Firm Performance and Corporate Governance Through Ownership ...

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Though we could not get the chance to establish the relationship between institutional
holding and firm performance but it is observed here that firm’s dividend payout ratio
and institutional ownership is significantly related as role of large institutions in
corporate governance is particularly important in countries where legal protection of
shareholders' interest is weak for historical and institutional reasons-- a situation exists
in many transition economies. Here, we also find that a large fraction of cross-sectional
variation in share-holding pattern is explained by unobserved firm heterogeneity. First, it
is suggested that the unobserved heterogeneity has important implications for
econometric models, to estimate the effect of share-holding pattern on firm
performance. Second, it is suggested that there could be endogeneity of ownership in
transition economies -- it could be the case that institution owners can choose to buy
shares in better performing firms, and leave all poorly performing ones in the hands of
the pubic. The problem of reverse causality needs to be addressed. Does ownership
affect performance or causality runs from performance to ownership
Here, political argument, inadequate legal protection for minority shareholders or private
benefit of control deserves careful investigation for the explanation of the variations in
ownership structure of Bangladeshi listed firms. In the context of Australia, Lamba and
Stapledon (2002) provide evidence that related party transactions give rise to private
benefits of control and that could explain why ownership structure is concentrated in the
hands of few family members. However, given the results produced by the current
study, it is clear that there are many questions relating to the relationship between share
holding pattern and performance of the firm, which remains unresolved. One other
useful extension of this analysis would be to include additional policy variables
measuring changes in the market conditions, political and legal scenario identity of the
top shareholders and other dimensions to judge agency conflict. It is pertinent to know
whether there exist any large non-management blockholders among the top
shareholders. This is important because this blockholder could either both monitor
management and help protect minority shareholders or collude with management to
expropriate minority interests.
References
Bangladesh Enterprise Institute. Principles from the code of corporate governance for
Bangladesh, March 2004, Taskforce on Corporate Governance.
Bebchuk Lucian A., 1999, “A Theory of Path Dependence in Corporate Governance and
Ownership”, Working paper 131, Harvard University Law School.
Beni Lauterbach, and Efrat Tolkowsky, 2004, “Market Value Maximizing Ownership
Structure when Investor Protection is Weak”, Discussion Paper No. 8-200
Berglöf Erik and Stijn Claessens. 2004. “Corporate Governance and Enforcement”,
Discussion Paper 3409, World Bank Policy Research.
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