Does Ownership Structure Affect Firm Value? Evidence from the Egyptian Stock Market

Abstract

Corporate governance addresses the checks and balances placed in the system to prevent abuse of power. Such power may reside in a Chief Executive Officer, if ownership of a company is widely dispersed (as in the case of US or UK) or it may rest in the hands of an individual or a group(s) with controlling shareholding as more happens in markets dominated by family ownership. Thus, who owns the firm's equity and how does ownership affect firm value has been a topic investigated by researchers for decades. Thus, the impact of ownership structure on firm performance has been widely tackled in various developed markets and more recently in emerging markets, but was not addressed before, in Egypt. The paper aims to explore if there are dominant certain types of owners of actively listed and traded companies on Cairo & Alexandria Stock Exchanges. Further, it investigates whether the ownership type affects some key accounting and market performance indicators of listed firms. The 90 most actively listed companies on CASE, that constitute the bulk of trading, were chosen to constitute the sample of the study as of end of 2000. The findings indicate the presence of highly concentrated ownership structure in the Egyptian market. The results of the regression analyses indicate that the dispersed ownership percentage influences certain dimensions of accounting performance indicators (i.e. ROA and ROE) but not stock market performance indicators (i.e. P/E and P/BV ratios), which indicate that there might be other factors (economic, political, contextual) affecting firms performance other than ownership structure, which supports the findings of Heracleous (2001) that researches must develop methodologies that can account for multiple, systemic and multi-directional influences on firm performance and avoid models that attempt to correlate only one element such as ownership structure with firm performance.