PARÁMETRO

First of all, it should be noted that, the above two-subsections were associated with the type of majority (controlling) shareholders effect on firm performance. In this section, we present

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reviews of prior literature associated with the block-ownership concentration without any special link to its identity. In order to avoid any overlapping with the previous subsections, we will present most important arguments and summarise those that directly related to the relationship between ownership concentration and firm performance.

As noted earlier, ownership concentration can play an important monitoring role as a form of traditional governance mechanism in emerging markets. For many years, research has tried to examine the implications of such internal governance mechanism on firm performance. The focus of such research has been on minimizing the agency conflicts, and hence, improving firm performance. The dominance of the effectiveness of ‘ownership concentration’ in monitoring managerial behaviour and enhancing firm’s profitability is a subject of much debate in recent times, especially in transitional economies context. Empirical literature on emerging markets seems to demonstrate negative relationship between ownership concentration and firm performance.

One theoretical explanation for this negative effect, especially in emerging markets, is that when ownership concentration is coexisting with weak corporate governance mechanisms, underdeveloped capital markets and non-existing market instruments, the traditional agency conflict between principals and managers is replaced by another type agency conflict between majority shareholders and minority investors (Young et al., 2008). Moreover, Kalezić, (2015) note that, the negative impact of ownership concentration on firm performance in emerging markets may considerably presents due to the insufficient incentives for the largest owners to attempt timely efficient firm restructuring to maximise the firm’s long-run valuation. Dharwadkar et al., (2000) argue that principal-principal agency problem is a concern in institutional environments which lack minority shareholder protection and enforcement mechanisms.

Consequently, empirical literature associated with the ownership concentration-performance relationship in emerging markets does not face the problem of interconnecting theoretical arguments with its empirical findings. A comprehensive meta-analysis by Wang & Shailer, (2015) based on the experience of 18 emerging markets, suggests that ownership concentration has negative implications on firm performance across these countries. Moreover, Jiang et al., (2011) provide evidence that ownership concentration is positively associated with the level of information asymmetry. This may support the detriments effect of ownership concentration on

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firm performance. Similarly, Bednarek & Moszoro, (2014) argue that greater ownership dispersion is positively associated with firm performance.

Notwithstanding the above mentioned critical determinants, ownership concentration has some positive consequences. For example, Shleifer & Vishny, (1986) stated that majority shareholders may have more incentives to monitor and discipline managers by their threatening power of voting rights. Lemmon & Lins, (2003, p. 1445) argue that “ownership structure is a primary determinant of the extent of agency problems between controlling insiders and outside investors, which has important implications for the valuation of the firm”. Also, Li, (1994) argue that large shareholders can have ultimate power and effective level of monitoring by the ability of facilitating a third-party takeover by splitting their own shares gains with external bidder. These arguments confirmed by international evidence in Finland by Maury & Pajuste, (2005) show that ownership concentration has positive effects on firm performance. Additionally, they argue that the results indicate that the identity of shareholder matters significantly when it comes to the concertation. Similarly, in Germany, Lehmann & Weigand, (2000) report that large shareholders enhance corporate performance.

In Korea, Joh, (2003) report that firms with smaller level of ownership concentration tends to have lower profitability which implies that ownership concentration may have positive implications on firm performance. In China, Isaac & Ke, (2007) show that ownership concentration is positively associated with corporate performance. In addition, the relationship between ownership concentrations is affected by the identity of owners. For example, they argue that government ownership contributes positively to firm’s financial performance. Connelly et al., (2012) examined the relationship between ownership structure and other corporate governance practices on firm’s value using Thai firm’s data. They show that there is a direct positive effect between corporate governance and firm performance. Similarly, Isakov & Weisskopf, (2014) report positive relationship between ownership structure and firm performance.

Taking in mind this variety in the international evidence associated with the relationship between ownership concentration and firm performance, recent advances in corporate governance literature suggest that, the relationship between governance and performance may depend on several factors. For example, Fan et al., (2011) argued that it is conceptually difficult to attribute the persistence of certain ownership structures solely to expropriation i.e., negative impact, other factors may influence this relationship. Gedajlovic & Shapiro, (1998, p. 533) posit that the

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relationship between ownership concentration and firm performance differs across countries and may depends on the national system of corporate governance. Most recently, Nguyen et al., (2015) provide evidence that a country’s national governance system moderate the relationship between ownership concentration and firm performance. This implies that, the institutional environment is a key determinant of this relationship, and as a result, the prior international empirical findings are inconsistent.

It is worth noting that, the institutional environment for economic activities is under- developed in the MENA region in general. Thus, ownership concertation in the context of this thesis may possibly lead to the second type (principal - principal) agency conflict. As agency problem increases, majority (controlling) shareholders make strategic decisions which are in the best of their interests rather than the firm interests, and hence, firm performance decreases and minority shareholders’ wealth expropriated. Moreover, in emerging market case, investors may suffer from sever information asymmetry problem, due to the weak institutional and legal framework (La porta et al., 2000). In fact, prior empirical literature suggests that the effect of ownership concentration may be viewed in two directions; positive and negative. Positive impact is hypothesised based on interests’ alignment effect, substitution of weak legal and institutional environments, and substantial shareholdings commitment to bailout and to avoid firm’s resources expropriation. On the other hand, corporate governance theorists hypothesised negative impact based on cost of capital, principal-principal agency problem, and negative potential impact on other corporate governance mechanisms (Wang & Shailer, 2015).

By juxtaposing the aforementioned arguments, and drawing on empirical evidence in emerging markets, where ownership is highly concentrated, and national governance quality is weak, the below hypotheses can be drawn regarding the ownership concentration-performance relationship in this context:

𝐇𝐲𝐩𝐨𝐭𝐡𝐞𝐬𝐢𝐬𝟑: Firm performance is negatively dependent on share-ownership concentration.

All in all, after analysing the literature related to ownership concentration effects on firm’s financial performance –which is summarized in Table 2-2– the main following results can be concluded:

First, in general, ownership concentration is an important determinant of both firm’s financial performance and value. Second, ownership concentration is negatively related to firm

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performance and value, especially, in emerging markets, where the legal and constitutional environment less effective that in developed countries. Third, these differences in research findings suggest that reforms in corporate governance principles should go beyond adopting the best practices from developed markets and take into account the macro institutional differences and firm-specific characteristics in each separate market.

Table 2-2 Prior related studies’ findings summary

Study Sample Methodology Results

Houmes & Chira, (2015)

S&P 500, the S&P Midcap 400, and the S&P Small cap 600 Index, 1995–2012

Univariate tests and linear regression Ownership concentration perpetuate financial performance. Hu & Zhou, (2008)

World Bank survey, 1500 Chinese firms, 1998-2000

Base regression

Nonlinear relationship between managerial ownership and financial performance.

Perrini, Rossi, & Rovetta, (2008) 297 Italian firms, 2000- 2003 Pooled OLS, 2SLS Ownership concentration is beneficial.

Bhaumik & Selarka, (2012) 228 Indian firms, 1995- 2004 Regression Ownership concentration may reduce traditional agency cost; however, it may increase principal-principal conflict.

Mikkelson, Partch, & Shah, (1997) US 283 IPOs, 1980- 1983 Univariate comparison, regression Financial performance is not related to insider ownership.

Villalonga & Amit, (2006) US Fortune-500 firms, 1994–2000 Regression, sensitive analysis Family ownership creates value only when it’s combined with CEO family membership.

Omran, (2009) 52 privatized Egyptian

firms, 1995-2005 Regression

Ownership concentration and identity have positive impact on financial performance. Nguyen, Locke, &

Reddy, (2015)

Listed firms from SGX Mainboard (for

Singapore), or the HOSE and the HNX (for Vietnam) Regression, dynamic modelling Ownership concentration has positive impact on financial performance.

Chung & Pruitt, (1996) 1000 US firms in 1987 Regression OLS, and 3SLS

Both ownership structure and financial performance are jointly determined.

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