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Ownership Structure, Firm Performance, and Corporate Governance: Evidence from Selected Arab Countries
Ali A. Bolbola, Ayten Fatheldinb, and Mohammed M. Omranc
a Economic Policy Institute, Arab Monetary Fund, Abu Dhabi, United Arab Emirates, P.O. Box 2818. E-mail: [email protected]
b Economic Policy Institute, Arab Monetary Fund, Abu Dhabi, United Arab Emirates, P.O. Box 281. E-mail: [email protected] c Corresponding Author: College of Management & Technology, Arab Academy for Science & Technology, Alexandria, Egypt, P.O. Box 1029. E-mail: [email protected]
Ownership Structure, Firm Performance, and Corporate
Governance: Evidence from Selected Arab Countries
Abstract
The paper works with a sample of 304 firms from different sectors of the economy,
and from a representative group of Arab countries (Egypt, Jordan, Oman and
Tunisia) where related data could be gathered. We first present crucial descriptive
statistics on the firms’ corporate ownership, identity, and their performance and
market measures, and then use unstructured but credible equations to capture the
relationship between these variables. Specifically, we study the determinants of
ownership concentration; the effect of ownership concentration on firms’
performance and market measures, after controlling for the endogeneity of ownership
concentration through the use of country and firm characteristics as instrumental
variables; and, the effects of ownership identity and blockholdings. The broad
conclusion that emerges is that ownership concentration is an endogenous response
to poor legal protection of investors, but seems to have no significant effect on firms’
performance. This should put the urgency of corporate governance reforms at most at
par with real sector and commercial reforms.
JEL Classifications : G3; F3
Key Words: ownership concentration; performance and market measures; corporate governance; Arab countries.
I – Introduction
Does ownership matter? And what are its implications for corporate governance, and
its effects on firm performance? The easiest to answer of these three questions is
probably the first, since the bulk of the evidence shows that privately-held firms are
more efficient and more profitable than publicly-held ones – although the evidence
differs on the relative merit of the identity of each private owner1. The second
question is perhaps the most interesting because it has spawned a rich research agenda
pioneered by La Porta et. al (1997, 1998, 1999, and 2000). The upshot of their
findings is that when the legal framework does not offer sufficient protection for
outside investors, entrepreneurs and original owners are forced to maintain large
positions in their companies which result in a concentrated form of ownership 2. What
makes this finding interesting is its implications for the third question, since most of
the evidence shows that there is no significant effect of ownership on firm
performance. As a result, one is led to conclude that corporate governance or the lack
of it is immaterial to firm performance3. How could that be so?
There are three dimensions to resolving the question posed above. First, La Porta et.
al have focused on a narrow aspect of corporate governance – protection of minority
investors – but this fairness aspect is only one of the four pillars that are customarily
assigned to sound corporate governance, the other three being: responsibility,
1 This is particularly true for enterprises that are not monopolistic in nature. See Shirley and Walsh (2001). 2 They also find that common-law countries generally have the strongest, and French civil-law countries have the weakest, legal protection of investors, with German and Scandinavian civil-law countries located in the middle. In addition, they argue that the legal system is a more fruitful way to understand corporate governance and its reforms than the conventional distinction between bank-based and market-based financial systems. 3 See Denis and McConnell (2003) and Berglof and von Thadden (1999).
accountability, and transparency4. In fact, there is evidence that in countries with
weak legal environments, firms tend to compensate for the latter by improving firm-
level governance. This is particularly true for firms that rely heavily on external
finance, and, more important, the resulting improvement in corporate governance is
highly correlated with better operating performance and market valuation5.
The second dimension relates to the definition of corporate governance, and the
mechanisms for ensuring it. Corporate governance can best be interpreted as the set of
mechanisms – both institutional and market-based – that induce self- interested
managers (controllers of the firm) to make decisions that maximize the value of the
firm to its shareholders (owners of the firm)6. The aim of these mechanisms, of
course, is to reduce the agency costs that arise from the principle-agent problem; and
they could be internal and/ or external in nature7. Internal mechanisms deal with the
composition of the board of directors, such as the proportion of independent outsiders
in its membership and the distinction between the CEO and the chairperson. Another
important internal mechanism is ownership structure, or the degree at which
ownership by managers obviates the trade-off between alignment and entrenchment
effects8. External mechanisms, on the other hand, rely on the takeover market in
4 Fairness implies ensuring shareholders’ rights and enforceability of contracts; responsibility involves compliance with all rules and regulations that reflect society’s values; accountability means clarification of government roles and responsibilities, and the voluntary efforts to ensure convergence of managerial and shareholder’s interests; and transparency implies the provision of timely disclosure of adequate information concerning the firm’s financial performance, corporate governance and ownership. For more on these principles, see OECD (1999). 5 See Klapper and Love (2002). 6 One could also add: to promote society’s interests and economic growth in the process. See Denis and McConnell (2003). 7 For more on these mechanisms and the evidence relating to them, see ibid. 8 Equity ownership by insiders can align insiders’ interests with those of other shareholders, thereby leading to greater firm value. However, higher ownership by insiders may result in a greater degree of managerial control, potentially entrenching managers. Wan (1999) finds that management ownership does in fact exhibit an inverted u-shaped relation with Tobin’s Q-ratio.
addition to the legal/ regulatory system, whereby the takeover market acts as a threat
to existing controllers in that it enables outsiders to seek control of the firm if bad
corporate governance results in a significant gap between the potential and the actual
value of the firm. So, given these mechanisms, we can see that the legal system is
only one way to ensure good corporate governance. Not only that, but the balance of
the available evidence also shows that the effective presence of the other mechanisms
is positively associated with firm valuation9.
Third, there is now an overwhelming evidence at the aggregate level that countries
with reliable national and corporate governance systems have developed debt and
equity markets that contribute quite favorably to economic growth. And this is more
so in countries whose growth sectors are capital intensive in factor proportions and
rely heavily on external finance10. So any skepticism regarding the impact of
corporate governance on firm performance and valuation is dispelled when
considering its impact at the macro level.
Notwithstanding the above arguments, though, the fact remains that the widely-held
firm is not a widely-observed phenomenon in most countries. This could be attributed
to several reasons. In the developed countries, it could be a rational response to a legal
system that does not protect minority investors (ala La Porta et. al), but it could also
be the result of entrenched financial structures and practices that determine and shape
the enactment of corporate law11. For developing countries, in addition to the
aforementioned reasons, it could also be due to the underdeveloped nature of their
9 However, the takeover mechanism seems to be confined to the US market only. See op cit. 10 See Levine and Zevros (1998) and Rajan and Zingales (1998).
financial markets – that would allow limited access to external financing – and the
preponderance of family firms12. But perhaps what is more important as far as this
phenomenon is concerned, especially in developing countries, is that sound
governance should go beyond the textbook example of the widely-held firm and
concentrate on redesigning corporate practices that are more peculiar to their case,
such as: lack of agency between concentrated and minority owners, reduced liquidity
of shares, cross ownership and pyramiding of shareholdings, dual-class shares, and
the like13. This is of course an ambitious agenda, but it reflects better the corporate
structure of these countries, and in the process acts as a better guide for future
corporate reforms.
In this context, the Arab economies are no exception. Their corporate legal system
largely follows the civil- law system, but one can reasonably argue that the relation
between legal origin and financial arrangements in the Arab countries merely reflects
the influence of a third exogenous variable, which is the role of the state or the nature
of the political system and its national governance. Here, and to nobody’s surprise, the
Arab world does not fare well, having a relatively closed and highly concentrated
political system with a poor mode of national governance14. This naturally spills over
to its system of corporate governance, as the majority of Arab firms are either
government- or family- owned with stock markets still in a rudimentary stage. But
firms are changing, prompted by increased competition from trade openness, by
11 For example, countries with a tradition of strong bank involvement in corporate control and ownership have often found ways of accommodating this tradition in legal practice (as in Japan and Sweden). 12 The evidence on family firms – especially in East Asia – is that they are robust over time, dispelling the notion that their ownership becomes dispersed over time. See Claessens et. al (2000). 13 See Berglof and von Thadden (1999). For instance, Lins (2003) finds for a sample of 1,433 firms from 18 emerging countries that when a management group’s control rights exceed its cash-flow rights then firm values are markedly lower.
privatization, and by the need for more external financing. And, to better understand
their future trajectory, we need to understand their current corporate make-up and
performance.
It is this what we intend to do in this paper, in the aim also of providing a preliminary
step towards filling this needed research area on the relation between corporate
structure and firm performance in the Arab countries. We will work with a sample of
304 firms from different sectors of the economy, and from a representative group of
Arab countries where related data could be gathered. This group of countries
comprises Egypt, Jordan, Oman and Tunisia. In section II we present crucial
descriptive statistics on the firms’ corporate ownership, identity, and their
performance and market measures, whereas in the following sections we use
unstructured but credible equations to capture the relationship between these
variables. Specifically, in section III we study the determinants of ownership
concentration as given by firm and country characteristics; while in section IV we
look at the effect of ownership concentration on firms’ performance and market
measures, after controlling for the endogeneity of ownership concentration through
the use of country and firm characteristics as instrumental variables. Sections V and
VI follow largely the same approach as in section IV, but with sections V and VI
dealing, respectively, with the effects of ownership identity and blockholdings on
performance and market measures. Lastly, section VII closes the paper with a
conclusion and some policy recommendations.
14 See Sadik et. al (2003).
II – Data and Descriptive Statistics
The countries under study provide a selective but representative coverage of the Arab
regions – Oman (the Gulf), Egypt and Jordan (the Mashreq) and Tunisia (the
Maghreb). As important, and as table (1) shows, the sample of firms from each
country covers all major sectors – industry (both manufacturing and non-
manufacturing), financial institutions and services (other than financial); with
manufacturing firms comprising close to half the total of 304 firms, and financial
institutions slightly more than a quarter. All firms, whether majority-private or
majority-government owned, are tradable on their respective stock markets (see
Appendix I for data sources).
The time frame for the study stretches over the 2000-2002 period, so as to allow some
longitudinal dimension to the data; and, as a result, the estimation process draws on a
panel data of firms and years for all four countries. Table (2) shows some descriptive
statistics for size and profitability pertaining to each country panel and the pooled
panel. It is clear that Egyptian firms are the most profitable, in terms of return on
assets and equity, and they have the largest market capitalizations reflecting perhaps
their deeper stock market penetration. Tunisian firms, on the other hand, have the
highest Q-ratio – defined as the ratio of market value plus total liabilities to book
value plus total liabilities – and are largest in terms of assets, something that could be
explained by the large presence (close to half) of financial institutions in the sample.
Jordanian firms, however, reveal features that are noticeably more extreme. Not only
are they the least profitable and have Q-ratios less than one, but their median asset
size is close to 5% of their corresponding mean size, implying large size differences
amongst themselves due most likely to their lopsided nature – a few large firms in
finance and the extractive industries, and a majority of small firms in other sectors.
Omani firms also exhibit low returns as a result of the preponderance of low profit
service-sector firms, but their size distribution is much more balanced than that of
Jordan.
Before we explore the descriptive characteristics pertaining to ownership, a note on
country- level characteristics is useful. Table (3) shows the pooled country data for
some governance indicators: political stability, rule of law, and control of corruption;
and the data for an index of economic freedom, ratio of the value of shares traded to
GDP, and growth rate of GDP. Although the governance indicators are largely
comparable to those of developing countries, both the economic freedom index and
the value traded ratio for the latter countries, at 2.5 and 17% respectively, are
markedly higher than those of our country sample – and no doubt better freedom to
entrepreneurship and higher financial development help explain the higher growth
performance of developing countries of 5%15. Among the countries in the sample,
however, Oman comes as the top performer with a GDP growth rate of 5.3%, but also
– and not surprisingly – with scores for governance indicators, economic freedom and
value traded that are mostly above average: 1.0, 1.1, 0.73, 2.75 and 2.65%,
respectively16.
The ownership structures of the firms in the sample are portrayed in table (4). Jordan
and Oman emerge as the countries with the highest private ownership, having more
than 80% of firm ownership in the hands of private institutions and individuals.
15 For more on the role of governance indicators in enhancing growth, see World Bank (2003); and on the role of financial development, see Bolbol et. al (2004). 16 Jordan, Tunisia, and Egypt follow in order; for more on these scores, see the table in Appendix II.
Egypt, on the other hand, remains the country with the largest presence of government
ownership at 34%, despite its diligent efforts at privatization in the second half of the
1990s17. Tunisia comes as the country with the largest foreign participation in firm
ownership at 18% – surely facilitated by the free trade agreement with the EU – and
also appears to be the one with the least participation by local individuals.
As to ownership concentration, it is depicted in tables (5) and (6), with concentration
defined as ownership by the top three blockholders who own a minimum of 10% of
equity18. From table (5), we see that for all countries the share of companies with at
least one blockholder as local individuals increased during the period, especially for
Oman whose share reached up to 45%. Egypt looks to be the only country whose
corresponding share of local government in fact increased to a high of 67%; whereas
Tunisia, not surprisingly, is the country who witnessed a significant rise in its
corresponding share of foreign investors to 53%. It seems that both foreign and
individual participation in ownership is on the rise, which bodes well for
improvements in both the culture of investment and the degree of international
confidence in these respective economies.
Table (6) shows ownership concentration by the top three blockholders and their
identity. The mean for the pooled sample of the top three blockholders is 48%, which
is between the corresponding mean of the countries whose legal origin is English of
43%, and those whose legal origin is French of 54%19. The highest concentration is
found in Egypt at 58% and the lowest in Oman at 43%. As to the identity of
17 For more on Egypt’s privatization experience, see Omran (2002). 18 Choosing 10% as the cut-off point is necessary due to data limitations, since the sources for Oman and Jordan only list the identities of shareholders who own at least 10% of the equity. 19 See La Porta et. al (1998).
blockholders, in cases where at least one of the blockholders is a local individual, then
average ownership by all local individuals is highest in Egypt at 42%; similarly for
average ownership by local government and foreign investors at 43% and 42%,
respectively. Egypt, then, seems to be the country with a relatively compartmentalized
ownership structure, in the sense that firms are either largely owned by local
individuals or local government or foreign investors. To a lesser extent, the same
pattern is true for Jordan and Tunisia, but for an ownership structure dominated by
either local private institutions or local government or foreign investors. Oman’s
pattern, however, seems to be the one tha t is most balanced among all four types of
investors.
Lastly, table (7) records the results of the mean (parametric) and median (Mann-
Whitney, non-parametric) tests of significance for differences in ownership
concentration. In the case of tests according to differences in sectoral affiliation,
ownership of financial institutions come as significantly less concentrated than those
of manufactured and non-manufactured industries. This is somewhat of a surprising
result, given that banks have relatively lower equity ratios and, as a result, equity
ownership would likely be more concentrated than otherwise. In addition, unlike
firms in other industries, banks have also a sizable presence of foreign ownership at
23%, against 12% for manufacturing, 4% for non-manufacturing, and 9% for services
– although firms from all industries seem to have a significant ownership by local
private institutions at 30% or more. In terms of tests based on country differences, and
in agreement with the results in table (6), both Egypt and Tunisia emerge as the two
countries that are significantly more concentrated in their firm ownership than either
Jordan or Oman. And, as would be expected, smaller firms are more concentrated
than larger ones.
III – Determinants of Ownership Concentration
We begin our exploration of the relationship between ownership structure and firm
performance by first investigating the determinants of ownership concentration. We
measure ownership concentration (CONC) as the percentage of shares owned by the
largest three blockholders in a firm; and, as mentioned earlier, we define a
blockholder to be any entity owning more than 10% of the firm’s equity. Our
empirical findings are, however, robust to using alternative measures of ownership
concentration, such as: the percentage of shares owned by the largest five
blockholders, the log transformation of these concentration measures, and using
approximations of the Herfindahl index20.
We incorporate both firm-level and country- level explanatory variables in our
analysis, using the following equation:
ittititit CLVFLVCONC εγυβα ++++= (1)
where CONCit is the ownership concentration of firm i at time t; FLVit is a vector
which represents firm-level variables for firm i at time t; CLVit is a vector which
represents count ry- level variables for firms in country i at time t; γ t are fixed-year
effects; and eit is the error term.
With respect to the firm-level variables (FLVit), we control for firm size and sectoral
affiliation. Firm size, proxied by the log of a firm’s total assets, and we expect an
inverse relationship between SIZE and CONC due to the risk-neutral and risk-aversion
20 The Herfindahl index is measured as the sum of squared ownership shares.
effects21. More specifically, because the market value of a given stake of ownership is
greater in larger firms, this higher price should, in itself, reduce the degree of
ownership concentration. At the same time, risk-aversion should discourage any
attempt to preserve concentrated ownership in the face of larger capital, because this
would require owners to allocate more of their wealth to a single venture. As for
sectoral affiliation, the firms in our sample are divided according to whether they
belong to the industrial (IND), financial (FIN) or services (SERV) sector. The
industrial sector in turn is sub-divided into manufacturing (MAN) and non-
manufacturing (NONMAN) firms. As such, five sectoral dummies are used: IND,
MAN, NONMAN, FIN and SERV; with 1 assigned to firms belonging to the given
sector or sub-sector, and 0 otherwise.
In addition to these firm-level explanatory variables, the three country- level variables
(CLVit) that we control for are: economic freedom, legal environment and level of
stock market development. In particular, an index of economic freedom (ECFR) is
included in order to capture cross-country differences in the institutional
environment22. We anticipate that ownership will be less concentrated in economies
that are freer, because these economies create conditions which are more likely to
encourage participation in firm ownership. Next, in order to reflect the findings of La
Porta et. al (1998) that ownership concentration of firms is related to cross-country
differences in legal environments, we include the rule of law index (ROL) as a proxy
21 See Demsetz and Lehn (1985) 22 The Economic Freedom Index is a score based on the average performance of an economy in the following ten areas: Trade Policy, Fiscal Burden, Government Intervention, Monetary Policy, Foreign Investment, Banking and Finance, Wages and Prices, Property Rights, Regulation, Informal Market. Scores between 1-1.99, 2-2.99, 3-3.99 and 4-5 indicate that an economy is free, mostly free, mostly unfree and repressed, respectively.
for the efficiency of the legal environment23. We expect to find a negative relationship
between CONC and ROL because in countries with poor investor protection
ownership concentration might become a substitute for legal protection, as
shareholders may need to own more capital in order to exercise control. Finally,
financial sector development is measured by the ratio of value of shares traded to
GDP (VT/GDP ), based on the argument that firm ownership is likely to be less
concentrated in countries where the degree of stock market activity and depth is
higher.
Using these aforementioned variables, we utilize ordinary least squares to estimate
equation (1) for three different specifications of the dummy variables, and the results,
which are listed in table (8), largely confirm our expectations. In particular, we find
that the impact of SIZE on CONC is negative and significant at the ten percent level in
two out of the three models. These results are consistent with a number of studies that
document a negative association between firm size and ownership concentration24.
As to country- level variables, the effect of ROL on ownership concentration is always
negative and significant at either the one or five percent levels, a result which
suggests that ownership concentration is indeed a response to poor legal protection.
Similarly, we also find the effect of VT/GDP to be negative and significant, which
supports our conjecture that larger, more sophisticated markets provide a greater
opportunity for ownership dilution by allowing for wider access to funds and share
ownership. In addition, and as expected, the effect of ECFR is always positive and
significant at the one percent level, which shows that less restrictions on economic
23 The rule of law index is provided by Kaufmann et. al (2003). 24 See, among others, Boubakri et. al (2003).
activity (smaller index) leads to lower concentration of ownership and control.
Furthermore, we find that IND, MAN, NONMAN and SERV are not statistically
significant determinants of ownership concentration. Instead, model (3) highlights
that the only significant dummy variable is FIN, with the negative sign of its
coefficient indicating that ownership concentration in financial institutions is
significantly lower than that in all other sectors – a result that confirms our previous
findings.
IV – Ownership Concentration and Firm Performance
The previous sections shed some light on the ownership concentration of firms in
selected Arab countries, and demonstrated that the deficiencies of external
governance mechanisms, i.e. the weakness of investor protection and the absence of
well-developed markets for corporate control, has led investors in these countries – as
elsewhere in the developing world – to rely on governance structures that are
dominated by highly concentrated ownership. With this in mind, we test in this
section the impact of ownership concentration on firm performance. It is not,
however, a task that should produce clear results because there is no consensus in the
corporate governance literature as to whether or not concentrated ownership structures
enhance firm performance. On the one hand, firm performance improves when
ownership and managerial interests are merged through concentration of ownership 25.
When major shareholdings are acquired, control cannot easily be disputed and the
resulting concentration of ownership might lower, or even completely eliminate,
25 See, for example, Agrawal and Mandelke (1987), Castianas and Helfat (1991), and Baker and Weiner (1992).
agency costs26. On the other hand, blockholder ownership might provide an
opportunity to extract corporate resources for private benefits in a way that would
have a negative impact on firm performance27.
To examine the relationship between ownership concentration and firm performance,
we estimate a regression equation linking the two variables, after controlling for some
firm-and country-level characteristics28. However, in order to avoid problems of
endogeneity, we resort to a two-stage least squares regression defined by the
following equations29:
it1tit11it11itit CLVFLVCONCPERF εγυβθδ +++++= (2a)
it2tit22it22it CLVFLVCONC εγυβα ++++= (2b)
where in equation (2a) PERFit is a measure of performance for firm i at time t: return
on assets (ROA), return on equity (ROE), and the firm relative market value (Q-ratio);
FLV1it is a vector which represents firm-level variables for firm i at time t: SIZE,
sectoral dummies, and a CEO dummy that takes one if the chief executive officer and
the chairman of the board are the same person and zero otherwise30; CLV1it is a vector
that represents country- level variables for firms in country i at time t: economic
26 See Anderson et. al (1997) 27 For more details, see Denis and McConnell (2003). 28 If some of the unobserved determinants of firm performance also explain ownership concentration, then this method could be misleading and might result in a spurious relationship between ownership concentration and firm performance. 29 Himmelberg et. al (1999) and Palia (2001), among others, document the endogenous nature of ownership structure; hence, the need for using instrumental variables for ownership concentration. 30 It is a widely accepted principle of good governance that the CEO should not be the chairperson. In fact the separation allows a balance of power and authority, so that no individual person has unlimited power. However, such separation would carry costs such as agency and information costs.
freedom (ECFR), and real GDP growth rate (RGDP); ?t is fixed year effects; and e1it is
the error term.
Equation (2b) is the instrumental variables equation, for which the instruments have
to be carefully chosen: on the one hand, they should be highly correlated with
ownership concentration; and, on the other hand, they should have no impact on the
dependent variable, firm performance. For the firm-level variables, FLV2it,, we select
debt-to-equity ratio (LEV) and log of GDP (LGDP)31. As for country- level variables,
CLV2i, we include control of corruption (COC) and rule of law (ROL). And, as usual,
?t represents the fixed year effects and e2it the error term. Given this, the two-stage
estimation process proceeds by first estimating equation (2b) to obtain the fitted
values of CONC, and then secondly by replacing these values in equation (2a) to
examine the relationship between ownership concentration and firm performance32.
The results obtained from equation (2a) are reported in tables (9) and (10). The
regressions based on equation (2a) are estimated at two levels: the entire sample
firms (table (9)) and sample firms excluding financial institutions (table (10)); while
using two accounting measures (ROA and ROE) and a market measure (Q-ratio) for
firm performance. We estimate different specifications for each performance measure
to control for industry dummies. We can see from models 1-6 in table (9) that neither
ROA nor ROE is correlated with ownership concentration. These findings tend to be
31 We control for debt ratio because of the possibility that creditors might be able to minimize managerial agency costs and in the process affect ownership concentration; see Lins (2003). Also, since firm size is a determinant of both ownership concentration and firm performance, we use log GDP instead of log of total assets as a proxy of firm size, given the fact that larger economies have larger firms and hence less ownership concentration. 32 We estimate this equation twice; once for the full sample without including LEV in the regression, and the other with LEV but excluding financial firms.
consistent with several research results that document no significant relationship
between ownership concentration and firm performance33. However, it seems that
firm-level variables exhibit significant relationships with firm performance. We find
that large-size firms are more likely to achieve better performance as indicated by the
positive and significant coefficient of SIZE. This might be due to competition (or lack
thereof) effects, whereby the market power of large-size firms enables them to
outperform small-size firms in Arab countries. The positive and significant
coefficients of IND and MAN imply that industrial firms, in particular manufacturing
firms, achieve superior performance compared to other firms; whereas financial
institutions underperform other firms as indicated by their negative and significant
coefficient. Surprisingly, the CEO dummy coefficients are not significant at any
level, suggesting that firm performance is not affected by whether there is a separation
between CEO and chairperson positions.
With regard to country- level variables, we observe that ECFR has a positive and
significant coefficient for all models, which suggests that more restrictive economic
arrangements and market control (higher ECFR) enhance firm profitability34. As to
the RGDP coefficients, they are as expected positive in all models, but only
significant for ROE at the five percent level.
When we move to the market performance measure (Q-ratio), however, a different
conclusion is reached. CONC coefficients (Models 7-9) are positive and highly
33 See, among others, Demsetz and Lehn (1985). 34 These findings are inconsistent with several research results, in which economic freedom presumably creates a healthier economic environment that enables firms to achieve better performance (see, among others, Boubakri et. al (2003)). However, our results seem to imply that firms achieve better performance when they operate in a less open economic environment because of the lack of competition pressures.
significant (at the one percent level), implying that ownership concentration matters in
determining the firm value. It is interesting to ask why different proxies for firm
performance (accounting and market measures) produce different relationships with
ownership concentration. One explanation is that while ROA and ROE measure the
past and current performance of the firm, Q-ratio, in addition to that, captures the
expected future performance of the firm. Consequently, rapidly growing firms might
have larger Q-ratios with relatively smaller accounting performance measures,
resulting in substantial differences between the impact of ownership concentration on
ROA or ROE, and Q-ratio. A second explanation or implication is that the relevance
of accounting earnings in determining firm value is very miniscule in Arab stock
markets, in the sense that there is no contemporaneous association between
accounting values and the market value of firms35.
Another important finding is the favorable effect that the market bestows on firms
where the CEO and the chairperson are the same person, as indicated by the positive
and significant CEO coefficients for all models. Regarding other firm-level variables,
we still find that FIN underperform other firms significantly, whereas NONMAN
outperform the rest. Nevertheless, we fail to find any impact of the country-level
variables, ECFR and RGDP, on firm value. Table (10) repeats the same regressions
for all firms excluding financial institutions, and its results mirror to a large extent
those obtained in table (9). Qualitatively the results reported in both tables are
identical, and the differences are only quantitative.
35 It is not really surprising to find a separation between accounting and market performance measures, given the fact that stock markets in the Arab world are indeed in need of more transparency, through the promotion of timely disclosure and dissemination of information to the public, so that investors could rely on this information in determining firm value. For example, the inadequacy of financial disclosure in Egypt is a severe problem; only 10% of listed companies comply with the financial disclosure requirements, in which companies should publish quarterly financial statements and the full-year results. See Bolbol et. al (2004).
So what can we conclude from the analysis of tables (9) and (10)? Collectively, the ir
results reveal that ownership concentration does not really matter in determining
firms’ accounting performance measures, whereas its impact on firm value is
unanimously positive and highly significant. If we would like to rank firms according
to their accounting performance measures, the conclusion to draw here is that larger
firms, industrial firms, in particular manufacturing ones and those that operate in a
less open economic environment appear to achieve superior performance. In addition,
a higher GDP growth rate and what it implies in terms of more business activity to
firms could be conducive to better performance. As to the market measure, we find
that firms with higher ownership concentration, non-manufacturing firms, and those
with no separation between CEO and chairperson positions have a higher market
value.
V – Ownership Identity and Firm Performance
Since the types of ownership concentration might vary across firms according to the
identity of larger shareholders, we postulate that the relationship between large
shareholders and firm performance depends on who the large sha reholders are36. To
delve deeper into this issue and provide further evidence to the existing literature, we
split the concentrated ownership structure into four separate groups of owners, as was
argued previously: individual investors, domestic institutional investors, government,
and foreign investors. As a result, we estimate the following system of equations to
determine the relationship between ownership identity and firm performance, after we
control for some firm- and country-level variables:
36 See, among others, Boycko et. al (1996), Claessens et. al (1998), and Denis and McConnell (2003).
ittititj
ijtjit CLVFLVOWNERPERF 11111 εγυβθδ +++++= ∑ (3a)
ittititijt CLVFLVOWNER 22222 εγυβα ++++= (3b)
where OWNERijt is the percentage of shares held by the owner of type j of firm i at
time t. We employ the same technique applied to equations (2a, 2b), with the notable
difference that we instrument for each type of the four large shareholders in equation
(3b) using the same variables as in equation (2b). The fitted values of each type of
owners are then placed in equation (3a).
The results of equation (3a) are reported in tables (11) and (12), in which the former
table includes the entire sample, while the latter one excludes financial institutions.
Models 1-6 of table (11) relate to accounting performance measures, and we see from
them that after controlling for firm size, industry and CEO dummies, economic
freedom, and real GDP growth rate, individual ownership concentration has a
negative and significant impact on ROA and ROE at the ten percent level. At the same
time, concentrated government ownership has positive impact on firm performance,
although only significant with ROE at the ten percent level. Surprisingly, we fail to
find any significant impact of either local institution or foreign investors on firm
performance. The results, however, still support our previous findings, in that size,
industrial firms, in particular manufacturing firms, and real GDP growth rate, all have
a positive and significant relationship with firm performance, whereas economic
freedom’s impact is negative and significant. In addition, the performance of service
firms and financial institution is significantly less compared with industrial firms.
In models 7-10, which reflect the outcomes of the market measure, we obtain the
following results: INDVCONC is no longer significant, whereas all other types of
ownership concentration are positive and highly significant. We can also detect that
foreign ownership concentration results in better firm value relative to other types of
owners, as indicated by the higher coefficients and significance levels. These findings
are consistent with theoretical arguments claiming that foreign investors bring better
governance and monitoring practices, in addition to more valuable technology transfer
and know-how, and in the process increase the value of the firm37.
Lastly, table (12) repeats the same regression of equation (3a) but excluding financial
institutions, and the results obtained tend to reproduce those given in table (11) – with
some minor differences. INDVCONC turns insignificant (models 1-4) and positive
and significant (models 5 and 6). And, recalling that we exclude financial institutions
from our sample, it seems then that the negative impact of INDVCONC on firm
performance obtained in table (11) is solely due to the dominant influence of financial
institutions. As a result, we can argue that concentrating ownership in the hands of
individual investors does not auger well for the performance of financial institutions.
The results also corroborate with our previous argument that concentrated foreign
ownership improves firm value.
VI –Ownership Concentration and Firm Performance: A Further Investigation
While testing for the impact of ownership concentration and identity on firm
performance in the previous two sections, we only included in our regressions those
firms in which the ownership structure was characterized by the presence of at least
37 See, for example, Boycko et. al (1996), and Dyck (2001).
one blockholder. As such, 14% of our sample firms were excluded since there was no
concentration of ownership in these firms. In this way, we were testing for the impact
of different levels of concentration on firm performance, as opposed to testing
whether firm performance is sensitive to the actual presence of blockholders. In light
of this, we now extend our analysis to incorporate the latter proposition, i.e. our aim is
now to determine whether firms in which ownership is concentrated perform
significantly different than firms in which ownership is not concentrated.
We investigate the above proposition by first carrying out statistical tests (parametric
t-test and non-parametric Mann-Whitney test) to compare the performance of the 260
firms with concentrated ownership to that of the 44 firms with no concentrated
ownership (see Appendix III for more details). The results are reported in table (13),
and they preliminarily indicate that there are no significant differences in any of the
performance measures between the two sets of data.
In an effort to investigate further, we also estimate the regression below, which
captures whether the presence of blockholders significantly affects performance, after
controlling for country-and firm-level variables:
ittitititit CLVFLVCONCDUMPERF εγυβδ +++++= 11 (4)
where CONCDUMit is a dummy variable which takes one if firm i is characterized by
the presence of at least one blockholder at time t, and where the country-and firm-
level variables are the same as those used in equation (2a).
The results, which are shown in table (14), duplicate qualitatively those found in table
(9). Most important are the coefficients pertaining to CONCDUM, which indicate that
although the presence of a blockholder does not affect the accounting performance
measures, it does significantly raise the Q-ratio. This complements our previous
finding with respect to the impact of ownership concentration on the market valuation
of firms. It also allows us to refine our conclusion as follows: although ownership
concentration has no impact on accounting performance measures, not only does the
presence of blockholders improve the market va luation of firms, but also the higher
the level of such ownership concentration the higher the market valuation.
VII – Conclusion
Using a sample of more than 300 representative Arab firms, the paper studied the
determinants of ownership concentration, and the effect of this and other aspects of
corporate governance on firm performance and profitability. The following
conclusions and policy recommendations could be summed up from the analysis:
1) Ownership concentration in Arab corporations seem to be negatively associated
with legal protection, thus vindicating the view of La Porta et. al. In addition, more
active stock markets and fewer restrictions on economic activity are correlated with
dilution and less concentration of corporate ownership. Hence, if the latter is desired
in its own right, then naturally better laws protecting investors and their
implementation and more developed stock markets are surely welcome.
2) Contrary to economic intuition, the reality is that Arab financial institutions have
less ownership concentration than corporations in other sectors. This is partly
explained by a sizeable foreign participation, but perhaps more importantly it implies
that further privatizations of Arab state banks should not be discouraged by the lack of
foreign participation and the fear of more concentrated ownership.
3) Notwithstanding the desirability of less concentrated ownership, it does not seem to
have a significant effect on Arab firms’ profitability and performance measures. Nor
does the separation between CEO and chairperson positions. This means that – at least
in the short term and especially given the fact that firms typically raise equity not so
much in public markets but through family ties or personal relationships – legal
protection of creditors is more important than improving other aspects of corporate
governance since any substantial growth in external finance is likely to take the form
of debt.
4) Q-ratios tend to be positively related to concentrated ownership, presence of
blockholders, and conflation of CEO and chairperson positions. However, this result
seems to depend more on reputational effects and lower agency costs than on market
fundamentals pertaining to firms’ actual performance, as previous research had
indicated38. Hence, future improvements in corporate governance practices are better
gauged through their effect on performance measures rather than market measures.
5) Large-size firms and firms operating in a less open economic environment have
higher profitability and performance measures than other firms. This could be the
result of favorable advantages seized by monopoly power, not advantages gained
through more efficiency. As a result, efforts that aim at better corporate practices
38 See Bolbol and Omran (2003).
should be coupled with reforms of product markets, competition policy, and the
overall operating environment for firms.
6) The identity of owners matters more than the concentration of ownership.
Particularly important in this regard is the negative association of individual investors
with performance measures in financial institutions, a result that could be explained
by the tendency of individual owners to manage banks’ assets recklessly in the
absence of checks and oversight by other major owners. Also interesting is the lack of
a significant relation between foreign investors and performance measures but the
presence of a positive one with market measures. This, however, should not mean
taking a neutral or indifferent stand regarding foreign investors, because of the better
governance practices that they could bring to domestic markets (as reflected by the
higher Q-ratios), and consequently should not act as a deterrent for attracting more of
them.
Table (1) : Number of Sample Firms in Each
Country, Classified According to Industry Affiliation
ManufacturingNon-
ManufacturingFinancial
Institutions* Services Total
Egypt 45 6 21 9 81
Jordan 56 2 29 29 116
Oman 37 3 12 18 70
Tunisia 8 0 18 11 37
Pool 146 11 80 67 304
* Includes banks, insurance and investment firms.
Table (2) : Descriptive Statistics of Firm - Level Data
Panel A : Egypt ( 239 Observations)
Mean Median Minimum Maximum Std. Dev.
MV 88,469 35,294 623 2,170,795 190,088 ASSETS 379,623 101,148 8,692 4,375,919 667,572 ROA 7.0 % 6.1 % -10.0 % 24.7 % 0.06 ROE 18.9 % 17.3 % -46.1 % 72.3 % 0.14 Q 1.01 0.98 0.34 2.35 0.31
Panel B : Jordan ( 341 Observations)
MV 46,944 9,309 339 2,482,370 214,085 ASSETS 301,616 15,418 816 20,753,389 1,914,313 ROA 2.1 % 1.4 % -32.5 % 27.5 % 0.09 ROE 3.0 % 3.7 % -66.8 % 59.7 % 0.14 Q 0.98 0.93 0.38 3.08 0.39
Panel C : Oman ( 203 Observations)
MV 26,530 11,313 390 364,785 47,708 ASSETS 75,580 24,278 1,891 1,920,593 234,129 ROA 2.9 % 3.1 % -29.0 % 27.4 % 0.07 ROE 5.2 % 8.6 % -66.8 % 59.8 % 0.18 Q 1.08 0.99 0.41 2.80 0.40
Panel D : Tunisia ( 106 Observations)
MV 53,871 31,749 4,052 288,668 55,254 ASSETS 483,209 90,463 7,934 2,974,467 728,121 ROA 4.4 % 2.0 % -5.9 % 34.0 % 0.06 ROE 12.5 % 11.5 % -48.1 % 51.8 % 0.12 Q 1.19 1.01 0.71 3.38 0.50
Panel E : Pool ( 889 Observations)
MV 54,272 15,321 339 2,482,370 169,183 ASSETS 292,625 33,748 816 20,753,389 1,270,781 ROA 3.9 % 2.9 % -32.5 % 34.0 % 0.08 ROE 8.9 % 9.6 % -66.8 % 72.3 % 0.16 Q 1.04 0.98 0.34 3.38 0.39
MV : Market Value in thousands of US$
ASSETS : Total Assets in thousands of US$
ROA : Return on Assets
ROE : Return on Equity
Q : Q - Ratio
Table (3) : Descriptive Statistics for Pooled Country - Level Data
Mean Median Minimum Maximum Std. Dev.
PS 0.40 0.25 -0.44 1.01 0.52
ROL 0.57 0.53 0.09 1.25 0.37
COC 0.31 0.24 -0.29 1.03 0.44
ECFR 3.03 2.94 2.60 3.58 0.33
^ Y
VT / GDP 6.0 % 4.2 % 1.1 % 14.4 % 0.05
0.024.4 % 4.5 % 1.7 % 9.3 %
PS : Political Stability Index (ranges from a low of –2.5 to a high of 2.5)
ROL : Rule of Law Index (ranges from a low of –2.5 to a high of 2.5)
COC : Control of Corruption Index (ranges from a low of –2.5 to a high of 2.5)
ECFR : Economic Freedom Index (ranges from a low of 5 to a high of 1)
^ Y : Rate of Growth of Real GDP
VT / GDP : Value Traded / GDP
PCI : Per Capita Income in US$.
Source : AMF, Economic Indicators of Arab Countries (various issues) and
Database of Arab Stock Markets (various issues); Kaufmann et. al (2003); and
Heritage Foundation, Index of Economic Freedom (www.heritage.org).
Table (4) : Ownership Structure
Panel A : Egypt (239 Observations )
Mean Median Minimum Maximum Std. Dev.
Local Individuals 18 % 9 % 0 % 99 % 0.23
Local Private Institutions 35 % 30 % 0 % 100 % 0.28
Local Government 34 % 33 % 0 % 95 % 0.28
Local Other 1 % 0 % 0 % 45 % 0.05
Foreign 12 % 0 % 0 % 96 % 0.23
Panel B : Jordan (341 Observations )
Local Individuals 45 % 44 % 1 % 97 % 0.23
Local Private Institutions 28 % 22 % 0 % 86 % 0.22
Local Government 9 % 2 % 0 % 85 % 0.16
Local Other 4 % 1 % 0 % 46 % 0.07
Foreign 15 % 7 % 0 % 97 % 0.20
Panel C : Oman (203 Observations )
Local Individuals 38 % 36 % 0 % 100 % 0.21
Local Private Institutions 44 % 44 % 0 % 88 % 0.21
Local Government 6 % 2 % 0 % 71 % 0.12
Local Other 3 % 0 % 0 % 53 % 0.06
Foreign 10 % 3 % 0 % 66 % 0.14
Panel D : Tunisia (106 Observations )
Local Individuals 10 % 0 % 0 % 92 % 0.17
Local Private Institutions 23 % 20 % 0 % 74 % 0.21
Local Government 20 % 0 % 0 % 78 % 0.25
Local Other * 30 % 30 % 0 % 71 % 0.20
Foreign 18 % 11 % 0 % 78 % 0.22
Panel E : Pool (889 Observations )
Local Individuals 32 % 29 % 0 % 100 % 0.26
Local Private Institutions 33 % 30 % 0 % 100 % 0.24
Local Government 16 % 4 % 0 % 95 % 0.23
Local Other 6 % 0 % 0 % 71 % 0.13
Foreign 14 % 4 % 0 % 97 % 0.20
* Due to data limitations, this entry was calculated as the residual.
Table (5) : Number of Firms whose Ownership Structure
is Characterized by the Presence of At Least One Blockholder *
Panel A : Egypt
Number of firms
% of Total
Number of firms
% of Total
Number of firms
% of Total
Local Individuals 7 9% 8 10% 12 15%Local Private Institutions 41 53% 40 50% 42 52%
Local Government 50 64% 52 65% 54 67%Foreign 14 18% 17 21% 17 21%
Panel B : Jordan
Local Individuals 36 31% 42 36% 42 38%
Local Private Institutions 56 49% 58 50% 59 54%Local Government 22 19% 21 18% 24 22%
Foreign 28 24% 28 24% 23 21%
Panel C : Oman
Local Individuals 23 34% 27 40% 31 45%Local Private Institutions 29 43% 38 57% 38 55%
Local Government 5 7% 7 10% 7 10%
Foreign 8 12% 8 12% 8 12%
Panel D : Tunisia
Local Individuals 4 12% 5 14% 4 11%
Local Private Institutions 14 42% 16 43% 17 47%
Local Government 14 42% 15 41% 16 44%Foreign 12 36% 19 51% 19 53%
Panel E : Pool
Local Individuals 70 24% 82 27% 89 30%
Local Private Institutions 140 48% 152 51% 156 53%Local Government 91 31% 95 32% 101 34%
Foreign 62 21% 72 24% 67 23%
2000 2001 2002
* A blockholder is defined as an entity owning a minimum of 10% of equity.
Table (6) : Ownership Concentration by Top
Three Blockholders, and by Identity of Blockholders
Panel A : Egypt
Mean Median Minimum Maximum Std. Dev.
Top Three Blockholders 58% 58% 10% 97% 0.21
Local Individuals 42% 36% 10% 90% 0.25 Local Private Institutions 24% 13% 10% 95% 0.22
Local Government 43% 39% 10% 92% 0.22 Foreign 42% 33% 10% 96% 0.28
Panel B : Jordan
Top Three Blockholders 40% 38% 10% 87% 0.21
Local Individuals 24% 19% 10% 79% 0.15 Local Private Institutions 30% 23% 10% 80% 0.17
Local Government 30% 23% 10% 83% 0.21 Foreign 30% 20% 10% 97% 0.24
Panel C : Oman
Top Three Blockholders 43% 46% 10% 90% 0.19
Local Individuals 30% 25% 10% 90% 0.18 Local Private Institutions 36% 35% 10% 70% 0.17 Local Government 31% 25% 15% 64% 0.16
Foreign 29% 30% 11% 49% 0.14
Panel D : Tunisia
Top Three Blockholders 52% 50% 13% 88% 0.18
Local Individuals 25% 20% 10% 51% 0.16 Local Private Institutions 31% 28% 10% 70% 0.15 Local Government 41% 39% 10% 78% 0.20
Foreign 33% 22% 10% 78% 0.22
Panel E : Pool
Top Three Blockholders 48% 49% 10% 97% 0.22
Local Individuals 28% 23% 10% 90% 0.18 Local Private Institutions 30% 25% 10% 95% 0.19 Local Government 39% 36% 10% 92% 0.22
Foreign 33% 24% 10% 97% 0.24
Table (7) : Tests for Significant Differences in Ownership Concentration
Panel A : Comparison of Differences in Ownership According to Industry Affiliation
Manf. - Non Manf. 48% - 57% -2.09 ** 49% - 60% 205 - 246 ***
Manf. - Services 48% - 48% 0.19 49% - 49% 286 - 281
Manf. - Fin. Inst. 48% - 45% 1.97 ** 49% - 46% 302 - 270 **
Non Manf. - Services 57% - 48% 2.26 ** 60% - 49% 125 - 104 ***
Non Manf. - Fin. Inst. 57% - 45% 2.94 * 60% - 46% 141 - 109 **
Services - Fin. Inst. 48% - 45% 1.62 49% - 46% 202 - 181 ***
Panel B : Comparison of Differences in Ownership According to Country
Egypt - Jordan 58% - 41% 9.07 * 58% - 40% 326 - 214 *
Egypt - Oman 58% - 43% 7.21 * 58% - 46% 229 - 155 *
Egypt - Tunisia 58% - 52% 2.46 ** 58% - 50% 170 - 143 **
Jordan - Oman 41% - 43% -1.16 40% - 46% 229 - 250
Jordan - Tunisia 41% - 52% -4.66 * 40% - 50% 186 - 248 *
Oman - Tunisia 43% - 52% -3.73 * 46% - 50% 125 - 157 *
Panel C : Comparison of Differences in Ownership According to Firm Size
Large - Small 41% - 45% -2.29 ** 42% - 48% 425 - 465 **
Means MediansZ - Statistic for
Differences in MediansAverage Rank
T- Statistic forDifferences in Means
*, **, *** refer to 1%, 5% and 10% levels of significance, respectively.
Table (8) : Regression Results for Ownership Concentration
Independent Variables
-0.01 -0.01 0.00 (-1.63) *** (-1.78) *** (-0.62)
0.01 (0.31)
0.00 (-0.05)
0.01 (0.19)
-0.06 (-2.50) **
0.03 (1.59)
0.18 0.18 0.16 (4.39) * (4.37) * (4.06) *
-0.11 -0.11 -0.12 (-2.43) ** (-2.41) ** (-2.64) *
-0.73 -0.73 -0.73 (-3.04) * (-3.00) * (-3.09) *
N 889 889 889
Adj . R2 ( % ) 9.04 8.93 10.20 F - Ratio 23.82 * 19.02 * 21.76 *5.11
SIZE
IND
ECFR
ROL
VTGDP
MAN
NONMAN
SERV
FIN
Model 1 Model 2 Model 3
Dependent Variable : CONC
*, **, *** refer to 1%, 5% and 10% levels of significance, respectively.
Figures in parenthesis are t – statistics.
Table (9) : Regression Results for Performance and Ownership Concentration (Full Sample)
0.00 0.00 0.00 0.01 0.01 0.00 0.09 0.09 0.08 (0.58) (0.64) (0.13) (0.59) (0.63) (0.25) (3.34) * (3.38) * (2.99) *
0.00 0.00 0.00 0.02 0.01 0.02 0.01 0.00 0.02 (0.70) (0.54) (2.30) ** (4.53) * (4.46) * (5.43) * (0.69) (0.41) (1.93) ***
0.03 0.03 0.02 (5.37) * (2.85) * (0.77)
0.03 0.03 0.01 (5.12) * (2.70) * (0.18)
0.01 0.01 0.11 (0.48) (0.43) (1.83) ***
-0.05 -0.06 -0.10 (-6.73) * (-4.19) * (2.66) *
-0.02 -0.01 0.03 (-2.47) * (-0.80) (1.02)
-0.01 -0.01 -0.01 -0.02 -0.02 -0.02 0.06 0.06 0.06 (-1.35) (-1.44) (-1.39) (-1.37) (-1.41) (-1.39) (1.91) *** (1.97) ** (1.90) ***
0.05 0.05 0.04 0.16 0.16 0.15 -0.02 -0.04 -0.03 (4.51) * (4.50) * (4.26) * (7.14) * (6.97) * (6.94) * (-0.38) (-0.60) (-0.61)
0.18 0.19 0.15 0.94 0.94 0.88 0.09 -0.14 -0.08 (1.00) (1.03) (0.79) (2.45) ** (2.42) ** (2.30) ** (0.08) (-0.14) (-0.08)
N 795 795 795 795 795 795 795 795 795
Adj. R2
( % ) 8.97 8.71 10.51 15.67 15.51 16.48 1.06 1.27 2.08 F - Ratio 19.10 * 15.63 * 18.88 * 34.59 * 28.66 * 30.71 * 3.50 * 3.40 * 4.64 *5.11 5.11 5.11 5.11 5.11
RGDP
CONC
FIN
SERV
CEO
ECFR
SIZE
IND
MAN
NONMAN
Model 1
Independent Variables Model 2 Model 3
Dependent Variable : ROA Dependent Variable : ROE
Model 4 Model 5 Model 6
Dependent Variable : Q
Model 7 Model 8 Model 9
*, **, *** refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t – statistics.
Table (10) : Regression Results for Performance and
Ownership Concentration (Excluding Financial Institutions)
0.00 0.00 0.00 0.00 0.09 0.09 (0.04) (0.06) (-0.01) (0.01) (2.50) ** (2.44) **
0.01 0.01 0.02 0.02 0.02 0.02 (3.39) * (3.40) * (3.89) * (3.90) * (1.18) (1.16)
0.01 0.01 -0.04 (1.93) *** (0.95) (-1.01)
0.01 0.01 -0.05 (2.03) ** (0.99) (-1.31)
0.00 0.00 0.14 (0.10) (0.09) (1.64) ***
-0.01 -0.01 -0.02 -0.02 0.10 0.10 (-0.90) (-0.95) (-1.27) (-1.29) (2.20) ** (2.35) **
0.05 0.05 0.17 0.17 0.00 -0.01 (3.46) * (3.51) * (6.05) * (6.06) * (-0.03) (-0.15)
0.21 0.22 1.15 1.16 -0.04 -0.17 (0.95) (0.99) (2.48) ** (2.49) ** (-0.03) (-0.13)
N 552 552 552 552 552 552 Adj. R
2 ( % ) 9.62 9.59 17.76 17.65 1.29 2.01
F - Ratio 15.32 * 12.90 * 29.46 * 24.54 * 3.28 * 3.70 *5.11 ## 5.11 ## 5.11
Model 5 Model 6
CONC
Independent Variables Model 1 Model 2 Model 3 Model 4
RGDP
Dependent Variable: ROA Dependent Variable: ROE Dependent Variable: Q
CEO
ECFR
SIZE
IND
MAN
NONMAN
*, **, *** refer to 1%, 5% and 10% levels of significance, respectively.
Figures in parenthesis are t – statistics.
Table (11) : Regression Results for Performance and Ownership Identity (Full Sample)
-0.02 -0.02 -0.01 -0.04 -0.03 -0.03 -0.05 -0.05 -0.03 (-1.83) *** (-1.70) *** (-1.37) (-1.84) *** (-1.80) *** (-1.51) (-0.99) (-1.09) (-0.53)
0.02 0.02 0.01 0.04 0.04 0.03 0.28 0.27 0.23 (1.04) (1.06) (0.53) (1.00) (1.03) (0.66) (2.76) * (2.67) * (2.27) **
0.01 0.01 0.01 0.04 0.04 0.03 0.16 0.16 0.12 (1.27) (1.46) (0.59) (1.77) *** (1.87) *** (1.25) (2.89) * (2.88) * (2.14) **
0.01 0.01 0.00 0.01 0.01 0.01 0.28 0.28 0.28 (0.51) (0.53) (0.47) (0.56) (0.57) (0.52) (5.04) * (5.04) * (5.03) *
0.00 0.00 0.00 0.01 0.01 0.02 0.00 -0.01 0.01 (0.47) (0.33) (1.90) *** (4.03) * (3.97) * (4.70) * (-0.31) (-0.66) (1.17)
0.03 0.03 0.03 (5.43) * (2.89) * (0.95)
0.03 0.03 0.01 (5.22) * (2.82) * (0.32)
0.01 0.01 0.12 (0.69) (0.64) (2.02)
-0.05 -0.06 -0.12 (-6.50) * (-3.82) * (-3.06) *
-0.02 -0.01 0.04 (-2.63) * (-1.09) (1.14)
-0.01 -0.01 -0.01 -0.02 -0.02 -0.02 0.05 0.05 0.04 (-1.37) (-1.42) (-1.48) (-1.31) (-1.34) (-1.38) (1.46) (1.51) (1.28)
0.04 0.04 0.04 0.15 0.14 0.14 -0.04 -0.05 -0.04 (4.00) * (3.91) * (3.96) * (6.45) * (6.21) * (6.42) * (-0.61) (-0.84) (-0.68)
0.17 0.17 0.15 0.91 0.89 0.87 0.29 0.05 0.16 (0.94) (0.92) (0.81) (2.36) ** (2.27) ** (2.27) ** (0.29) (0.05) (0.16)
N 795 795 795 795 795 795 795 795 795 Adj. R2 ( % ) 9.24 9.00 10.46 16.19 14.94 16.68 2.57 2.82 3.87 F - Ratio 12.67 * 11.09 * 12.87 * 22.82 * 20.22 * 21.09 * 4.30 * 4.19 * 5.30 *
RGDP
INSTCONC
GOVCONC
FORCONC
FIN
SERV
CEO
ECFR
SIZE
IND
MAN
NONMAN
Model 7 Model 8 Model 5 Model 6 Model 9
INDVCONC
Independent Variables
Dependent Variable : ROA Dependent Variable : ROE Dependent Variable : Q
Model 1 Model 2 Model 3 Model 4
*, **, *** refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t – statistics.
Table (12) : Regression Results for Performance and
Ownership Identity (Excluding Financial Institutions)
0.00 0.00 -0.01 -0.01 0.15 0.14 (-0.16) (-0.12) (-0.34) (-0.31) (1.75) *** (1.61) ***
0.00 0.00 -0.01 -0.01 0.13 0.13 (-0.02) (-0.01) (-0.24) (-0.23) (1.63) *** (1.61) ***
0.00 0.00 0.03 0.02 0.16 0.15 (0.14) (0.18) (0.85) (0.88) (2.06) ** (1.93) ***
0.02 0.01 0.02 0.02 0.44 0.45 (1.00) (0.99) (0.51) (0.51) (5.14) * (5.19) *
0.01 0.01 0.02 0.02 0.00 0.00 (2.90) * (2.92) * (3.16) * (3.16) * (0.22) (0.18)
0.01 0.01 -0.06 (1.83) *** (1.02) (-1.45)
0.01 0.02 -0.07 (1.91) *** (1.06) (-1.78) ***
0.00 0.00 0.15 (0.15) (0.11) (1.74) ***
-0.01 -0.01 -0.02 -0.02 0.06 0.07 (-1.12) (-1.15) (-1.12) (-1.13) (1.39) (1.49)
0.05 0.05 0.17 0.17 -0.01 -0.03 (3.35) * (3.39) * (5.82) * (5.83) * (-0.18) (-0.32)
0.23 0.24 1.19 1.19 0.28 0.15 (1.03) (1.06) (2.55) ** (2.56) ** (0.22) (0.11)
N 552 552 552 552 552 552 Adj. R
2 ( % ) 9.51 9.46 17.84 17.74 4.87 5.85
F - Ratio 9.85 * 8.82 * 18.89 * 16.79 * 5.51 * 5.78 *5.11 ### 5.11 ### 5.11
Independent Variables
Dependent Variable : ROA Dependent Variable : ROE Dependent Variable : Q
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
INDVCONC
SIZE
IND
MAN
INSTCONC
GOVCONC
FORCONC
NONMAN
CEO
ECFR
RGDP
*, **, *** refer to 1%, 5% and 10% levels of significance, respectively.
Figures in parenthesis are t – statistics.
Table (13) : Tests for Significant Differences in Firm Performance
Panel A : Comparison of Differences in ROA
Concentrated vs. Non-Concentrated
3.9% - 3.7% 2.9% - 2.9%
Panel B : Comparison of Differences in ROE
Concentrated vs. Non-Concentrated
8.9% - 8.8% 9.6% - 8.3%
Panel C : Comparison of Differences in Q - Ratio
Concentrated vs. Non-Concentrated
1.04 - 0.99 0.98 - 0.97
MeansT- Statistic for
MediansZ - Statistic for
Differences in MediansDifferences in Means
Average Rank
0.31 446 - 432
MeansT- Statistic for
MediansZ - Statistic for
Differences in MediansDifferences in Means
Average Rank
MeansT- Statistic for
MediansZ - Statistic for
Differences in MediansDifferences in Means
Average Rank
1.37 448 - 418
0.07 446 - 436
Table (14) : Regression Results for Performance and Ownership Concentration Dummies (Full Sample)
0.00 0.00 0.00 -0.01 -0.01 -0.01 0.07 0.07 0.06 (-0.29) (-0.30) (-0.53) (-0.55) (-0.55) (-0.74) (1.66) *** (1.72) *** (1.46)
0.00 0.00 0.00 0.01 0.01 0.02 0.01 0.00 0.02 (0.65) (0.66) (2.27) ** (4.47) * (4.47) * (5.40) * (0.59) (0.57) (1.95) ***
0.03 0.03 0.02 (5.36) * (2.83) * (0.82)
0.03 0.03 0.01 (5.39) * (2.82) * (0.34)
0.02 0.03 0.21 (1.49) (0.94) (2.91) *
-0.05 -0.06 -0.01 (-6.76) * (-4.22) * (-2.85) *
-0.02 -0.01 0.04 (-2.43) ** (-0.74) (1.11)
-0.01 -0.01 -0.01 -0.02 -0.02 -0.02 0.06 0.07 0.06 (-1.38) (-1.41) (-1.42) (-1.41) (-1.42) (-1.44) (1.98) ** (2.15) ** (1.97) **
0.05 0.05 0.05 0.15 0.16 0.15 0.00 -0.01 -0.02 (4.63) * (4.66) * (4.32) * (7.30) * (7.30) * (7.05) * (-0.02) (-0.18) (-0.30)
0.19 0.19 0.15 0.95 0.96 0.89 0.16 0.06 -0.03 (1.02) (1.05) (0.81) (2.49) ** (2.49) ** (2.32) ** (0.16) (0.06) (-0.03)
N 889 889 889 889 889 889 889 889 889
Adj. R2 ( % ) 8.94 8.89 10.54 15.66 16.42 16.53 0.12 0.89 1.32
F - Ratio 19.04 * 15.93 * 18.93 * 34.59 * 28.79 * 30.80 * 1.81 *** 2.83 * 3.48 *5.11 5.11 5.11 5.11 5.11
Model 8 Model 9
CONCDUM
Independent Variables
Dependent Variable : ROA Dependent Variable : ROE Dependent Variable : Q
Model 1 Model 2 Model 3
IND
MAN
NONMAN
Model 7 Model 4 Model 5 Model 6
SIZE
RGDP
FIN
SERV
CEO
ECFR
*, **, *** refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t – statistics.
Appendix I
The accounting and ownership data for the four countries were obtained from
the following sources: Jordan, Amman Stock Exchange: Jordanian
Shareholding Companies Guide; Egypt, Kompass Egypt Financial Yearbook;
Oman, Muscat Securities Market (MSM): Shareholding Guide of MSM Listed
Companies; and Tunisia, Bourse de Tunis: www.bvmt.com.tn.
Appendix II
Country–Level Variables
Panel A : Egypt
2000 2001 2002
PS 0.05 0.21 -0.35 ROL 0.23 0.21 0.09 COC -0.19 -0.16 -0.29 ECFR 3.58 3.53 3.53 ^ Y VT/GDP 12.04% 7.01% 8.95%
Panel B : Jordan
PS 0.25 0.13 -0.44 ROL 0.57 0.66 0.33 COC 0.13 0.09 0 ECFR 2.95 2.85 2.73 ^ Y VT/GDP 4.79% 10.58% 14.36%
Panel C : Oman
PS 1.01 1 0.98 ROL 1.25 1.06 0.83 COC 0.72 0.44 1.03 ECFR 2.93 2.6 2.78 ^ Y VT/GDP 2.78% 2.11% 2.87%
Panel D : Tunisia
PS 0.86 0.82 0.24 ROL 0.48 0.81 0.27 COC 0.7 0.86 0.35 ECFR 2.94 3.04 2.89 ^ Y VT/GDP 3.53% 1.71% 1.06%
4.70% 4.90% 1.70%
5.50% 9.30% 2.30%
4.20% 4.90%
5.10% 3.50% 2.00%
4.20%
Source: Same as Table ( 3 )
Appendix III
Number of Firms in Each Country That Are
Characterized by the Presence/ Absence of Concentrated
Ownership, Classified According to Industry Affiliation
Number %
Egypt 41 5 18 9 73 90%
Jordan 48 2 24 26 100 86%
Oman 27 2 10 13 52 74%
Tunisia 8 0 16 11 35 95%
Number 124 9 68 59 260 86%% 85% 82% 85% 88% 86% --
Number %
Egypt 4 1 3 0 8 10%
Jordan 8 0 5 3 16 14%
Oman 10 1 2 5 18 26%
Tunisia 0 0 2 0 2 5%
Number 22 2 12 8 44 14%% 15% 18% 15% 12% 14% --
Pool
Pool
Panel B : Firms Without Ownership Concentration
ManufacturingNon-
ManufacturingFinancial
Institutions*Services
Total
Panel A : Firms With Ownership Concentration
ManufacturingNon-
ManufacturingFinancial
Institutions*Services
Total
* Includes banks, insurance and investment firms.
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