Co-deterministic relationship between ownership concentration and corporate performance: Evidence from an emerging economy

Omar Al Farooque, Tony van Zijl, Keitha Dunstan, Akm Waresul Karim

Research output: Contribution to journalArticleResearchpeer-review

12 Citations (Scopus)

Abstract

Purpose - The purpose of this paper is to test whether dominant shareholder(s) of a firm enhance performance in Bangladesh and thus examines the arbitrary moves by the regulatory bodies, in the name of promoting "good corporate governance", to restrict ownership concentration. Design/methodology/approach - Building on the established literature, a simultaneous equations approach is applied to model the relationship between ownership concentration and performance and is tested on a sample of 567 observations on firms listed on the Dhaka Stock Exchange over a seven-year period. The two equations model consists of firm performance and ownership concentration as endogenous variables along with other governance variable. Findings - The results suggest a significant positive co-deterministic relationship between ownership concentration and firm performance indicating that ownership concentration and firm performance simultaneously impact each other. It suggests that the ownership restriction imposed by the Securities and Exchange Commission is unjustified and detrimental to firm performance/growth in emerging countries such as Bangladesh. Practical implications - This new evidence from an emerging market enhances our understanding of corporate governance in Asian countries. The study has implications for stakeholders, regulators and policy makers to revisit their attempt to limit founder-family ownership holdings. Instead, their aim should be to balance the home-grown unique features, such as a Top-1 dominant shareholder, with Western governance mechanisms. Originality/value - The paper is the first to consider Top 1 shareholder's ownership as the measure of ownership concentration, which is an important feature of the corporate sector in emerging markets. In emerging markets, founder-family ownership concentration acts as an alternative governance mechanism substituting for strong and effective legal backing and other market-driven monitoring mechanisms.

Original languageEnglish
Pages (from-to)172-189
Number of pages18
JournalAccounting Research Journal
Volume23
Issue number2
DOIs
Publication statusPublished - 2010

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Ownership concentration
Corporate performance
Emerging economies
Firm performance
Emerging markets
Shareholders
Corporate governance
Governance mechanisms
Bangladesh
Ownership
Family ownership
Business sector
Simultaneous equations
Monitoring
Design methodology
Firm ownership
Emerging countries
Endogenous variables
Stakeholders
Securities and Exchange Commission

Cite this

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abstract = "Purpose - The purpose of this paper is to test whether dominant shareholder(s) of a firm enhance performance in Bangladesh and thus examines the arbitrary moves by the regulatory bodies, in the name of promoting {"}good corporate governance{"}, to restrict ownership concentration. Design/methodology/approach - Building on the established literature, a simultaneous equations approach is applied to model the relationship between ownership concentration and performance and is tested on a sample of 567 observations on firms listed on the Dhaka Stock Exchange over a seven-year period. The two equations model consists of firm performance and ownership concentration as endogenous variables along with other governance variable. Findings - The results suggest a significant positive co-deterministic relationship between ownership concentration and firm performance indicating that ownership concentration and firm performance simultaneously impact each other. It suggests that the ownership restriction imposed by the Securities and Exchange Commission is unjustified and detrimental to firm performance/growth in emerging countries such as Bangladesh. Practical implications - This new evidence from an emerging market enhances our understanding of corporate governance in Asian countries. The study has implications for stakeholders, regulators and policy makers to revisit their attempt to limit founder-family ownership holdings. Instead, their aim should be to balance the home-grown unique features, such as a Top-1 dominant shareholder, with Western governance mechanisms. Originality/value - The paper is the first to consider Top 1 shareholder's ownership as the measure of ownership concentration, which is an important feature of the corporate sector in emerging markets. In emerging markets, founder-family ownership concentration acts as an alternative governance mechanism substituting for strong and effective legal backing and other market-driven monitoring mechanisms.",
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Co-deterministic relationship between ownership concentration and corporate performance : Evidence from an emerging economy. / Al Farooque, Omar; van Zijl, Tony; Dunstan, Keitha; Karim, Akm Waresul.

In: Accounting Research Journal, Vol. 23, No. 2, 2010, p. 172-189.

Research output: Contribution to journalArticleResearchpeer-review

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