Corporate Governance in Bangladesh: Link between Ownership and Financial Performance

Abstract

This paper investigates empirically the effect of board ownership on firm performance in Bangladesh. By estimating single equation and simultaneous equation models on an unbalanced pooled sample of listed firms, it offers some new insight into the ownership‐performance link in Bangladesh. Building on extant literature, it examines the ownership‐performance relationship in an emerging market economy considering ownership as exogenous and as endogenous. The latter approach is favoured as recent empirical evidence shows that ownership and performance are endogenously determined and there is either a reverse‐way or two‐way causality relationship between the two. While OLS regression analysis indicates a linear and non‐linear relationship between board ownership and performance, this disappears when 2‐SLS estimation of a simultaneous equation model is carried out. Instead, a reverse causality relationship emerges. Other governance and control variables appear to have effects consistent with the literature. These results suggest a need to strengthen the internal control mechanisms within listed firms in Bangladesh.