Corporate Ownership, Corporate Control and Corporate Performance in Sub-Saharan African: Evidence from Nigeria

Ioraver N Tsegba,Wilson E Herbert,Emeka E Ene

doi:10.5539/ibr.v7n11p73

Ioraver N Tsegba, Wilson E Herbert + Show 1 more

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https://doi.org/10.5539/ibr.v7n11p73

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Abstract

This paper investigates the relation between corporate ownership and corporate performance of listed companies in Nigeria, a foremost Sub-Saharan African country during the period 2002-2007. The data is obtained from the firms’ annual reports and accounts and the Nigerian Stock Exchange daily performance reports. The combination of 70 firms and six-year period studied provides a balanced panel with 420 observations for panel data analysis. The results from the ordinary least square (OLS) regression analyses show that there is a strong connection between foreign ownership structure and firm performance. Foreign ownership structure is found to exhibit significant improvements in firm performance; it adumbrates eclectic competitive advantages in ownership, control and internalization respects over other types of ownership structure. We find no statistically significant relation between concentrated ownership and firm performance. Insider or managerial ownership, however, exhibits significant decline in firm performance. These findings are consistent with the view that firm performance is a negative predictor of insider ownership. We also find support for the notion that management is apathetic to holding equity stakes in their underperforming firms.

Highlights

The connection between corporate ownership structure and corporate performance has been and still is a contentious issue in the corporate finance literature since 1932 when Berle and Means stirred the hornet‟s nest with the postulation that an inverse relation exists between corporate ownership structure and corporate performance
By recognizing the centrality of ownership structures in resolving the problems associated with separation of ownership and management, their seminal work laid the foundation for the central premise of the agency theory and associated research and for the spate of research examining corporate ownership structures in what can be characterized as the ownership-performance debate (OPD)
We focus on three measures of enterprise performance: market price per share (MPS), earnings per share (EPS), and return on assets (ROA)

Summary

Introduction

The connection between corporate ownership structure and corporate performance has been and still is a contentious issue in the corporate finance literature since 1932 when Berle and Means stirred the hornet‟s nest with the postulation that an inverse relation exists between corporate ownership structure and corporate performance. Economic reforms of the privatization genre have implications for ownership structure and concentrated control, corporate governance, and firm performance. The OPD is about the relation between ownership structures and firm performance, in the presence of diffuse or multidimensional ownership which was at the heart of Berle and Means‟ treatise. Kapopoulos and Lazaretou (2006) in Greece, Farooque, Zijl, Dunstan and Karim (2007) in Bangladesh, Pivovarsky (2003) in Ukraine, Adenikinju and Ayorinde (2001), Sanda, Mikailu and Garba (2005), and Tsegba and Herbert (2011; 2013) in Nigeria, investigated the relationship between various ownership structures such as largest shareholder, concentrated ownership, insider ownership, and foreign ownership, on firm performance. Even though the results of these studies are mixed, a unique feature of the investigations is the use of ownership as a corporate governance mechanism. We construe corporate governance as the mechanisms put in place by shareholders to ensure firm resources are not expropriated by entrenched management

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