THE INFLUENCE OF POLITICAL CONNECTION AND FINANCIAL DETERMINANTS ON THE PERFORMANCE OF MALAYSIAN REITS

Abstract

This study analyses the influence of political connection, firm size, leverage, and liquidity on the performance of Malaysian Real Estate Investment Trusts (M-REITs) following the implementation of the Malaysian Code on Corporate Governance 2021 (MCCG 2021). This analysis is driven by a fragmented body of literature that examines governance and financial factors in isolation. This study is grounded in Agency Theory and Pecking Order Theory. A quantitative panel design utilizing secondary data from 18 M-REITs listed on Bursa Malaysia for the period 2022–2024 yields 54 firm-year observations. Firm performance is assessed using Tobin's Q, whereas the independent factors comprise political connection (a binary variable), firm size (the logarithm of total assets), leverage (the debt-to-asset ratio), and liquidity (the current ratio). Diagnostic assessments reveal heteroskedasticity and first-order autocorrelation, which are mitigated by Prais-Winsten regression utilizing Panel-Corrected Standard Errors (PCSE). The findings reveal four key outcomes. Political connection has a positive and significant effect on Tobin’s Q, supporting H1 and indicating that politically connected REITs benefit from preferential access to government-linked resources. Firm size exhibits a positive and significant effect, partially supporting H2, contrary to the hypothesized negative relationship, suggesting that larger REITs achieve higher market valuations through diversification and governance credibility. Leverage shows a negative and significant impact, partially supporting H3, opposite to the predicted positive effect, implying that rising interest rates and financial distress risks lead investors to penalize high debt levels. Liquidity is negative but statistically insignificant, leading to rejection of H4. The study contributes to M-REIT managers and policymakers by demonstrating the performance benefits of political ties and scale while cautioning against excessive leverage. Limitations include the short three-year window and static measurement of political connection, offering directions for future research.