Ownership concentration: its determinants and the impact on firm performance: evidence from MENA region
Student thesis: Doctoral Thesis
Effective corporate governance is an essential element in any country; it has a significant effect on a country’s economic development because of its direct impact on a firm’s performance. One form of corporate governance is the ownership structure, which has attracted a great deal of research – specifically regarding the agency costs that result from the conflict between the owners and managers. Additionally, numerous researchers have studied the impact of ownership concentration on a firm’s value and have concluded that ownership concentration is an essential mechanism of corporate governance. The determinants of ownership concentration have drawn the attention of many researchers, who based their arguments off of Demsetz (1983), who believed that ownership structure should be viewed as endogenous with a firms’ performance. Nevertheless, the question of why ownership concentration varies across regions, countries, and firms remains unanswered. Two main lines of thought may influence the degree of ownership concentration within countries: laws and cultures (Holderness, 2017). Capital markets in the Middle East and North Africa (MENA) region are characterised by a high ownership concentration, with a few listed firms and a large number of closed companies (Bolbol & Omran, 2005). Additionally, stock markets in the MENA countries are behind and need further development (Ben Naceur, Ghazouani, & Omran, 2008). Also, corporate governance in the MENA countries is weak and controlled by lenders, mainly banks, that play the main role in governance (Turki & Sedrine, 2012). Therefore, this study investigates three critical dimensions in ownership concentration. First, the relationship between ownership concentration and firm performance, second the effects of ownership identity on firm performance, and finally, the determination of ownership structure in the MENA region. This study contributes to the existing literature not only as the first investigation on both the effects of ownership concentration on firm performance and the determination of ownership concentration in the MENA region, but also as the first to examine the effects that a significant political event, namely the Arab Spring movement, had on ownership concentration. The data consists of 912 firms and 5,521 observations in 8 MENA countries – Turkey, Tunisia, Saudi Arabia, Qatar, Oman, Jordan, Egypt, and Bahrain – spanning between 2008 and 2014. The industry was divided into 3 main categories: a financial group, a manufacturing company, and a service group. The study uses ordinary least squares, fixed effects model, random effects model, generalised method of moments, 2SLS, quantile regressions, instrumental variable quantile regressions, tobit regression and IV-tobit. It also applies a different approach to control countries, industries, and years effects. The study results prove that ownership concentration in the MENA region plays an effective role in mitigating agency problems and enhancing a firm’s performance. Also, it is found that ownership types have different effects on a firms’ performance. This study also highlighted that the degree of the role of law, and corruption control, have negative effects on ownership concentration. However, firm size, firm age, and Tobin’s Q have significantly positive relations with ownership concentration. Moreover, the Arab Spring movement has a positive impact on firm performance, yet the average ownership concentration is decreased by the MENA nations’ revolutions.