Online from: 2005
Subject Area: Accounting and Finance
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|Title:||Co-deterministic relationship between ownership concentration and corporate performance: Evidence from an emerging economy|
|Author(s):||Omar Al Farooque, (School of Business, Economics and Public Policy, University of New England, Armidale, Australia), Tony van Zijl, (School of Accounting and Commercial Law, Victoria University of Wellington, Wellington, New Zealand), Keitha Dunstan, (School of Business, Bond University, Gold Coast, Australia), Akm Waresul Karim, (School of Economics and Business Administration, Saint Mary's College of California, Moraga, California, USA)|
|Citation:||Omar Al Farooque, Tony van Zijl, Keitha Dunstan, Akm Waresul Karim, (2010) "Co-deterministic relationship between ownership concentration and corporate performance: Evidence from an emerging economy", Accounting Research Journal, Vol. 23 Iss: 2, pp.172 - 189|
|Keywords:||Bangladesh, Company performance, Corporate ownership, Emerging markets|
|Article type:||Research paper|
|DOI:||10.1108/10309611011073250 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
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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