Ownership structure and performance of firms: Empirical evidence from an emerging market

Abstract

The study examines the relationship between ownership structure and performance of the listed companies in an emerging South Asian market. Performance of the firms has been quantified by using market based measures as well as accounting based measures. Marris Ratio and Tobin’s Q represents the market based measures of companies’ performance whereas Return on Equity and Return on Investment captures the financial reporting perspective. Percentage of shares held by the Board of Directors has been used as the proxy for ownership structure. Sample has been divided into three groups by using Cluster analysis. Chi square test for homogeneity provides that groups are significantly different. It is evident that companies with concentrated ownership at Board show weak performance whereas the companies with independent Board perform better. Descriptive statistics also confirms the result. The study reveals ownership structure is negatively related with the performance of firms. Therefore we can safely say that a more independent and effective board of Directors accelerates a firm’s performance. Key words: Ownership structure, firm’s performance, corporate governance