 2004; Ung et al, 2018). It is

operationalized to reduce the risk of loss by selling the assets and eliminating sticky fixed cost.

Although commonly imposed by companies, retrenchment is rarely investigated as empirical

research. Moreover, studies on the relationship between firm strategy and firm performance are

dominated by a diversification strategy (e.g., Khanna & Palepu 2000; Denis et al. 2002; Lins & Servaes

2002; Fauver et al. 2004; Lee et al. 2012). Therefore, this research aims to examine empirically firm

performance in imposing retrenchment strategy in a relatively less developed market like Malaysia.

This research defines retrenchment as a reduction in assets and costs. It consists of reduction of the

finished goods and inventory, reduction of the number of employees, reduction of selling, general, and

administrative expenses (SGA), reduction of plant, property, and equipment costs (PPE), and reduction

of research and development costs (R&D) (Hofer 1980; Morrow et al. 2004; David 2013). Selling off

inefficient and underutilized assets might help firms to perform better in declining economy (Schendel

et al.1976; Hambrick & Schecter 1983; O’Neill 1986; Lim et al., 2013).

Malaysian firms offer a good platform for further exploration of this topic due to its high degree of

retrenchment. For example, Malaysian companies that have conducted a retrenchment strategy, such as

job cuts, selling off property, and closure of a plant or factory as part of strategy may have different

outcomes. One of the popular cases is the Malaysia Airlines. This firm was restructured and privatized

in ensuring the air carrier would remain operating after the MH370 and MH17 crises. Another example

of retrenchment strategy in Malaysia is Tesco Malaysia. Tesco Malaysia’s CEO announced a plan to

restructure, standardizing job grading and transferring jobs to make Tesco Malaysia more profitable.

Yet, each company has taken different benefit and cost that incurred from retrenchment strategy.

Malaysia also provides a unique institutional setting to examine the performance of retrenchment

with its interesting pyramiding and crossholding controlling shareholder issue. For instance, Firm A

might be controlled by the owner of Firm B, where Firm B is controlled by owner of Firm C. Yet, Firm

C is controlled back by owner of Firm A. Interestingly, those owners are from one family business

groups. This might provide us with different insights into the literature of this research area. It is

noteworthy that the majority of Malaysian companies belong to family-controlled owners (Lee et al,

2012). Yet, there is no consensus regarding the role of different controlling shareholder on performance

of firm strategy. For example, Fauver et al. (2004), Anderson and Reeb (2003), Joh (2003), and Andres

(2008) who show that family firms outperform than other type of firms when imposing firm’s strategy.

However, studies by Chibber and Majumdar (1999) in India and Wiwattanakantang (2001) in Thailand

document that foreign ownership companies have great performance compared to other types of

ownership structure. Meanwhile, Lau and Tong (2008) find that the government firms might perform

well as government firms are controlling by the government that toward clearly mission which

maximizing shareholders’ wealth. Therefore, introducing ownership structure as the moderating factor

in the association between retrenchment strategy and performance within Malaysia context might give

different snapshot for strategy management literature.

This research contributes to body of knowledge and policymakers in three ways. Firstly, it adds to

the literature by exploring the association between firm performance and firm strategy; yet, it is

different from prior research wherein this research uses retrenchment strategy as the main variable.

Note that the relationship between firm performance and retrenchment strategy is a relatively new topic

and has received less attention from researchers compared to other strategies such as diversification and

Merger and Acquisition. Secondly, we contribute to the literature by extending the understanding of

this research area to less developed markets, such as Malaysia. The findings of this research can be

used as a benchmark or guideline for similar future researches with similar market contexts like

developing markets. Thirdly, we further establish that controlling shareholder may or may not play a

significant role in the relationship between retrenchment strategy and firm performance.

In a sum, this research aims to investigate the retrenchment effect on firm performance. Our

second objective is to test whether different controlling shareholder plays significant role on the

relationship between retrenchment strategy and firm performance. Lastly, we expect to draw a

conclusion about retrenchment strategy – performance nexus by contesting two seminal theories:

agency theory and resource base view theory. We expect that it may reveal interesting findings on

strategic decision in imposing retrenchment strategy, and portray how that retrenchment strategy may

benefit the firm. In term of method, our estimation model is run under robust panel regression to

overcome the heterogeneity issue. This panel regression allows us for assessing changes in

Int. Journal of Business Science and Applied Management / Business-and-Management.org

retrenchment level over time albeit no significant changes in certain firm level over time, thus giving

more reliable estimates.

The rest of this paper is outlined in the following manner. Next section reviews the literature and

develop the hypotheses accordingly to our theoretical concepts. Section 3 addresses the method

including data and robustness tests. Section 4 delivers the findings and discusses the results by

elaborating the theory. Section 5 is to conclude the research.

2. LITERATURE REVIEW AND THEORETICAL FRAMEWORK

Despite the abundance of literature on retrenchment-performance, there is little agreement on

whether imposing retrenchment strategy may give a positive, negative, or no relationship with firm

performance. Thus far, many empirical studies conducted to investigate the firm benefits of

retrenchment strategy have yielded inconsistent results. The earlier studies on retrenchment were

mostly conducted for firms from developed countries, and only later extended to other few emerging

countries.

This study defines retrenchment as reduction in assets and costs. It includes the reduction of the

finished goods and inventory, the reduction of the number of employees, the reduction of selling,

selling, general, and administrative expenses (SGA), the reduction of plant, property, and equipment

costs (PPE), and the reduction of research and development costs (R&D) (Hofer 1980; Michael &

Robbins 1998; Morrow et al. 2004; Schmitt & Raisch 2013). According to David (2013), firms use

retrenchment when an organization regroups through cost and asset reduction in order to help declining

performance. Retrenchment includes selling off land and buildings, cutting the number of employees,

knocking off product lines, discontinuing the marginal businesses, and closing obsolete factories.

Previous literatures have documented that retrenchment strategy might induce firm performance in

two ways: (i) asset retrenchment, and (ii) cost retrenchment (Hofer 1980; Robbins and Pearce 1992;

Morrow et al. 2004; Lim et al. 2013). Asset retrenchment refers to the net reduction of assets (Robbins

and Pearce 1992), such as closing plants, divesting equity and reducing stocks of property, equipment,

and inventory (Morrow et al. 2004; Lim et al. 2013). Meanwhile, cost retrenchment refers to the net

reduction of total costs such as Selling, General, and Administrative (SGA) expenses, interest expense

and miscellaneous costs. (Robbins and Pearce 1992; Lim et al. 2013). Morrow et al. (2004) argues that

firms throw all their less effective and less productive assets in order to improve the performance. The

results show that retrenchment strategy have significant effect on firm performance. Meanwhile,

Robbins and Pearce (1992) documents the strategy reducing cost of employee or SGA expense might

mitigate financial downturn. As the result, these retrenchment actions increase firm profitability and

strengthen the firm’s industry position. (Robbins & Pearce 1992; Robbins & John 1993; Love &

Nohria 2005; Lim et al. 2013; Schmitt & Raisch 2013).

2.1. Theoretical Framework

There are two general arguments on the study of retrenchment strategy and firm performance.

First group belongs to scholars who are focused on putting forward their arguments of agency cost that

could explain why firms that imposed retrenchment strategy may harm the performance of the firm.

The second comes from another group of scholars who are more interested in treating retrenchment

strategy as a process to shape the internal resources, and hence create better performance. More

importantly, the findings of these two groups of scholars must be able to converge in order to establish

some facts associated with retrenchment–performance relationship.

The first group is more on utilizing agency theory as the conceptual framework. Agency theory is

concerned with agency problems that can occur between principal (shareholder) and agent (manager).

Jensen and Meckling (1976) and Baker and Anderson (2010) explain that the agency problem arises

when company managers attempt to maximize and fulfill their interest at shareholders’ expense. Lang

et al. (1995) find that managers will be reluctant to restructuring the corporate such as reducing the

assets. Because imposing a defensive strategy such retrenchment showing their incapability to handle

complicated task. Agency theory also shows there is a possibility manager imposes retrenchment as the

shortcut to pertain their position, and part of showing their power as an outcome of pride and self-

esteem. In the context of ownership structure, agency cost is easily occurred for non-family firm due to

different interest between outsider and the family interest (Anderson and Reeb, 2003).

On the other hand, the second group utilizes resource base view (RBV) theory to frame the

association between retrenchment strategy and firm performance. RBV explains retrenchment as new

source for firm to achieve competitive advantage (Wernefelt, 1984; Helfat and Peteraf, 2003; Reddy

and Xie, 2017). The proponent of RBV argues that firm should look inside the organization to find the

best and efficient sources instead of looking at the competitive environment for it. They further

elaborate that firm is more feasible to exploit opportunities using existing resources rather than trying

Lik-Jing Ung, Rayenda Brahmana and Chin-Hong Puah

to acquire new skills and assets for each business challenge. Relate back to retrenchment strategy,

selling assets and reducing cost might give much more efficient source for firm. This refreshed source

is the new resource for firm in achieving its best performance.

2.2. Retrenchment Strategy and Firm Performance

According to the comprehensive review of the retrenchment literatures, mostly studies have

indicated the performance of firms would be induced by adopting retrenchment because of increased

efficiencies brought about by the reduction of costs and the reduction of assets. (O'Neil, 1986; Miles,

Snow, & Sharfman, 1993; Dodge et al., 1994; DeWitt, 1998). Those researchers indicate retrenchment

has a significant and positive effect on performance. In addition, due to reducing expenditures and

eliminating assets, retrenchment is positively related to improved performance. (Schendel et al. ,

1976; Hambrick & Schecter, 1983; Robbins & Pearce, 1992; Robbins & Pearce II, 1993).

Many studies have indicated the performance of firms would be induced by adopting retrenchment

(O'Neil 1986; Miles et al. 1993; Dodge et al. 1994; DeWitt 1998). This due to the increased efficiencies

brought by the reduction of costs and the reduction of assets. Hence, due to reducing expenditures and

eliminating assets, retrenchment improves performance (Schendel et al. 1976; Hambrick & Schecter

1983; Robbins & Pearce 1992; Robbins & John 1993). Lim et al. (2013) find that there is a statically

significant relationship between retrenchment and firm performance. This is consistent with Love and

Nohria (2005) who also find the firm performance in the retrenched year is positive and significant.

In addition, Robbins and John (1993) also found retrenchment is positively related to turnaround

performance. Besides that, Love & Nohria (2005) also find the firm performance in the retrenched year

is positive and significant. More recently from Lim et al. (2013) and Dominic et al. (2013) found there

is a statically significant relationship between retrenchment and firm performance. This is consistent

with Schmitt & Raisch (2013), a survey type analysis scholar that indicate the retrenchment create a

significant and positive effect on performance.

More topical findings, Morrow et.al (2004) find that retrenchment strategies will have different

effects on firm performance which asset retrenchment is positively related to performance

improvement while cost retrenchment is unrelated in growth industries meanwhile cost retrenchment is

positively related to improved performance while asset retrenchment had a negative effect on firm

performance in declining industries. According to the Pearce & Robbins (2008) argues that

retrenchment and recovery cam create additional costs that impact turnaround performance negatively.

Moreover, Castrogiovanni & Bruton(2000) expose there is no retrenchment performance linkage. In

addition, Barker III & Mone (1994) and Fisher et al. (2004) also come up with the result shows that

there is no retrenchment effect on performance. Hence, this study hypothesizes:

H1: There is a positive relationship between retrenchment and firm performance.

2.3. Controlling Shareholder and Firm Performance

We introduce controlling shareholder to intervene the relationship between retrenchment and

performance. Previous research shows that in the time ownership structure is introduced, the strategy

effects will be different. Each type of ownership has different conclusion in the strategy-performance

links. For example, family firms will have negative relationship between strategic decision and firm

performance (Morck & Yeung 2003; King & Santor 2008). Lee et al. (2012) find that family-controlled

firms faced value reduction in imposing a diversification strategy. However, Fauver et al. (2004),

Anderson and Reeb (2003), Joh (2003), and Andres (2008) show that family firms outperform than

other type of firms when imposing firm strategy.

On the other hand, Razak et al. (2008) argue that government firms generally guided by social

altruism and will make their performance poorer. Orden and Garmendia (2005) and Gursoy and

Aydogan (2000) find that companies which under controlled government showed negative impact from

imposing a strategic decision. In contrast, Lau and Tong (2008) find that the government firms might

perform well as government firms are controlling by the government that toward clearly mission which

maximizing shareholders’ wealth.

For the foreign ownership, Jusoh (2015) finds that foreign ownership has positive and significant

relationship with performance. Another study by Chibber & Majumdar (1999) in India and

Wiwattanakantang (2001) in Thailand document that foreign ownership companies have great

performance compared to other types of ownership structure. Previous studies such as Shapiro &

Vining (1997), Djankov & Hoekman (2000), Douma et al. (2002), and Cook & Jeon (2006) conclude

that high foreign ownership produce better performance. In short, the involvement of foreign investors

in monitoring and controlling activities reduces agency conflict in the emerging economy (Demsetz &

Leh, 1985).

Int. Journal of Business Science and Applied Management / Business-and-Management.org

In contrast, Munday et al. (2003) conduct a panel data analysis in manufacturing sector and find

that the results evidence the relatively poor profit performance of foreign subsidiaries. Moreover,

Phung & Le (2013) find that foreign ownership negatively impact firm performance due to it is not

concentrated. Besides that, Barbosa & Louri (2005) conclude that performance of firms in Portugal is

not affected by foreign ownership after controlling for firm. From previous literatures, as the foreign-

controlled firms will reduce the agency costs and increase the performance. Thus, this study predicts

that foreign ownership plays a positive and significant role on retrenchment firm performance.

In summarize, no matter it is government or foreign or family, there is a significant impact on firm

performance. Especially, family firms have better performance than other type of firms when imposing

firm’s strategy. This is important to Malaysia as majority of Malaysia companies belong to family-

controlled owners. As a result, this study hypothesizes:

H2: There is a positive relationship between ownership concentration and firm performance.

H3: There is a significant moderating effect of controlling shareholders on the relationship

between retrenchment strategy and firm performance

Research framework of the study is shown in Figure 1. Using agency theory and resource base

view theory, this study proposes that retrenchment may significantly influence firm performance. In

addition, the study also investigates whether the relationship between retrenchment strategy and firm

performance across different controlling shareholder. The above relationships are depicted in a

schematic diagram as given below:

Figure 1 Research Framework

3. METHODOLOGY

Following multivariate regression, we use panel data analysis to examine the impact of

retrenchment strategy on company performance. Panel data analysis is more informative as compare to

cross-sectional based regression as this avoid certain assumption promulgated by simple multiple

regression.

3.1. Firm Performance

This research uses two performance measures: (1) Tobin’s Q (Chung & Pruitt 1994; Thomas &

Waring 1999; Morrow et al. 2004), and (2) return on assets (ROA) (Meeks & Meeks 1981; Schmitt &

Raisch 2013). Tobin’s Q is measured as the sum of the market value of equity, the book value of debt,

and deferred taxes divided by the book value of total assets. Meanwhile, ROA is the earnings before

interest tax Depreciation and amortization (EBITDA) divided by total assets. This type of measurement

is an appropriate indicator of the perceived ability of the firm’s strategy to achieve the required returns

of investors. On the other hand, ROA indicates how a firm’s wealth is relative to its total assets, and

shows how efficient management is at using its assets to generate earnings. ROA can be directly

affected by asset retrenchment (Meeks and Meeks 1981).

3.2. Baseline Model

Following previous research, the baseline model of this research consists of firm performance

factors, such as firm size, growth, leverage, and profitability (Hambrick & D’Aveni 1988; Lu &

Beamish 2001; Morrow et al. 2004; McClelland, Liang, & Barker 2010; Lee et al. 2012; Lim et al.

2013; Schmitt & Raisch 2013). The size of firms (SIZE) is measured using the log of total assets.

Retrenchme

Firm

Performance

Controlling

Shareholder

Lik-Jing Ung, Rayenda Brahmana and Chin-Hong Puah

Meanwhile, growth opportunity (GROWTH) is measured by the capital expenditure to sales ratio. The

profitability is measured by the operating income to sales ratio (OIS), and leverage (LEV) is measured

by using the ratio of debt to common share equity. Our baseline model is given as follows.

To estimate the above model empirically, we pooled all samples and estimate the following

regression model:

Where:

Performance = Firm Performance

SIZE = the log of assets or the firm size

OIS = the ratio of operating income- sales ratio

GROWTH = the capital expenditure-sales ratio

LEV = the ratio of debt to common share equity

3.3. Retrenchment Strategy (RET)

In this study, retrenchment strategy (RET) is defined as the reduction in assets and costs especially

in action of the reduction of the finished goods and inventory, the reduction of the number of

employees, the reduction of SGA, the reduction of PPE, and the reduction of R&D costs (Hofer 1980;

Robbins & Pearce 1992; Morrow, Johnson & Busenitz 2004; David 2013). Following accounting

calculation of reduction, the difference is calculate by assets/cost of t year period minus assets/costs of

t-1 year period. For example,

2014

is equal to inventory from 2014 minus inventory from

2013. This method is common method to reveal the reduction movement. Note that reduction of

number of employees is included in the sales, general, and administrative expenses. The formula

calculation is presented in index measurement. Higher value of retrenchment indicates how active a

firm imposing retrenchment strategy. The formula is as follow.

𝑅𝐸𝑇 = ∆𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + ∆𝑆𝑎𝑙𝑒𝑠&𝐺𝑒𝑛𝑒𝑟𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 + ∆𝑅𝑒𝑠𝑒𝑎𝑟𝑐ℎ&𝐷𝑒𝑣𝑒𝑙𝑜𝑝𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡

+ ∆𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑖𝑒𝑠, 𝑃𝑙𝑎𝑛𝑡&𝐸𝑞𝑢𝑖𝑝𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡 (2)

The above calculation is presented in index measurement. A higher value of RET indicates how

active a firm is at imposing retrenchment strategy. Hence, RET is introduced into Model 1, and the

model is as follows:

𝑃𝐸𝑅𝐹𝑂𝑅𝑀𝐴𝑁𝐶𝐸

𝑖𝑡

= 𝛽

+ 𝛽

𝑆𝐼𝑍𝐸

𝑖𝑡

+ 𝛽

𝑂𝐼𝑆

𝑖𝑡

+ 𝛽

𝐺𝑅𝑂𝑊𝑇𝐻

𝑖𝑡

+ 𝛽

𝐿𝐸𝑉

𝑖𝑡

+ 𝛽

𝐿𝑅𝐸𝑇

𝑖𝑡

+ 𝜀

𝑖𝑡

(3)

Where, LRET = the log of retrenchment value

3.4. Controlling Shareholder as Moderating Variable

This study takes ownership structure and ownership identity as the proxy of controlling

shareholder. Ownership structure is measured by the ultimate ownership (UO), meanwhile, Ownership

identity is classified into three which are Family firms (FAM), Government-linked companies (GOV)

and foreign. We drop the foreign to tackle dummy trap and variance-collinearity bias issue.

Prior research of Claessens et al. (2002) shows that ownership concentration can be measured by

using the control rights of the ultimate owner of the largest shareholder, which consists of direct and

indirect shareholdings, as a proxy for UO. Furthermore, the application of cash flow rights may not be

appropriate since there are a number of firms in Malaysia that are owned indirectly through a chain of

privately-held firms. There is only indirect shareholding by the ultimate owner when the gap between

the cash flow and control rights arises. In addition, according to Claessens et al. (2000), the

concentration of control rights has superior explanatory power to cash flow rights from the corporate

governance perspective. Since this research aims to further investigate the role of ownership

concentration, we modify equation 1 by adding in the interactive terms, as well as the square of the

ultimate ownership (UO2). UO2 is used to investigate whether or not the relationship between ultimate

ownership and firm performance is nonlinear. The two mentioned variables are added to equation 4 as

follows:

Int. Journal of Business Science and Applied Management / Business-and-Management.org

𝑃𝐸𝑅𝐹𝑂𝑅𝑀𝐴𝑁𝐶𝐸

𝑖𝑡

= 𝛽

+ 𝛽

𝑆𝐼𝑍𝐸

𝑖𝑡

+ 𝛽

𝑂𝐼𝑆

𝑖𝑡

+ 𝛽

𝐺𝑅𝑂𝑊𝑇𝐻

𝑖𝑡

+ 𝛽

𝐿𝐸𝑉

𝑖𝑡

+ 𝛽

𝐿𝑅𝐸𝑇

𝑖𝑡

+ 𝜀

𝑖𝑡

+ 𝛽

𝑈𝑂

𝑖𝑡

+ 𝛽

𝑈𝑂

𝑖𝑡

+ 𝜀

𝑖𝑡

(4)

To further investigate the ownership identity, we include the interactive term into equation 5

according to each type of firm identity, namely, family-owned and government-owned. We consider

foreign firms as a benchmark in this research:

𝑃𝐸𝑅𝐹𝑂𝑅𝑀𝐴𝑁𝐶𝐸

𝑖𝑡

= 𝛽

+ 𝛽

𝑆𝐼𝑍𝐸

𝑖𝑡

+ 𝛽

𝑂𝐼𝑆

𝑖𝑡

+ 𝛽

𝐺𝑅𝑂𝑊𝑇𝐻

𝑖𝑡

+ 𝛽

𝐿𝐸𝑉

𝑖𝑡

+ 𝛽

𝐿𝑅𝐸𝑇

𝑖𝑡

+ 𝛽

𝑈𝑂

𝑖𝑡

+ 𝛽

𝑈𝑂

𝑖𝑡

+ 𝛽

(𝐿𝑅𝐸𝑇

𝑖𝑡

)(𝐷𝐹𝐴𝑀

𝑖𝑡

) + 𝛽

(𝐿𝑅𝐸𝑇

𝑖𝑡

)(𝐷𝐺𝑂𝑉

𝑖𝑡

)

+ 𝜀

𝑖𝑡

(5)

3.5. Data

Data used in this research is retrieved from two main sources. Firstly, we use Thomson Reuters

Worldscope database to collect the panel set of annual financial data for publicly listed Malaysian firms

from 2008 to 2015. Initially, this study consists around 815 companies in Malaysia that are publicly

listed on the Bursa Malaysia Stock Exchange. Our final sample covered all 219 publicly listed firms for

industrial product sector on the Malaysian stock exchange with the total pooled observations of 1,752

firm years over the period of six years with complete data. Note that the firms that have missing data

throughout the eight-year period from 2008 until 2015 are removed. Furthermore, the data scope was

limited to firms listed on Bursa Malaysia.

The firm performance, retrenchment and ultimate ownership data are retrieved from the annual

reports of the sample firms. Firm performance data included total market and total revenue for each

year for each firm. Meanwhile, the retrenchment data involved the value of finished goods and

inventory, the number of employees, the value of SGA, the value of PPE, and the value of R&D costs.

The ultimate ownership is determined through the list of substantial shareholders in annual report.

Finally, we classify the identity of ownership into family, government and foreign.

4. RESULTS AND DISCUSSION

We identify the firm performance of 219 listed firms in Malaysia across the eight-year period

(2008–2015) using two measurements - Tobin’s Q and ROA. In this paper, we investigate the

association between retrenchment and the performance of the firm across its ownership structure. In

this section, the results that interpret the relationship between retrenchment and the performance of the

firm across its ownership structure are discussed.

4.1 Summary of Descriptive Statistics

Table 1 presents the summary of the descriptive statistics for our sample of 219 companies across

the eight-year period (2008–2015). The mean values are determined for each variable to facilitate

comparisons among the variables. The mean value of Tobin’s Q is 0.214 with standard deviation of

0.174. This is consistent with the characteristics of emerging markets where many firms are growing

and underrated by the market. Meanwhile, the mean value for ROA is 0.075 implying that Malaysian

listed firms have average ROA of 7.5%. This is also consistent with the characteristics of emerging

markets where it still can give high profitability rate.

The retrenchment strategy is reported to have average value of -0.334. The negative sign indicate

that Malaysia firms are in shaping their business to be more efficient. The inventory, sales and general

expenses, R&D expenses, and PPE expenses are shrinking perhaps due to economy turbulence in 2008.

The descriptive analyses for control variables such as Size, profitability, growth, and leverage are

also reported. It obtained different mean value, for instance, the mean value was 5.409 for firm size.

Meanwhile, profitability (OIS), Growth, and leverage have mean value of -0.069, 0.115, and 0.395

respectively.

In this paper, seven variables are measured and compared with each other. On the right side of the

table, we report the Satterthwaite-Welch t-tests for differences in the mean value for each variable.

Table 1 shows that Tobin’s Q and ROA are negatively correlated with SIZE and positively correlated

with RET and OIS. As the correlation matrix also shows, Tobin’s Q and ROA have a stronger

association with GROWTH but not LEV.

The sample residuals of error terms are analyzed and considered as normally distributed either

through numerical methods or through graphical methods. The diagnostic analysis is also being run.

This study applies a fixed effect model with heteroscedasticity problem. Lastly, the model is rectified

heteroscedasticity problem by robust option of White’s test.

Lik-Jing Ung, Rayenda Brahmana and Chin-Hong Puah

Table 1 Summary of Descriptive Statistics

This table reports the summary statistics for our sample of 1,752 firm years between 2008 and 2015. For the mean values, values

in parentheses are standard deviations; SW-t test refers to the Satterthwaite-Welch t-test and the values in parentheses under SW-

t test are p-values.

4.2. Preliminary Estimates for Firm Performance

Before showing the results of our estimations, it is important to notice that all estimations have

follow the proper procedure in panel regression. Firstly, the model is tested under Breusch Pagan LM

test to reveal the individual effect, specifically, for choosing between pooled OLS and random effect.

As all results show significant result, we proceed to Hausman test in choosing between random effect

and fixed effect. The p-values for all models are less than 0.05 indicating that all models are under

Fixed effect.

Table 2 presents the panel regression results for two types of firm performance and a few

restricted variations of Model (1). This study uses Tobin’s Q and ROA as the measure of firm

performance (Barker & Mone , 1994; Hoskisson et al., 1994; Morrow et al., 2004; Schmitt & Raisch,

2013). The restricted variations in this research include the firm size (SIZE), firm profitability (OIS),

growth opportunity (GROWTH), and leverage (LEV). Table 2 shows that the results from both

Tobin’s Q and ROA indicate that growth opportunities and leverage do not have any significant impact

on a firm performance. However, there is a significant positive relationship between Tobin’s Q and

firm size at the 1% level. A unit increase in size leads to a 0.123 unit change in Tobin’s Q. This is

consistent with previous research, which also suggests that firm size will normally affect a firm’s

turnaround performance (Bruton et al., 2003; McClelland et al., 2010). There is also a significant and

positive relationship between Tobin’s Q and profitability at the 5% level. A unit increase in

profitability leads to a 0.007 unit change in Tobin’s Q. For the ROA model, there is no relationship

between size and performance. Meanwhile, the profitability has a significant positive relationship with

the ROA. A unit increase in profitability leads to a 0.007 unit change in ROA.

Variable

Code

Mean

SW-t test

Tobin’s Q

ROA

SIZE

OIS

GROWTH

LEV

RET

Tobin’s Q

Tobinsq

0.214

（0.174）

Return on

Assets

ROA

0.075

0.139

（0.110）

(0.008)***

Log of assets

SIZE

5.409

-5.194

-5.333

（0.576）

(0.023)***

(0.022)***

Operating

income to

sales ratio

OIS

-0.069

0.284

0.144

5.478

（1.734）

(0.065)***

(0.068)***

Capital

expenditure

to sales ratio

GROWTH

0.115

0.100

-0.040

5.294

-0.184

（0.619）

(0.024)***

(0.024)*

(0.032)***

(0.069)***

Debt to

common

share equity

ratio

LEV

0.295

-0.081

-0.220

5.114

-0.364

-0.180

（3.815）

(0.143)

(0.144)***

(0.157)**

(0.145)

Retrenchment

RET

-0.334

0.549

0.409

5.743

0.265

0.449

0.629

（0.449）

(0.018)***

(0.017)***

(0.027)***

(0.067)***

(0.029)***

(0.144)***

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Table 2 Panel Regression Estimates of Firm Performance

Value reported is the coefficient value, with standard error in parentheses. The regression is performed using four control

variables that affect firm value. SIZE is the log of assets (firm size); GROWTH is the capital expenditure to sales ratio (growth

opportunities); OIS is the operating income to sales ratio (profitability); LEV is the ratio of debt to common share equity

(leverage). *, **, *** Denote statistical significance at the 10%, 5%, and 1% levels, respectively.

Variables

Firm Performance

Tobin’s Q

ROA

SIZE

0.123

0.050

(0.037)***

(-0.035)

OIS

0.007

(0.0031)**

(0.003)**

GROWTH

-0.006

0.011

(0.009)

(0.008)

LEV

0.001

-0.001

(0.001)

CONSTANT

-0.451

-0.196

(0.201)

(0.188)

0.031

0.062

4.3. Results for Firm Performance with Retrenchment Strategy

Table 3 shows the panel regression results of Model (2). The R

of the Tobin’s Q model is 0.1264,

meanwhile the R

of the ROA model is 0.098. By comparing the results from Table 3 with table 2, the

growth (GROWTH) and leverage (LEV) still do not have any impact on firm performance for both

models. For Tobin’s Q model, we document that there is a significant positive relationship between

Tobin’s Q and firm size (SIZE) at 5%, where the coefficient value is 0.081. There is also significant

positive relationship between Tobin’s Q and profitability (OIS) at the 5% level, where the coefficient

value is 0.006. In ROA models, size still has no significant effect on the ROA. Yet, profitability

denotes a positive statistical significance at the 1% level.

Our main variable, retrenchment, is documented to have significant contribution for both

performance measures. In Tobin’s model, retrenchment denotes the positive statistical significance at

the 1% level, where the coefficient value is 0.043. This is the same conclusion with ROA model,

wherein retrenchment denotes the statistical significance at the 10% level, where the coefficient value

is 0.015. A unit increase in retrenchment leads to a 0.0148 unit change in ROA. This is consistent with

early literature documents where retrenchment strategy is positively related to firm performance

(Schendel et al., 1976; Hambrick & Schecter, 1983; O’Neill, 1986). Moreover, Robbins & Pearce

(1992) also said that retrenchment is positively related to turnaround performance. As a result, our

paper indicates that retrenchment should lead to the growth of firm performance. This situation

happens because the reduction in costs and assets will form efficient assets and operation. As the

outcome, firm performance will be enhanced.

Lik-Jing Ung, Rayenda Brahmana and Chin-Hong Puah

Table 3 Panel Regression Estimates of Firm Performance with Retrenchment Strategy

Value reported is the coefficient value, with standard error in parentheses. The regression is performed using four control

variables and the dependent variables that affect firm performance. SIZE is the log of assets (firm size); GROWTH is the capital

expenditure to sales ratio (growth opportunities); OIS is the operating income to sales ratio (profitability); LEV is the ratio of

debt to common share equity (leverage). RET is the retrenchment strategy that we mainly focus on in this study which is defined

as reduction in assets and costs, especially in respect of the reduction of the finished goods and inventory, the reduction of the

number of employees, the reduction of SGA, the reduction of PPE, and the reduction of R&D costs. *, **, *** Denote statistical

significance at the 10%, 5%, and 1% levels, respectively.

Variables

Firm Performance

Tobin’s Q

ROA

RET

0.043

0.015

(0.204)***

(0.009)*

SIZE

0.081

0.036

(0.003)**

(0.036)

OIS

0.006

0.008

(0.009)**

(0.003)***

GROWTH

-0.001

0.013

(0.001)

(0.008)

LEV

0.001

-0.001

(0.009)

(0.001)

CONSTANT

-0.208

-0.113

(0.038)

(0.194)

0.126

0.098

4.4. Further estimates for firm performance with Controlling Shareholder

Table 4 reports the estimates of firm performance of listed firms with Controlling shareholder. All

the findings show that the results are still consistent with the estimates in Model (2) of Table 2. There is

significant relationship on profitability (OIS), firm size (SIZE) and retrenchment (RET) on Tobin’s Q.

Meanwhile, profitability (OIS) and retrenchment (RET) denote the positive statistical significance to

ROA.

Table 4 reports the regression that is performed using a few restricted variations, degree of

ultimate ownership and its squared term that affects a firm performance. For Tobin’s Q model, UO

shows the positive statistical significance at the 10% level, where the coefficient is 0.003; meanwhile,

UO2 denotes the negative statistical significance at the 10% level. The results indicate two important

findings. Firstly, the UO contributes positively and significantly to firm performance. This implies that

firms with high ultimate ownership will produce high firm performance, which is consistent with the

agency theory. Secondly, when the UO2 significantly affects firm performance, there is a non-linear

relationship between ultimate ownership and firm performance. Both findings are in line with prior

research by Jensen and Meckling (1976) who suggested that ownership concentration has a positive

effect on performance. This is because high ownership concentration reduces the conflict of interest

between owners and managers. As a result, firms with high ultimate ownership will increase the firm

performance. However, there is no significant relationship between the degree of ultimate ownership

and its squared term on the ROA model compared to the Tobin’s Q model.

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Table 4 Panel Regression Estimates of Firm Performance with Retrenchment Strategy and

Ownership Concentration

Value reported is the coefficient value, with standard error in parentheses. The regression is performed using four control

variables and the dependent variables that affect firm performance. SIZE is the log of assets (firm size); GROWTH is the capital

expenditure to sales ratio (growth opportunities); OIS is the operating income to sales ratio (profitability); LEV is the ratio of

debt to common share equity (leverage). RET is the retrenchment strategy that we mainly focus on in this study which is defined

as reduction in assets and costs, especially in respect of the reduction of the finished goods and inventory, the reduction of the

number of employees, the reduction of SGA, the reduction of PPE, and the reduction of R&D costs. UO is the ownership

concentration. *, **, *** Denote statistical significance at the 10%, 5%, and 1% levels, respectively. *, **, *** Denote statistical

significance at the 10%, 5%, and 1% levels, respectively

Variables

Firm Performance

Tobin’s Q

ROA

RET

0.046

0.015

(0.009)***

(0.009)

SIZE

0.080

0.036

(0.376)**

(0.036)

OIS

0.006

0.008

(0.003)**

(0.003)***

GROWTH

-0.001

0.013

(0.009)

(0.008)

LEV

0.001

-0.001

(0.001)

0.003

0.000

(0.002)*

(0.002)

UO2

0.000

(0.000)*

(0.000)

CONSTANT

-0.257

-0.103

(0.207)

(0.196)

0.124

0.090

After that, we re-run model 3 but now adding dummy variables of ownership identity and their

interactive terms across family and government firms in the estimation model. For Tobin’s Q, Table 5

reports that the results are still consistent with Table 4, which shows there is a significant relationship

with profitability (OIS), firm size (SIZE) and retrenchment (RET). However, the results for ROA are

slightly different where growth denotes the positive statistical significance at the 10% level, which is

different from the previous result. In addition, profitability (OIS) and retrenchment (RET) still has

positive contribution to ROA.

We then test the moderating effect of ownership identity on the performance of retrenchment

strategy. Firstly, we look at the family-owned firm result that employed retrenchment strategy

(DFAM*RET). To understand the result, we analyze it step-by-step. First, the findings show that

family-owned firm have better performance compared to non-family firm. Second, firm that employed

retrenchment strategy had induced their financial performance. Yet, the interaction result between

family-owned firm and retrenchment strategy has negative contribution on performance. Therefore, it

can be concluded ownership identity of family firm has negative moderating effect on the relationship

between retrenchment strategy and performance. This means that family firms that employed

retrenchment strategy would have declining performance. This is consistent with the findings of Lee et

al (2012), Tangpong et al (2015), Tsao et al (2016), and Ung et al (2016).

Our result shows there is a negative and significant effect on Tobin’s Q, where the coefficient

value is 0.055. The same conclusion is also found in our OA model, wherein, there is negative

relationship between the interaction variable and ROA with 0.014 coefficient value. This is quite

intriguing considering the positive effect of retrenchment on performance in our earlier findings. To

explain this findings,

For government firm, it gives interesting findings. Firstly, government firm (DGOV) indicates that

government-linked firm has better performance compared to non-government-linked firm in both

performance measures (Tobin’s Q and ROA). However, the interaction between ownership identity of

Lik-Jing Ung, Rayenda Brahmana and Chin-Hong Puah

government firm with retrenchment strategy (DGOV*RET) has no consensus conclusion towards

performance. In Tobin’s Q model, it documents there is no significant moderating effect. This means

that retrenchment strategy may not give any impact to the performance of government-linked firm,

where the performance is measured by using Tobin’s Q. However, the conclusion is different with

ROA model. The interaction surmises the negative moderating effect with coefficient value of -0.082.

This implies that government link firm which imposes retrenchment strategy might have worsening

ROA.

Table 5 Panel Regression Estimates of Firm Performance with Retrenchment Strategy and

Ownership Structure

Value reported is the coefficient value, with standard error in parentheses. The regression is performed with the dataset identified

based on the family firm, foreign firm, and government firm. Then model 3 is run again with the dependent variables ROA and

Tobin’s Q; the control variables are firm size (SIZE), growth opportunities (GROWTH), profitability (OIS), and leverage (LEV);

the main independent variables are retrenchment (RET); ownership concentration (UO) as moderate variable, and its interactive

terms. *, **, *** Denote statistical significance at the 10%, 5%, and 1% levels, respectively.

Variables

Firm Performance

Tobin’s Q

ROA

RET

0.086

0.043

(0.002)***

(0.018)**

SIZE

0.090

0.047

(0.003)**

(0.036)

OIS

0.005

0.008

(0.009)*

(0.003)***

GROWTH

0.002

0.014

(0.001)

(0.008)*

LEV

0.001

-0.001

(0.019)

(0.001)

0.003

0.000

(0.000)*

(0.002)

UO2

0.000

(0.023)*

(0.000)

DFAM

0.014

0.009

(0.006)**

(0.004)**

DGOV

0.027

0.011

(0.016)*

(0.003)***

DFAM*RET

-0.055

-0.014

(0.016)**

(0.008)**

DGOV*RET

-0.044

-0.082

(0.208)

(0.024)***

CONSTANT

-0.319

-0.171

(0.038)

(0.196)

0.127

0.067

4.5. Discussion

The results from this study have indicated that retrenchment has positive association with firm

performance supporting our first hypothesis. There are several explanations for this result. Firstly,

reducing costs and assets for retrenchment is good for firm performance. The reduction and elimination

of inefficient and not-productive goods, inventories, assets, activities, and inefficiency employees

might maximize the profitability and minimize the losses. This is supported by previous literature

(Schendel et al., 1976; Hambrick & Schecter, 1983; O'Neil, 1986; Robbins & Pearce, 1992; Robbins &

John, 1993 Miles et al., 1993; Dodge et al., 1994; DeWitt, 1998). The findings is in line with resource

Int. Journal of Business Science and Applied Management / Business-and-Management.org

base view (RBV) theory. Selling inefficient and not-productive assets might left the best resource for

firm. This resource makes firm gaining its competitive advantage and induce their performance.

In the perspective of agency theory, retrenchment can be part of alignment agency. Manager

impose this strategy to achieve the needs of shareholders. After eliminated all the non-profit, and

inefficiency costs and assets through the retrenchment actions, a systematic and efficient monitoring

system has to be formed in the firm. Such monitoring system is important to prevent the agency

problems such as the agency agents from taking selfish actions for their own benefits. Moreover, by

adding in the threat of firing can ensure the managers or agents of the firm to act in the shareholders’

best interests and benefits to avoid themselves from being dismissed. When some of the employees are

dismissed or sacked, the remaining managers or agents are usually work at their best, and therefore it

might benefit to the company, as well as in order to maintain their own self-interests for not losing the

job. This is supported by McColgan (2001), managers may to take shareholder maximizing actions in

order to keep their jobs

Meanwhile, ownership concentration also contributes positively on firm performance. This

implies that firms with high ultimate ownership will produce higher performance, which is consistent

with the agency theory of Jensen and Meckling (1976) who suggested that ownership concentration has

a positive effect on performance. This is because high ownership concentration reduces the conflict of

interest between owners and managers. As a result, firms with high ultimate ownership will increase

the firm performance.

On the other hand, the negative relationship between firm performance with both government and

family retrenchment firms exists. For the government-controlled firms which impose retrenchment

strategy, Razak et al. (2008) argue that government firms are generally guided by social altruism and

will make their performance poorer., Zeitun and Tian (2007) and Gürsoy and Aydogan (2002) also

defined government involvement is negatively related to the company’s performance. There are several

reasons for these findings. First, social altruism controls the government. The management is more on

public well-being and social oriented. Hence, manager in government linked firm most likely feel

reluctant to selling of assets or laying off the employee. Second, it perhaps due to the lacking of

competency of the board. Li et al (2008), and Menozzi et al (2011) argue that most of board in state-

owned firms is closely related to political circle rather than competency.

Meanwhile, for the family-controlled firms, there is a significant negative relationship between the

firm performance and the family retrenchment firms. Generally, retrenchment happens when a firm is

under poor condition. Based on Claessens et al. (2009), agency problem happens especially when the

firm is in bad conditions. The family-controlled firm which, considers as large ownership attempt to

maximize their interest, makes poor decision and does not coincide with the interest of minority

shareholders (Jensen & Meckling, 1976; Shleifer & Vishny, 1997; Lins & Servaes, 2002; Filatotchev &

Toms, 2003; Pajunen, 2006; Baker & Anderson, 2010; Tangpong et al., 2015; Tsao et al., 2016; Ung et

al., 2016). Those actions may produce agency cost and tend to reduce the firm performance.

5. CONCLUSION

Retrenchment strategy has gained its popularity and is being regarded as a common strategy in the

corporate world to cut down cost. We provide a link between firm performance and retrenchment cost.

A balanced panel data regression model is established to implement and test the relationship between

firm performance and retrenchment cost. From the results, we document a positive association between

the firm performance and retrenchment cost. Our finding is consistent with the prior researcher which

majority under qualitative research type, find that retrenchment actions that reduce assets will increase

firm profitability and strengthen the firm’s industry position.

In conclusion, this study examines the role of retrenchment strategy in firm performance, and

investigates the role of ownership structure in imposing firm strategy. This paper indicates that

retrenchment will lead to firm performance. This is consistent with prior knowledge in strategic

management where retrenchment strategy is important for the performance of firm. Thus, we can

conclude that the reduction of the costs and assets, the efficiency of monitoring structure, the threat of

firing, and stewardship can enhance the firm performance. The ownership exploration remains as a big

issue that influences the retrenchment actions. The ownership concentration denotes a positive

statistical significance with firm performance. This implies that large ownership firms will improve

firm performance. In addition, the family-owned firms with retrenchment strategy tend to have a

reduced performance and are followed by the government firms.

The findings of this study provide guidelines to Malaysian firms, government, and policymakers

in three matters: (i) enhancing the performance of a retrenchment strategy; (ii) imposing a crystal clear

corporate governance policy and guidelines for Malaysian firms in avoiding financial distress; and (iii)

communicating the importance of controlling shareholder role in shaping the performance of

Lik-Jing Ung, Rayenda Brahmana and Chin-Hong Puah

retrenchment strategy. As for the limitations, this study does not segregate retrenchment strategy into

actions. Therefore, future research suggests to extend not only beyond an industry, but only beyond a

single country to several less developed countries, sector classification and different analysis methods

such as event study and survey study.

REFERENCES

Anderson, R., & Reeb , D. (2003). Founding family ownership and firm performance: evidence from

the S&P 500. Journal of Finance, 58, 1301–28.

Andres, C. (2008). Large shareholders and firm performance: An empirical examination of founding-

family ownership. Journal of Corporate Finance, 14, 431-445.

Baker, H., & Anderson, R. (2010). Corporate governance: a synthesis of theory research and practice.

Hoboken, New Jersey: John wiley and Sons.

Barker, V., & Mone , M. (1994). Retrenchment: Cause of turnaround or consequence of decline?

Strategic Management Journal, 15: 395–405.

Bruton, G., Ahlstrom, D., & Wan, J. (2003). Turnaround in East Asian firms: Evidence from ethnic

overseas Chinese communities. Strategic Management Journal, 24(6), 519-540.

Castrogiovanni, G., & Bruton, G. (2000). Business turnaround processes following acquisitions:

reconsidering the role of retrenchment. Journal of Business Research, 48, 25–34.

Chung, K., & Pruitt, S. (1994). A simple approximation of Tobin's q. Financial Management, 2(3), 70-

74.

Claessens, S., Djankov, S., & Lang, L. (2000). The separation of ownership and control in East Asian

corporations. Journal of financial Economics, 58(1), 81–112.

Claessens, S., Djankov, S., Fan, J., & Lang, L. (2002). Disentangling the incentive and entrenchment

effects of large shareholdings. The Journal of Finance, 57(6), 2741–2771.

Claessens, S., Fan, J., Djankov, S., & Lang, L. (2009). On expropriation of minority shareholders:

evidence from East Asia. Social Science Research Now, 202390.

David, F. (2013). Strategic management: A competitive advantage approach, concepts and cases.

Harlow,England: Pearson Prentice Hall.

Denis , D., Denis, D., & Yost, K. (2002). Global diversification, industrial diversification, and firm

value. Journal of Finance, 57(5), 1951–1979.

Denis, D., & Shome, D. (2005). An empirical investigation of corporate asset downsizing. Journal of

Corporate Finance, 11(3), 427-448.

DeWitt, R. (1998). Firm, industry, and strategy influences on choice of downsizing approach. Strategic

Management Journal, 19(1): 59–79.

Dodge, H., Fullerton, S., & Robbins, J. (1994). Stage of the organizational life cycle and competition as

mediators of problem perception in small businesses. Strategic Management Journal, 15(2), 121-

134.

Fauver, L., Houston,, J., & Naranjo, A. (2004). Cross country evidence on the value of corporate

industrial and international diversification. Journal of Corporate Finance, 10(5), 729–752.

Filatotchev, I., & Toms, S. (2003). Corporate governance, strategy and survival in a declining industry:

A study of UK cotton textile companies. Journal of Management Studies, 40(4), 895-920.

Fisher, G., Lee, J., & Johns, L. (2004). An Exploratory Study of Company Turnaround in Australia and

Singapore Following the Asia Crisis. Asia Pacific Journal of Management, 21(1-2), 149–170.

Gürsoy, G., & Aydoğan, K. (2002). Equity ownership structure, risk taking, and performance: an

empirical investigation in Turkish listed companies. Emerging Markets Finance & Trade, 38(6),

6-25.

Hambrick, D., & D’Aveni, R. (1988). Large corporate failures as downward spirals. Administrative

Science Quarterly, 33(1), 1–23.

Hambrick, D., & Schecter, S. (1983). Turnaround strategies in mature industrial product business units.

Academy of Management Journal, 26(2), 231–248.

Helfat, C. E., & Peteraf, M. A. (2003). The dynamic resource‐based view: Capability lifecycles.

Strategic management journal, 24(10), 997-1010.

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Hofer, C. (1980). Turnaround strategies. Journal of Business Strategy, 1(1): 19–31.

Hoskisson, R., Johnson, R., & Moesel, D. (1994). Corporate divestiture intensity in restructuring firms:

Effects of governance strategy and performance. Academy of Management Journal, 37(5), 1207–

1251.

Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and

ownership structure. Journal of Financial Economics, 3(4), 305-360.

Joh, S. (2003). Corporate governance and firm profitability: evidence from Korea before the economic

crisis. Journal of Financial Economics, 68(2), 287-322.

Jusoh, M. (2015). Foreign Ownership and Firm Performance: Evidence from Malaysia. Asian Journal

of Accounting and Governance, 6, 49–54.

Khanna, T., & Palepu, K. (2000). Is group affiliation profitable in emerging markets? An analysis of

diversified Indian business groups. Journal of Finance, 55(2), 867–891.

King , M., & Santor, E. (2008). Family values: Ownership structure, performance and capital structure

of Canadian firms. Journal of Banking & Finance, 32, 2423-2432.

Lang, L., Poulsen, A., & Stulz, R. (1995). Asset sales, firm performance, and the agency costs of

managerial discretion. Journal of Financial Economics, 37(1), 3–37.

Lau, Y., & Tong, C. (2008). Are Malaysian Government-Linked Companies (GLCs) creating value?

International Applied Economics and Management Letters, 1(1), 9-12.

Lee, K., Hooy, C., & Hooy, G. (2012). The Value impact of international and industrial diversifications

on publisted-listed firms in Malaysia. Emerging Markets Review, 13(3),366-380.

Li, H., Meng, L., Wang, Q., & Zhou, L. A. (2008). Political connections, financing and firm

performance: Evidence from Chinese private firms. Journal of development economics, 87(2),

283-299.

Lim, D., Celly, N., Morse, E., & Rowe, W. (2013). Rethinking the effectiveness of asset and cost

retrenchment: The contingency effects of a firm's rent creation mechanism. Strategic Management

Journal, 4(1), 42-61.

Lins, K., & Servaes, H. (2002). Is Corporate Diversification Beneficial in Emerging Market? Financial

Management, 31(2), 5-31.

Love, E., & Nohria, N. (2005). Reducing Slack: The Performance Consequences of Downsizing by

Large Industrial Firms, 1977–93. Strategic Management Journal, 26(12), 1087–110.

Lu, W., & Beamish, P. (2001). The Internationalization and Performance of SMEs. Strategic

Management Journal, 22(6-7), 565-586.

McClelland, P., Liang, X., & Barker, V. (2010). CEO commitment to the status-quo: replication and

extension using content analysis. Journal of Management, 36(5), 1251–77.

McColgan, P. (2001). Agency theory and corporate governance: a review of the literature from a UK

perspective. Glasgow: University of Strathclyde: Department of Accounting and Finance.

Meeks, G., & Meeks, J. (1981). Profitability measures as indicators of post-merger efficiency. Journal

of Industrial Economics, 29(4), 335–44.

Menozzi, A., Gutiérrez Urtiaga, M., & Vannoni, D. (2011). Board composition, political connections,

and performance in state-owned enterprises. Industrial and Corporate Change, 21(3), 671-698.

Michael, S., & Robbins, D. (1998). Retrenchment among small manufacturing firms during recession.

Journal of Small Business Management, 36(3): 35–45.

Miles, G., Snow, C., & Sharfman, M. (1993). Industry variety and performance. Strategic Management

Journal, 14(3), 163–177.

Morck, R., & Yeung, B. (2003). Agency problems in large family business groups. Entrepreneurship:

Theory and Practice, 27(4), 367-382.

Morrow, J., Johnson, R., & Busenitz, L. (2004). The effects of cost and asset retrenchment on firm

performance: the overlooked role of a firm’s competitive environment. Journal of Management,

30(2), 189-208.

O’Neill, H. (1986). Turnaround and recovery: What strategy do you need? Long Range Planning,

19(1), 80–88.

Orden, O. D., & Garmendia, A. (2005). Does it matter ownership structure? performance in Spanish

companies. Journal of European Financial Management, 1(, 1-40.

Lik-Jing Ung, Rayenda Brahmana and Chin-Hong Puah

Pajunen, K. (2006). Stakeholder influences in organizational survival. Journal of Management,

43(6),1261-1288.

Pearce, J., & Robbins, K. (2008). Strategic transformation as the essential last step in the process of

business turnaround. Business Horizons, 51(2), 121–30.

Razak, N., Ahmad, R., & Aliahmed, H. (2008). Government ownership and performance: An analysis

of listed companies in Malaysia. Corporate Ownership and Control, 6(2), 434-442.

Reddy, K. S., & Xie, E. (2017). Cross-border mergers and acquisitions by oil and gas multinational

enterprises: Geography-based view of energy strategy. Renewable and Sustainable Energy

Reviews, 72(2), 961-980.

Robbins, D., & John, A. (1993). Entrepreneurial Retrenchment among Small Manufacturing firms.

Journal of Business Venturing, 8(4), 301-318.

Robbins, D., & Pearce, J. (1992). Turnaround: retrenchment and recovery. Strategic Management

Journal, 13(4): 287–309.

Schendel, D., Patton, G., & Riggs, J. (1976). Corporate turnaround strategies: A study of profit decline

and recovery. Journal of General Management, 3(spring): 3–11.

Schmitt, A., & Raisch, S. (2013). Corporate Turnarounds and Recovery: The Duality of Retrenchment.

Journal of Management Studies, 50(7), 1216-1244

Schmitt, A., Borzillo, S., & Probst, G. (2012). Don’t let knowledge walk away: knowledge retention

during employee downsizing. Management Learning, 43, 53–74.

Shleifer, A., & Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–

783.

Tangpong, C., Abebe, M., & Li, Z. (2015). A temporal approach to retrenchment and successful

turnaround in declining firms. Journal of Management Studies, 52(5), 647-677.

Thomas, L., & Waring, G. (1999). Competing capitalisms: Capital investment in American, German,

and Japanese firms. Strategic Management Journal, 20(8), 729–748.

Tsao, C. W., Newman, A., Chen, S. J., & Wang, M. J. (2016). HRM retrenchment practices and firm

performance in times of economic downturn: exploring the moderating effects of family

involvement in management. The International Journal of Human Resource Management, 27(9),

954-973.

Ung, L. J., Brahmana, R., & Puah, C. H. (2016). Does retrenchment strategy induce family firm's

value? A study from Malaysia. International Journal of Management Practice, 9(4), 394-411.

Ung, Lik-Jing Rayenda Brahmana & Chin-Hong Puah (2018) Defensive Strategy’s Effect on Firm

Value: Evidence from Public-Listed Companies in Malaysia, Journal of Asia-Pacific Business,

DOI: HYPERLINK "https://doi.org/10.1080/10599231.2018.1453746"

10.1080/10599231.2018.1453746

Wernerfelt, B. (1984). A resource‐based view of the firm. Strategic management journal, 5(2), 171-

180.

Wiwattanakantang, Y. (2001). Controlling shareholders and corporate value: Evidence from Thailand.

Pacific-Basin Finance Journal, 9(4), 323-362.

Zeitun, R., & Gang Tian, G. (2007). Does ownership affect a firm's performance and default risk in

Jordan? Corporate Governance: The international journal of business in society, 7(1), 66-82.