DOES THE EXTENT OF OWNERSHIP BY DIFFERENT SHAREHOLDERS ENHANCE FIRM FINANCIAL PERFORMANCE? EMPIRICAL EVIDENCE FROM AN EMERGING ECONOMY

Md. Hossain Alı; Rashed Hossaın; Rana Mazumder; Mehedi Hasan

Research Article

Year 2023, Volume: 12 Issue: 4, 163 - 174, 31.12.2023

Md. Hossain Alı , Rashed Hossaın Rana Mazumder Mehedi Hasan

Abstract

References

Abor, J., & Biekpe, N. (2007). Corporate governance, ownership structure and performance of SMEs in Ghana: Implications for financing opportunities. Corporate Governance: The International Journal of Business in Society, 7(3), 288-300.
Abdelgouad, A.F., Pfeifer, C., & Gelubcke, J.P.W. (2015). Ownership structure and firm performance in the Egyptian manufacturing sector. Economics Bulletin, 35(4), 2197-2212.
Agrawal, A., & Knoeber, C. (1996). Firm performance and mechanisms to control agency problems between managers and shareholders. Journal of Financial and Quantitative Analysis, 31(3), 377-397.
Ang, J., & Ding, D. (2006). Government ownership and the performance of government-linked companies: The case of Singapore. Journal of Multinational Financial Management, 16(1), 64-88.
Aydin, N., Sayim, M., & Yalama, A. (2007). Foreign ownership and firm performance: Evidence from Turkey. International Research Journal Of Finance And Economics, 11, 103-110.
Barclay, M. J., & Holderness, C. G. (1991). Negotiated block trades and corporate control. The Journal of Finance, 46(3), 861-878.
Boone, N., Colombage, S. & Gunasekarage, A. (2011). Block shareholder identity and firm performance in New Zealand. Pacific Accounting Review, 23(2), 185-210.
Boycko, M., Shleifer, A. & Vishny, R.W. (1996). A theory of privatization. Economics Journal, 106(435), 309-319.
Brickley, J., Lease, R.C. & Smith, C.W. (1988). Ownership structure and voting on antitakeover amendments. Journal of Financial Economics, 20, 267-291.
Cheng, Q., & Ng, A. (2018). State ownership, governance and financial performance of Chinese state-owned enterprises. Journal of Accounting, Finance and Economics, 8(1). 42 – 57.
Choi, H.M., Sul, W., & Min, S.K. (2012). Foreign board membership and firm value in Korea. Management Decision, 50(2), 207-233.
Chibber, P.K., & Majumdar, S.K. (1999). Foreign ownership and profitability: property rights, control and the performance of firms in Indian industry. Journal of Law & Economics, 42(1), 209-238.
Claessens, S., & Djankov, S. (1999). Ownership concentration and corporate performance in the Czech Republic. Journal of Comparative Economics, 27(3), 498-513.
Cyert, R., Kang, S., & Kumar, P. (1998). Corporate governance and top management compensation with incomplete contracts: Theory and evidence. Working Paper, Yale School of Management.
Das, S. K., Alam, S., Islam, M. J., Boby, F., & Begum, R. (2023). Does ownership pattern affect firm performance? Empirical evidence from an emerging market. International Journal of Disclosure and Governance, 1-15.
DeWenter, K., & Malatesta, P. (2001). State-owned and privately owned firms: An empirical analysis of profitability, leverage, and labor intensity. American Economic Review, 91(1), 320-334.
Dhar, B. (1988). Foreign controlled companies in India: an attempt at identification. Working Paper WP1988/03, Institute for Studies in Industrial Development, New Delhi, available at: http://isid.org.in/pdf/identif.PDF
Dodd, P., & Warner, J. (1983). On corporate governance: a study of proxy contests. Journal of Financial Economics, 11(1-4), 401-438.
Farooque, O., Zijl, T., Dunstan, K., & Karim, A. (2007). Ownership Structure and Corporate Performance: Evidence from Bangladesh. Asia-Pacific Journal of Accounting & Economics, 14(2), 127-149.
Goll, I., & Rasheed, A. A. (2004). The moderating effect of environmental munificence and dynamism on the relationship between discretionary social responsibility and firm performance. Journal of business ethics, 49, 41-54.
Gujarati, D. N. (2003). Basic Econometrics (4th ed.). New York: McGraw-HiII.
Holderness, C.G., & Sheehan, D.P. (1988). The role of majority shareholders in publicly held corporations: An exploratory analysis. Journal of Financial Economics, 20, 317-40.
Jensen, M.C., & Meckling, W.H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Kaplan, S., & Minton, B. (1994). Appointments of outsiders to Japanese broads: Determinants and implications for managers. Journal of Financial Economics, 36(2), 225-258.
Khanna, T., & Palepu, K. (2000). Business groups, foreign intermediaries and corporate governance. In Morck, R.K. (Ed.), Concentrated Corporate Ownership, University of Chicago Press, Chicago, IL, 265-292.
Kole, S. R., & Mulherin, J. H. (1997). The government as shareholder: a case from the US. Journal of Law & Economics, 40 (1), 1-22.
Martin, S., & Parker, D. (1995). Privatization and economic performance throughout the UK business cycle. Managerial and Decision Economics, 16 (3), 225-237.
Meah, M. R., (2019). The efficiency of corporate governance on capital structure: An empirical study from listed manufacturing firms in Bangladesh. Asian Journal of Accounting & Governance, 11(1), 13-23.
Meah, M. R. & Chaudhory, N. U., (2019) Corporate governance and firm's profitability: An emerging economy-based investigation. Indian Journal of Corporate Governance, 12(1), 1-24.
Meah, M. R., & Hossain, R. (2023). Ownership Structure and Auditor Choice in Emerging Economy: An Empirical Study. Indonesian Journal of Business, Technology and Sustainability, 1(1), 12-22.
Megginson, W.L., Nash, R.C. and Van Randenborgh, M. (1994). The financial and operating performance of newly privatized firms: An international empirical analysis. Journal of Finance, 49 (2), pp. 403-452.
Mykhayliv, D., & Zauner, K. (2013). Investment behavior and ownership structures in Ukraine: Soft budget constraints, government ownership and private benefits of control. Journal of Comparative Economics, 41(1), 265-278.
Najid, N., & Abdul Rahman, R. (2011). Government ownership and performance of Malaysian government-linked companies. International Research Journal of Finance and Economics, 61(1), 1-15.
Navissi, F., & Naiker, V. (2006). Institutional ownership and corporate value. Managerial Finance, 32(3), 247-256.
Ouyang, B. (2013). Lead Directorship and Firm Performance. Journal of Business Economics and Finance, 2(4), 5-18.
Rahman, M. A. (2023). Are board attributes and ownership structure value relevant in developing economies: new institutionalist perspective, Asian Journal of Accounting Research, Vol. ahead-of-print No. ahead-of-print.
Rahman, M. M. (2016). Determinants of CEO compensation: An empirical evidence from listed banks of Bangladesh. Journal of Business Studies (Special International Edition), 1(1), 127-161.
Rahman, M. M., & Khatun, N. (2017). Quality of corporate governance: A review from the literature. Journal of Asian Finance, Economics and Business, 4(1), 59-66.
Rahman, M. M., & Saima, F. N. (2018). Efficiency of board composition on firm performance: Empirical evidence from listed manufacturing firms of Bangladesh. Journal of Asian Finance, Economics and Business, 5(2), 53–61.
Rahman, M. M., Meah, M. R., & Chaudhory, N. U. (2019). The impact of audit characteristics on firm performance: An empirical study from an emerging economy. Journal of Asian Finance, Economics and Business, 6(1), 59–69.
Rashid, A. (2016). Managerial ownership and agency cost: Evidence from Bangladesh. Journal of business ethics, 137, 609-621.
Rashid, M.M. (2020). Ownership structure and firm performance: the mediating role of board characteristics. Corporate Governance, 20(4), 719-737.
Sarkar, J., & Sarkar, S. (2000). Large shareholder activism in corporate governance in developing countries: Evidence from India. International Review of Finance, 1(3), 161-194.
Shin-Ping, L., & Tsung-Hsien, C. (2009). The determinants of corporate performance: A viewpoint from insider ownership and institutional ownership. Managerial Auditing Journal, 24(3), 233-247.
Shleifer, A., & Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737-783.
Shleifer, A., & Vishny, R. (1986). Large shareholders and corporate control. Journal of Political Economy, 94(3), 461-488.
Siddiqui, J. (2010). Development of corporate governance regulations: The case of an emerging economy. Journal of Business Ethics, 91, 253-274.
Sunday, D., Turyahebwa , D., Erick , D., Byamukama , D., & Martin , T. (2017). Ownership structure and financial performance of companies in Uganda. Journal for Studies in Management and Planning, 3(13), 81-101.
Thomsen, S., & Pedersen, T. (2000). Ownership structure and economic performance in the largest European companies. Strategic Management Journal, 21(6), 689-705.
Ting, I.W.K., & Lean, H.H. (2015). Does government ownership matter? Comparative study between GLCs and NGLCs in Malaysia. The Singapore Economic Review, 60(2), 1550019.
Tsai, H., & Gu, Z. (2007). The relationship between institutional ownership and casino firm performance. International Journal of Hospitality Management, 26(3), 517-530.
Vickers, J., & Yarrow , G. (1991). Economic perspectives on privatization. Journal of Economic Perspectives, 5(2), 112-132.
Uddin, M.H., Halbouni, S., & Raj, M. (2014). Performance of government-linked firms listed on two stock exchanges of the United Arab Emirates: An empirical study. Emerging Markets Finance and Trade, 50(1), 212-236.
Uwuigbe, U., & Olunsanmi, O. (2012). An empirical examination of the relationship between ownership structure and the performance of firms in Nigeria. International Business Research, 5(1), 208-215.
Woidtke, T. (2002). Agents watching agents? Evidence from pension fund ownership and firm value. Journal of Financial Economics, 63(1), 99-131.
Yu, M. (2013), State ownership and firm performance: Empirical evidence from Chinese listed companies. China Journal of Accounting Research, 6(2), 75–87.
Zeitun, R., & Tian, G.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.
Zraiq, M. A., & Fadzil, F. H. (2018). The impact of audit committee characteristics on firm performance: Evidence from Jordan. Scholar Journal of Applied Sciences and Research, 1(5), 39-42

DOES THE EXTENT OF OWNERSHIP BY DIFFERENT SHAREHOLDERS ENHANCE FIRM FINANCIAL PERFORMANCE? EMPIRICAL EVIDENCE FROM AN EMERGING ECONOMY

Year 2023, Volume: 12 Issue: 4, 163 - 174, 31.12.2023

Md. Hossain Alı , Rashed Hossaın Rana Mazumder Mehedi Hasan

Abstract

Purpose- The aim of this paper is to examine the role of institutional, foreign, and government shareholding in enhancing financial performance of listed companies in the Dhaka Stock Exchange (DSE) of Bangladesh.
Methodology- The study is based on 110 manufacturing companies listed on Dhaka Stock Exchange (DSE) during the period of 2013-2017 which produces 512 firm-year observations. The study investigates the impact of the extent of ownership of different shareholders (namely institutions, foreigners, the government) on financial performance (as measured by return on assets, earnings per share and return on sales) of firms by conducting multivariate analysis using Pooled Ordinary Least Square regression along with year dummy, lag model and serial correlation.
Findings- The results of multiple regression analysis reveal that institutional and foreign ownership are significantly and positively associated with three proxies of firm performance. This study also finds that government ownership doesn’t have any significant impact on firm performance in Bangladesh.
Conclusion- The study considers earnings per share as one of the corporate performance indicators which is widely used by fund providers in financial markets but seldom analyzed in the literature. The study will provide valuable insights to investors, regulators, and managers who want to understand how the extent of ownership by different shareholders drive different firm performance measures. The study analyzes only non-financial companies and does not incorporate market performance in the analysis of the hypothesized relationship among the variables.

Keywords

Corporate governance, shareholding patterns, ownership structure, firm performance, agency theory

References

Abor, J., & Biekpe, N. (2007). Corporate governance, ownership structure and performance of SMEs in Ghana: Implications for financing opportunities. Corporate Governance: The International Journal of Business in Society, 7(3), 288-300.
Abdelgouad, A.F., Pfeifer, C., & Gelubcke, J.P.W. (2015). Ownership structure and firm performance in the Egyptian manufacturing sector. Economics Bulletin, 35(4), 2197-2212.
Agrawal, A., & Knoeber, C. (1996). Firm performance and mechanisms to control agency problems between managers and shareholders. Journal of Financial and Quantitative Analysis, 31(3), 377-397.
Ang, J., & Ding, D. (2006). Government ownership and the performance of government-linked companies: The case of Singapore. Journal of Multinational Financial Management, 16(1), 64-88.
Aydin, N., Sayim, M., & Yalama, A. (2007). Foreign ownership and firm performance: Evidence from Turkey. International Research Journal Of Finance And Economics, 11, 103-110.
Barclay, M. J., & Holderness, C. G. (1991). Negotiated block trades and corporate control. The Journal of Finance, 46(3), 861-878.
Boone, N., Colombage, S. & Gunasekarage, A. (2011). Block shareholder identity and firm performance in New Zealand. Pacific Accounting Review, 23(2), 185-210.
Boycko, M., Shleifer, A. & Vishny, R.W. (1996). A theory of privatization. Economics Journal, 106(435), 309-319.
Brickley, J., Lease, R.C. & Smith, C.W. (1988). Ownership structure and voting on antitakeover amendments. Journal of Financial Economics, 20, 267-291.
Cheng, Q., & Ng, A. (2018). State ownership, governance and financial performance of Chinese state-owned enterprises. Journal of Accounting, Finance and Economics, 8(1). 42 – 57.
Choi, H.M., Sul, W., & Min, S.K. (2012). Foreign board membership and firm value in Korea. Management Decision, 50(2), 207-233.
Chibber, P.K., & Majumdar, S.K. (1999). Foreign ownership and profitability: property rights, control and the performance of firms in Indian industry. Journal of Law & Economics, 42(1), 209-238.
Claessens, S., & Djankov, S. (1999). Ownership concentration and corporate performance in the Czech Republic. Journal of Comparative Economics, 27(3), 498-513.
Cyert, R., Kang, S., & Kumar, P. (1998). Corporate governance and top management compensation with incomplete contracts: Theory and evidence. Working Paper, Yale School of Management.
Das, S. K., Alam, S., Islam, M. J., Boby, F., & Begum, R. (2023). Does ownership pattern affect firm performance? Empirical evidence from an emerging market. International Journal of Disclosure and Governance, 1-15.
DeWenter, K., & Malatesta, P. (2001). State-owned and privately owned firms: An empirical analysis of profitability, leverage, and labor intensity. American Economic Review, 91(1), 320-334.
Dhar, B. (1988). Foreign controlled companies in India: an attempt at identification. Working Paper WP1988/03, Institute for Studies in Industrial Development, New Delhi, available at: http://isid.org.in/pdf/identif.PDF
Dodd, P., & Warner, J. (1983). On corporate governance: a study of proxy contests. Journal of Financial Economics, 11(1-4), 401-438.
Farooque, O., Zijl, T., Dunstan, K., & Karim, A. (2007). Ownership Structure and Corporate Performance: Evidence from Bangladesh. Asia-Pacific Journal of Accounting & Economics, 14(2), 127-149.
Goll, I., & Rasheed, A. A. (2004). The moderating effect of environmental munificence and dynamism on the relationship between discretionary social responsibility and firm performance. Journal of business ethics, 49, 41-54.
Gujarati, D. N. (2003). Basic Econometrics (4th ed.). New York: McGraw-HiII.
Holderness, C.G., & Sheehan, D.P. (1988). The role of majority shareholders in publicly held corporations: An exploratory analysis. Journal of Financial Economics, 20, 317-40.
Jensen, M.C., & Meckling, W.H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Kaplan, S., & Minton, B. (1994). Appointments of outsiders to Japanese broads: Determinants and implications for managers. Journal of Financial Economics, 36(2), 225-258.
Khanna, T., & Palepu, K. (2000). Business groups, foreign intermediaries and corporate governance. In Morck, R.K. (Ed.), Concentrated Corporate Ownership, University of Chicago Press, Chicago, IL, 265-292.
Kole, S. R., & Mulherin, J. H. (1997). The government as shareholder: a case from the US. Journal of Law & Economics, 40 (1), 1-22.
Martin, S., & Parker, D. (1995). Privatization and economic performance throughout the UK business cycle. Managerial and Decision Economics, 16 (3), 225-237.
Meah, M. R., (2019). The efficiency of corporate governance on capital structure: An empirical study from listed manufacturing firms in Bangladesh. Asian Journal of Accounting & Governance, 11(1), 13-23.
Meah, M. R. & Chaudhory, N. U., (2019) Corporate governance and firm's profitability: An emerging economy-based investigation. Indian Journal of Corporate Governance, 12(1), 1-24.
Meah, M. R., & Hossain, R. (2023). Ownership Structure and Auditor Choice in Emerging Economy: An Empirical Study. Indonesian Journal of Business, Technology and Sustainability, 1(1), 12-22.
Megginson, W.L., Nash, R.C. and Van Randenborgh, M. (1994). The financial and operating performance of newly privatized firms: An international empirical analysis. Journal of Finance, 49 (2), pp. 403-452.
Mykhayliv, D., & Zauner, K. (2013). Investment behavior and ownership structures in Ukraine: Soft budget constraints, government ownership and private benefits of control. Journal of Comparative Economics, 41(1), 265-278.
Najid, N., & Abdul Rahman, R. (2011). Government ownership and performance of Malaysian government-linked companies. International Research Journal of Finance and Economics, 61(1), 1-15.
Navissi, F., & Naiker, V. (2006). Institutional ownership and corporate value. Managerial Finance, 32(3), 247-256.
Ouyang, B. (2013). Lead Directorship and Firm Performance. Journal of Business Economics and Finance, 2(4), 5-18.
Rahman, M. A. (2023). Are board attributes and ownership structure value relevant in developing economies: new institutionalist perspective, Asian Journal of Accounting Research, Vol. ahead-of-print No. ahead-of-print.
Rahman, M. M. (2016). Determinants of CEO compensation: An empirical evidence from listed banks of Bangladesh. Journal of Business Studies (Special International Edition), 1(1), 127-161.
Rahman, M. M., & Khatun, N. (2017). Quality of corporate governance: A review from the literature. Journal of Asian Finance, Economics and Business, 4(1), 59-66.
Rahman, M. M., & Saima, F. N. (2018). Efficiency of board composition on firm performance: Empirical evidence from listed manufacturing firms of Bangladesh. Journal of Asian Finance, Economics and Business, 5(2), 53–61.
Rahman, M. M., Meah, M. R., & Chaudhory, N. U. (2019). The impact of audit characteristics on firm performance: An empirical study from an emerging economy. Journal of Asian Finance, Economics and Business, 6(1), 59–69.
Rashid, A. (2016). Managerial ownership and agency cost: Evidence from Bangladesh. Journal of business ethics, 137, 609-621.
Rashid, M.M. (2020). Ownership structure and firm performance: the mediating role of board characteristics. Corporate Governance, 20(4), 719-737.
Sarkar, J., & Sarkar, S. (2000). Large shareholder activism in corporate governance in developing countries: Evidence from India. International Review of Finance, 1(3), 161-194.
Shin-Ping, L., & Tsung-Hsien, C. (2009). The determinants of corporate performance: A viewpoint from insider ownership and institutional ownership. Managerial Auditing Journal, 24(3), 233-247.
Shleifer, A., & Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737-783.
Shleifer, A., & Vishny, R. (1986). Large shareholders and corporate control. Journal of Political Economy, 94(3), 461-488.
Siddiqui, J. (2010). Development of corporate governance regulations: The case of an emerging economy. Journal of Business Ethics, 91, 253-274.
Sunday, D., Turyahebwa , D., Erick , D., Byamukama , D., & Martin , T. (2017). Ownership structure and financial performance of companies in Uganda. Journal for Studies in Management and Planning, 3(13), 81-101.
Thomsen, S., & Pedersen, T. (2000). Ownership structure and economic performance in the largest European companies. Strategic Management Journal, 21(6), 689-705.
Ting, I.W.K., & Lean, H.H. (2015). Does government ownership matter? Comparative study between GLCs and NGLCs in Malaysia. The Singapore Economic Review, 60(2), 1550019.
Tsai, H., & Gu, Z. (2007). The relationship between institutional ownership and casino firm performance. International Journal of Hospitality Management, 26(3), 517-530.
Vickers, J., & Yarrow , G. (1991). Economic perspectives on privatization. Journal of Economic Perspectives, 5(2), 112-132.
Uddin, M.H., Halbouni, S., & Raj, M. (2014). Performance of government-linked firms listed on two stock exchanges of the United Arab Emirates: An empirical study. Emerging Markets Finance and Trade, 50(1), 212-236.
Uwuigbe, U., & Olunsanmi, O. (2012). An empirical examination of the relationship between ownership structure and the performance of firms in Nigeria. International Business Research, 5(1), 208-215.
Woidtke, T. (2002). Agents watching agents? Evidence from pension fund ownership and firm value. Journal of Financial Economics, 63(1), 99-131.
Yu, M. (2013), State ownership and firm performance: Empirical evidence from Chinese listed companies. China Journal of Accounting Research, 6(2), 75–87.
Zeitun, R., & Tian, G.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.
Zraiq, M. A., & Fadzil, F. H. (2018). The impact of audit committee characteristics on firm performance: Evidence from Jordan. Scholar Journal of Applied Sciences and Research, 1(5), 39-42

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Details

Primary Language	English
Subjects	Finance, Business Administration
Journal Section	Articles
Authors	Md. Hossain Alı 0000-0003-0278-7575 Rashed Hossaın This is me 0009-0000-5000-3996 Rana Mazumder This is me 0000-0002-0320-2543 Mehedi Hasan This is me 0009-0002-3923-8457
Publication Date	December 31, 2023
Published in Issue	Year 2023 Volume: 12 Issue: 4

Cite

APA	Alı, M. H., Hossaın, R., Mazumder, R., Hasan, M. (2023). DOES THE EXTENT OF OWNERSHIP BY DIFFERENT SHAREHOLDERS ENHANCE FIRM FINANCIAL PERFORMANCE? EMPIRICAL EVIDENCE FROM AN EMERGING ECONOMY. Journal of Business Economics and Finance, 12(4), 163-174.

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