The Role of Market Control on the Relation Between Ownership and Performance: Evidence from Turkish Market

Abstract

The evidence of highly concentrated ownership structure in companies that have exposed themselves to market discipline illustrates a confusing structure of corporate governance. The disciplinary effect of the market is questioned in a context with concentrated ownership structure and poor investor protection. We explore whether the presence and magnitude of market control leads to differences in performance in the case of concentrated ownership structure. We explore how the presence and the magnitude of widely held ownership influence the different dimensions of performance in companies with concentrated ownership. We further investigate whether the differences in the identity of the controlling shareholder influences impact of market control on the performance of these firms. Companies trading in the Istanbul Stock Exchange as of 1999 constitute the sample of the study. The findings indicate the presence of a highly concentrated ownership structure in the Turkish market. The results of the regression analyses seem to indicate that the market control (dispersed ownership percentage) influences certain dimensions of performance but not in the expected direction. Market control does not seem to have any disciplinary effects on performance in concentrated companies. Identity of the controlling shareholder seems to have a profound effect on the performance. Controlling shareholders types that operate through a portfolio of other companies seem to have favorable influence on performance. Significant relationship between debt pressure and performance might be indicating the disciplinary pressure of the debt holders. The findings imply a potential disciplinary impact of stakeholders rather than shareholders or market. The study also provides supportive evidence for the impact of context on the relation between ownership and performance.