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Corporate Governance and Firm Performance in Arab-Ownership Concentration
Corporate Governance and Firm Performance in Arab-Ownership Concentration
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Arab Academy for Science and Technology, College of Management and Technology, P.O. Box 1029, Miami, Alexandria, Egypt
b Cairo and Alexandria Stock Exchanges, 4 (A) El Sherifein St., Down Town, Postal Code 11513,
P.O. Box 358, Mohammed Farid, Cairo, Egypt
c Economic Policy Institute, Arab Monetary Fund, P.O. Box 2818, Abu Dhabi, United Arab Emirates
Abstract
The paper works with a sample of 304 firms from different sectors of the economy, and from a representative group of Arab countries
(Egypt, Jordan, Oman and Tunisia) where related data could be gathered. We first present crucial descriptive statistics on the firms corporate
ownership, identity, and their performance and market measures, and then use unstructured but credible equations to capture the relationship
between these variables. Specifically, we study the determinants of ownership concentration; the effect of ownership concentration on firms
performance and market measures, after controlling for the endogeneity of ownership concentration through the use of country and firm
characteristics as instrumental variables; and, the effects of ownership identity and blockholdings. The broad conclusion that emerges is that
ownership concentration is an endogenous response to poor legal protection of investors, but seems to have no significant effect on firms
performance.
2008 Elsevier Inc. All rights reserved.
JEL classication: G3; F3
Keywords: Ownership concentration; Performance and market measures; Corporate governance; Arab countries
1. Introduction
Does ownership matter? And what are its implications for
corporate governance, and its effects on firm performance?
The easiest to answer of these three questions is probably the
first, since the bulk of the evidence shows that privately-held
firms are more efficient and more profitable than publiclyheld ones although the evidence differs on the relative merit
of the identity of each private owner.1 The second question
The views expressed in this paper are entirely those of its authors and do
not necessarily reflect those of the Cairo and Alexandria Stock Exchanges
(CASE), the board of directors, or CASE policy. They do not also represent
the views of the Arab Monetary Fund.
Corresponding author at: Arab Academy for Science and Technology,
College of Management and Technology, P.O. Box 1029, Miami, Alexandria,
Egypt.
E-mail addresses: mmomran@egyptse.com, momran@aast.edu
(M.M. Omran).
1 This is particularly true for enterprises that are not monopolistic in nature.
See Shirley and Walsh (2001).
0144-8188/$ see front matter 2008 Elsevier Inc. All rights reserved.
doi:10.1016/j.irle.2007.12.001
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
33
34
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
Table 1
Number of sample firms in each country, classified according to industry affiliation
Egypt
Jordan
Oman
Tunisia
Pool
a
Manufacturing
Non-manufacturing
Financial institutionsa
Services
Total
45
56
37
8
146
6
2
3
0
11
21
29
12
18
80
9
29
18
11
67
81
116
70
37
304
The time frame for the study stretches over the 20002002
period, so as to allow some longitudinal dimension to the
data; and, as a result, the estimation process draws on a panel
data of firms and years for all four countries. Table 2 shows
some descriptive statistics for size and profitability pertaining to each country panel and the pooled panel. It is clear that
Egyptian firms are the most profitable, in terms of return on
assets and equity, and they have the largest market capitalizations reflecting perhaps their deeper stock market penetration.
Tunisian firms, on the other hand, have the highest Q-ratio
defined as the ratio of market value plus total liabilities to
book value plus total liabilities and are largest in terms of
assets, something that could be explained by the large presence (close to half) of financial institutions in the sample.
Jordanian firms, however, reveal features that are noticeably more extreme. Not only are they the least profitable
and have Q-ratios less than one, but their median asset size
is close to 5% of their corresponding mean size, implying
large size differences amongst themselves due most likely
to their lopsided nature a few large firms in finance and
the extractive industries, and a majority of small firms in
other sectors. Omani firms also exhibit low returns as a result
of the preponderance of low profit service-sector firms, but
their size distribution is much more balanced than that of
Jordan.
Before we explore the descriptive characteristics pertaining to ownership, a note on country-level characteristics is
useful. Table 3 shows the pooled country data for some
Table 2
Descriptive statistics of firm level data
Mean
Median
Minimum
Maximum
S.D.
35,294
101,148
6.1%
17.3%
0.98
623
8692
10.0%
46.1%
0.34
2,170,795
4,375,919
24.7%
72.3%
2.35
190,088
667,572
0.06
0.14
0.31
9309
15,418
1.4%
3.7%
0.93
339
816
32.5%
66.8%
0.38
2,482,370
20,753,389
27.5%
59.7%
3.08
214,085
1,914,313
0.09
0.14
0.39
11,313
24,278
3.1%
8.6%
0.99
390
1891
29.0%
66.8%
0.41
364,785
1,920,593
27.4%
59.8%
2.80
47,708
234,129
0.07
0.18
0.40
31,749
90,463
2.0%
11.5%
1.01
4052
7934
5.9%
48.1%
0.71
288,668
2,974,467
34.0%
51.8%
3.38
55,254
728,121
0.06
0.12
0.50
15,321
33,748
2.9%
9.6%
0.98
339
816
32.5%
66.8%
0.34
2,482,370
20,753,389
34.0%
72.3%
3.38
169,183
1,270,781
0.08
0.16
0.39
MV, market value in thousands of US$; ASSETS, total assets in thousands of US$; ROA, return on assets; ROE, return on equity; Q, Q-ratio.
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
Table 3
Descriptive statistics for pooled country level data
PS
ROL
COC
ECFR
Y
VT/GDP
Mean
Median
Minimum
Maximum
S.D.
0.40
0.57
0.31
3.03
4.4%
6.0%
0.25
0.53
0.24
2.94
4.5%
4.2%
0.44
0.09
0.29
2.60
1.7%
1.1%
1.01
1.25
1.03
3.58
9.3%
14.4%
0.52
0.37
0.44
0.33
0.02
0.05
PS, political stability index (ranges from a low of 2.5 to a high of 2.5);
ROL, rule of law index (ranges from a low of 2.5 to a high of 2.5); COC,
control of corruption index (ranges from a low of 2.5 to a high of 2.5);
ECFR, economic freedom index (ranges from a low of 5 to a high of 1);
rate of growth of real GDP; VT/GDP, value traded/GDP. Source: AMF,
Y,
Economic Indicators of Arab Countries (various issues) and Database of
Arab Stock Markets (various issues); Kaufmann et al. (2003); and Heritage
Foundation, Index of Economic Freedom (http://www.heritage.org).
35
equity.11 From Table 5, we see that for all countries the share
of companies with at least one blockholder as local individuals increased during the period, especially for Oman whose
share reached up to 45%. Egypt looks to be the only country whose corresponding share of local government in fact
increased to a high of 67%; whereas Tunisia, not surprisingly, is the country that witnessed a significant rise in its
corresponding share of foreign investors to 53%. It seems that
both foreign and individual participation in ownership is on
the rise, which bodes well for improvements in both the culture of investment and the degree of international confidence
in these respective economies.
Table 6 shows ownership concentration by the top three
blockholders and their identity. The mean for the pooled sample of the top three blockholders is 48%, which is between
the corresponding mean of the countries whose legal origin
is English of 43%, and those whose legal origin is French
of 54%.12 The highest concentration is found in Egypt at
58% and the lowest in Oman at 43%. As to the identity of
blockholders, in cases where at least one of the blockholders is a local individual, then average ownership by all local
individuals is highest in Egypt at 42%; similarly for average
ownership by local government and foreign investors at 43%
and 42%, respectively. Egypt, then, seems to be the country
with a relatively compartmentalized ownership structure, in
the sense that firms are either largely owned by local individuals or local government or foreign investors. To a lesser
extent, the same pattern is true for Jordan and Tunisia, but
for an ownership structure dominated by either local private
institutions or local government or foreign investors. Omans
pattern, however, seems to be the one that is most balanced
among all four types of investors.
Lastly, Table 7 records the results of the mean (parametric) and median (MannWhitney, non-parametric) tests
of significance for differences in ownership concentration.
In the case of tests according to differences in sectoral
affiliation, ownership of financial institutions comes as significantly less concentrated than those of manufactured and
non-manufactured industries. This is somewhat of a surprising result, given that banks have relatively lower equity ratios
and, as a result, equity ownership would likely be more concentrated than otherwise. In addition, unlike firms in other
industries, banks have also a sizable presence of foreign
ownership at 23%, against 12% for manufacturing, 4% for
non-manufacturing, and 9% for services although firms
from all industries seem to have a significant ownership by
local private institutions at 30% or more. In terms of tests
based on country differences, and in agreement with the
results in Table 6, both Egypt and Tunisia emerge as the
two countries that are significantly more concentrated in their
firm ownership than either Jordan or Oman. And, as would
11 Choosing 10% as the cut-off point is necessary due to data limitations,
since the sources for Oman and Jordan only list the identities of shareholders
who own at least 10% of the equity.
12 See La Porta et al. (1998).
36
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
Table 4
Ownership structure
Mean
Median
Minimum
Maximum
S.D.
18%
35%
34%
1%
12%
9%
30%
33%
0%
0%
0%
0%
0%
0%
0%
99%
100%
95%
45%
96%
0.23
0.28
0.28
0.05
0.23
45%
28%
9%
4%
15%
44%
22%
2%
1%
7%
1%
0%
0%
0%
0%
97%
86%
85%
46%
97%
0.23
0.22
0.16
0.07
0.20
38%
44%
6%
3%
10%
36%
44%
2%
0%
3%
0%
0%
0%
0%
0%
100%
88%
71%
53%
66%
0.21
0.21
0.12
0.06
0.14
10%
23%
20%
30%
18%
0%
20%
0%
30%
11%
0%
0%
0%
0%
0%
92%
74%
78%
71%
78%
0.17
0.21
0.25
0.20
0.22
32%
33%
16%
6%
14%
29%
30%
4%
0%
4%
0%
0%
0%
0%
0%
100%
100%
95%
71%
97%
0.26
0.24
0.23
0.13
0.20
We incorporate both firm-level and country-level explanatory variables in our analysis, using the following equation:
CONCit = + FLVit + CLVit + t + it
(1)
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
37
Table 5
Number of firms whose ownership structure is characterized by the presence of at least one blockholdera
2000
2001
2002
Number of firms
% of total
Number of firms
% of total
Number of firms
% of total
Panel A: Egypt
Local individuals
Local private institutions
Local government
Foreign
7
41
50
14
9
53
64
18
8
40
52
17
10
50
65
21
12
42
54
17
15
52
67
21
Panel B: Jordan
Local individuals
Local private institutions
Local government
Foreign
36
56
22
28
31
49
19
24
42
58
21
28
36
50
18
24
42
59
24
23
38
54
22
21
Panel C: Oman
Local individuals
Local private institutions
Local government
Foreign
23
29
5
8
34
43
7
12
27
38
7
8
40
57
10
12
31
38
7
8
45
55
10
12
Panel D: Tunisia
Local individuals
Local private institutions
Local government
Foreign
4
14
14
12
12
42
42
36
5
16
15
19
14
43
41
51
4
17
16
19
11
47
44
53
Panel E: Pool
Local individuals
Local Private institutions
Local government
Foreign
70
140
91
62
24
48
31
21
82
152
95
72
27
51
32
24
89
156
101
67
30
53
34
23
of capital and a high risk of maintaining the degree of concentration of stockholder control. Demsetz and Lehn (1985),
nevertheless, comment that large companies will tend, by
virtue of their aversion to risk, to have a low degree of ownership concentration. At the same time, risk-aversion should
discourage any attempt to preserve concentrated ownership in
the face of larger capital, because this would require owners
to allocate more of their wealth to a single venture. As for sectoral affiliation, the firms in our sample are divided according
to whether they belong to the industrial (IND), financial (FIN)
or services (SERV) sector. The industrial sector in turn is subdivided into manufacturing (MAN) and non-manufacturing
(NONMAN) firms. As such, five sectoral dummies are used:
IND, MAN, NONMAN, FIN and SERV; with 1 assigned
to firms belonging to the given sector or sub-sector, and 0
otherwise.
In addition to these firm-level explanatory variables, the
three country-level variables (CLVit ) that we control for are:
economic freedom, legal environment and level of stock market development. In particular, an index of economic freedom
(ECFR) is included in order to capture cross-country differences in the institutional environment.16 We anticipate that
ownership will be less concentrated in economies that are
16 The economic freedom index is a score based on the average performance
of an economy in the following 10 areas: Trade Policy, Fiscal Burden, Government Intervention, Monetary Policy, Foreign Investment, Banking and
38
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
Table 6
Ownership concentration by top three blockholders, and by identity of blockholders
Mean
Median
Minimum
Maximum
S.D.
Panel A: Egypt
Top three blockholders
Local individuals
Local private institutions
Local government
Foreign
58%
42%
24%
43%
42%
58%
36%
13%
39%
33%
10%
10%
10%
10%
10%
97%
90%
95%
92%
96%
0.21
0.25
0.22
0.22
0.28
Panel B: Jordan
Top three blockholders
Local individuals
Local private institutions
Local government
Foreign
40%
24%
30%
30%
30%
38%
19%
23%
23%
20%
10%
10%
10%
10%
10%
87%
79%
80%
83%
97%
0.21
0.15
0.17
0.21
0.24
Panel C: Oman
Top three blockholders
Local individuals
Local private institutions
Local government
Foreign
43%
30%
36%
31%
29%
46%
25%
35%
25%
30%
10%
10%
10%
15%
11%
90%
90%
70%
64%
49%
0.19
0.18
0.17
0.16
0.14
Panel D: Tunisia
Top three blockholders
Local individuals
Local private institutions
Local government
Foreign
52%
25%
31%
41%
33%
50%
20%
28%
39%
22%
13%
10%
10%
10%
10%
88%
51%
70%
78%
78%
0.18
0.16
0.15
0.20
0.22
Panel E: Pool
Top three blockholders
Local individuals
Local private institutions
Local government
Foreign
48%
28%
30%
39%
33%
49%
23%
25%
36%
24%
10%
10%
10%
10%
10%
97%
90%
95%
92%
97%
0.22
0.18
0.19
0.22
0.24
Table 7
Tests for significant differences in ownership concentration
Means
Medians
49%60%
49%49%
49%46%
60%49%
60%46%
49%46%
205246***
286281
302270**
125104***
141109**
202181***
58%41%
58%46%
58%50%
40%46%
40%50%
46%50%
326214*
229155*
170143**
229250
186248*
125157*
42%48%
425465**
* , ** , ***
listed in Table 8, largely confirm our expectations. In particular, we find that the impact of SIZE on CONC is negative
and significant at the 10% level in two out of the three models. These results are consistent with a number of studies
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
39
Table 8
Regression results for ownership concentration
Independent variables
Model 2
0.01
0.01 (0.31)
0.01
(1.63)***
(1.78)***
Model 3
SIZE
IND
MAN
NONMAN
FIN
SERV
ECFR
ROL
VTGDP
0.18 (4.39)*
0.11 (2.43)**
0.73 (3.04)*
0.18 (4.37)*
0.11 (2.41)**
0.73 (3.09)*
0.06 (2.50)**
0.03 (1.59)
0.16 (4.06)*
0.12 (2.64)*
0.73 (3.09)*
N
Adj. R2 (%)
F-ratio
889
9.04
23.82*
889
8.93
19.02*
889
10.20
21.76*
* , ** , ***
0.00 (0.62)
0.00 (0.05)
0.01 (0.19)
refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.
As to country-level variables, the effect of ROL on ownership concentration is always negative and significant at either
the one or five percent levels, a result which suggests that
ownership concentration is indeed a response to poor legal
protection. Similarly, we also find the effect of VT/GDP to be
negative and significant, which supports our conjecture that
larger, more sophisticated markets provide a greater opportunity for ownership dilution by allowing for wider access
to funds and share ownership. In addition, and as expected,
the effect of ECFR is always positive and significant at the
one percent level, which shows that less restrictions on economic activity (smaller index) leads to lower concentration
of ownership and control.
Furthermore, we find that IND, MAN, NONMAN and
SERV are not statistically significant determinants of ownership concentration. Instead, model (3) highlights that the
only significant dummy variable is FIN, with the negative
sign of its coefficient indicating that ownership concentration in financial institutions is significantly lower than that in
all other sectors.
When major shareholdings are acquired, control cannot easily be disputed and the resulting concentration of ownership
might lower, or even completely eliminate, agency costs.20
On the other hand, blockholder ownership might provide an
opportunity to extract corporate resources for private benefits in a way that would have a negative impact on firm
performance.21
To examine the relationship between ownership concentration and firm performance, we estimate a regression
equation linking the two variables, after controlling for some
firm-and country-level characteristics.22 However, in order to
avoid problems of endogeneity, we resort to a two-stage least
squares regression defined by the following equations:23
PERFit = + CONCit + 1 FLV1it + 1 CLV1it
+t + 1it
CONCit = + 2 FLV2it + 2 CLV2it + t + 2it
(2a)
(2b)
795
2.08
4.64*
795
1.27
3.40*
795
1.06
3.50*
795
16.48
30.71*
* , ** , ***
795
8.97
19.10*
N
Adj. R2 (%)
F-ratio
refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.
795
15.51
28.66*
795
15.67
34.59*
0.01 (1.35)
0.05 (4.51)*
0.18 (1.00)
0.01 (1.44)
0.05 (4.50)*
0.19 (1.03)
0.05 (6.73)*
0.02 (2.47)*
0.01 (1.39)
0.04 (4.26)*
0.15 (0.79)
795
10.51
18.88*
0.02 (1.37)
0.16 (7.14)*
0.94 (2.45)*
0.02 (1.41)
0.16 (6.97)*
0.94 (2.42)**
0.06 (4.19)*
0.01 (0.80)
0.02 (1.39)
0.15 (6.94)*
0.88 (2.42)**
0.03 (2.70)*
0.01 (0.43)
0.03 (5.12)*
0.01 (0.48)
795
8.71
15.63*
0.06 (1.91)***
0.02 (0.38)
0.09 (0.08)
0.06 (1.97)**
0.04 (0.60)
0.14 (0.14)
0.10 (2.66)*
0.03 (1.02)
0.06 (1.90)***
0.03 (0.61)
0.08 (0.08)
0.01 (0.18)
0.11 (1.83)***
0.08(2.99)*
0.02 (1.93)***
0.09(3.38)*
0.00 (0.41)
Model 8
Model 7
0.09(3.34)
0.01 (0.69)
0.02 (0.77)
0.00 (0.25)
0.02 (5.43)*
Model 6
Model 5
0.01 (0.63)
0.01 (4.46)*
0.01 (0.59)
0.02 (4.53)*
0.03 (2.85)*
Model 4
0.00 (0.13)
0.00 (2.30)**
Model 3
Model 2
0.00 (0.64)
0.00 (0.54)
0.00 (0.58)
0.00 (0.70)
0.03 (5.37)*
Model 1
CONC
SIZE
IND
MAN
NONMAN
FIN
SERV
CEO
ECFR
RGDP
Dependent variable: Q
Dependent variable: ROE
Dependent variable: ROA
Independent variables
Model 9
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
Table 9
Regression results for performance and ownership concentration (full sample)
40
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
41
Table 10
Regression results for performance and ownership concentration (excluding financial institutions)
Independent variables
CONC
SIZE
IND
MAN
NONMAN
CEO
ECFR
RGDP
N
Adj. R2 (%)
F-ratio
* , ** , ***
Dependent variable: Q
Model 1
Model 3
Model 5
0.00 (0.04)
0.01 (3.39)*
0.01 (1.93)***
Model 2
0.00 (0.06)
0.01 (3.40)*
0.01 (0.90)
0.05 (3.46)*
0.21 (0.95)
0.01(2.03)**
0.00 (0.10)
0.01 (0.95)
0.05 (3.51)*
0.22 (0.99)
552
9.62
15.32*
552
9.59
12.90*
0.00 (0.01)
0.02 (3.89)*
0.01 (0.95)
Model 4
0.00 (0.01)
0.02 (3.90)*
0.09(2.50)**
0.02 (1.18)
0.04 (1.01)
Model 6
0.09(2.44)**
0.02 (1.16)
0.02 (1.27)
0.17 (6.05)*
1.15 (2.48)*
0.01(0.99)
0.00 (0.09)
0.02 (1.29)
0.17 (6.06)*
1.16(2.49)**
0.10(2.20)**
0.00 (0.03)
0.04(0.03)
0.05(1.31)
0.14 (1.64)***
0.10(2.35)**
0.01 (0.15)
0.17 (0.13)
552
17.76
29.46*
552
17.65
24.54*
552
1.29
3.28*
552
2.01
3.70*
refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.
+t + 1it
(3a)
(3b)
795
3.87
5.30*
795
2.82
4.19*
795
2.57
4.30*
795
16.68
21.09*
refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.
* , ** , ***
795
16.19
22.82*
N
Adj. R2 (%)
F-ratio
795
9.24
795
9.00
11.09*
795
10.46
12.87*
795
14.94
20.22*
0.05 (1.46)
0.04 (0.61)
0.29 (0.29)
0.01 (1.37)
0.04 (4.00)*
0.17 (0.94)
0.01 (1.42)
0.04 (3.91)*
0.17 (0.92)
0.02 (1.31)
0.15 (6.45)*
0.91 (2.36)**
0.02 (1.34)
0.14 (6.21)*
0.89 (2.27)**
0.06 (3.82)*
0.01 (1.09)
0.02 (1.38)
0.14 (6.42)*
0.87 (2.27)**
0.05 (6.50)*
0.02 (2.63)*
0.01 (1.48)
0.04 (3.96)*
0.15 (0.81)
0.03 (2.82)*
0.01 (0.64)
0.03(5.22)*
0.01 (0.69)
0.04
0.04 (1.00)
0.04 (1.77)***
0.01 (0.56)
0.01 (4.03)*
0.03 (2.89)*
0.01 (1.37)
0.01 (0.53)
0.01 (0.59)
0.00 (0.47)
0.00 (1.90)***
0.02
0.02 (1.06)
0.01 (1.46)
0.01 (0.53)
0.00 (0.33)
INDVCONC
INSTCONC
GOVCONC
FORCONC
SIZE
IND
MAN
NONMAN
FIN
SERV
CEO
ECFR
RGDP
0.02
0.02 (1.04)
0.01 (1.27)
0.01 (0.51)
0.00 (0.47)
0.03 (5.43)*
0.05 (1.51)
0.05 (0.84)
0.05 (0.05)
0.01 (0.32)
0.12 (2.02)
0.03 (0.53)
0.23 (2.27)**
0.12 (2.14)**
0.28 (5.03)*
0.01 (1.17)
0.05 (1.09)
0.27 (2.67)*
0.16 (2.88)*
0.28 (5.04)*
0.01 (0.66)
0.03 (1.51)
0.03 (0.66)
0.03 (1.25)
0.01 (0.52)
0.02 (4.70)*
0.03
0.04 (1.03)
0.04 (1.87)***
0.01 (0.57)
0.01 (3.97)*
0.05 (0.99)
0.28 (2.76)*
0.16 (2.89)*
0.28 (5.04)*
0.00 (0.31)
0.03 (0.95)
Model 8
Model 7
Model 6
(1.80)***
Model 5
(1.84)***
Model 4
Model 3
Model 2
(1.70)***
(1.83)***
Model 1
Dependent variable: Q
Dependent variable: ROE
Dependent variable: ROA
Independent variables
Table 11
Regression results for performance and ownership identity (full sample)
0.12 (3.06)*
0.04 (1.14)
0.04 (1.28)
0.04 (0.68)
0.16 (0.16)
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
Model 9
42
32
See, for example, Boycko, Shleifer and Vishny (1996), and Dyck (2001).
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
43
Table 12
Regression results for performance and ownership identity (excluding financial institutions)
Independent variables
INDVCONC
INSTCONC
GOVCONC
FORCONC
SIZE
IND
MAN
NONMAN
CEO
ECFR
RGDP
N
Adj. R2 (%)
F-ratio
* , ** , ***
Dependent variable: Q
Model 1
Model 3
Model 4
Model 5
0.01 (0.34)
0.01 (0.24)
0.03 (0.85)
0.02 (0.51)
0.02 (3.16)*
0.01 (1.02)
0.01 (0.31)
0.01 (0.23)
0.02 (0.88)
0.02 (0.51)
0.02 (3.16)*
Model 2
0.00 (0.16)
0.00 (0.02)
0.00 (0.14)
0.02 (1.00)
0.01 (2.90)*
0.01 (1.83)***
0.00 (0.12)
0.00 (0.01)
0.00 (0.18)
0.01 (0.99)
0.01 (2.92)*
0.01 (1.12)
0.05 (3.35)*
0.23 (1.03)
0.01 (1.91)***
0.00 (0.15)
0.01 (1.15)
0.05 (3.39)*
0.24 (1.06)
552
9.51
9.85*
552
9.46
8.82*
Model 6
(1.75)***
0.15
0.13 (1.63)***
0.16 (2.06)**
0.44 (5.14)*
0.00 (0.22)
0.06 (1.45)
0.14 (1.61)***
0.13 (1.61)***
0.15 (1.93)***
0.45 (5.19)*
0.00 (0.18)
0.02 (1.12)
0.17 (5.82)*
1.19 (2.55)*
0.02 (1.06)
0.00 (0.11)
0.02 (1.13)
0.17 (5.83)*
1.19 (2.56)**
0.06 (1.39)
0.01 (0.18)
0.28 (0.22)
0.07 (1.78)***
0.15 (1.74)***
0.07 (1.49)
0.03 (0.32)
0.15 (0.11)
552
17.84
18.89*
552
17.74
16.79*
552
4.87
5.51*
552
5.85
5.78*
refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.
Table 13
Tests for significant differences in firm performance
Means
Medians
3.9%3.7%
0.31
2.9%2.9%
446432
8.9%8.8%
0.07
9.6%8.3%
446436
1.040.99
1.37
0.980.97
448418
(4)
Table 14
Regression results for performance and ownership concentration dummies (full sample)
Independent variables
CONCDUM
SIZE
IND
MAN
NONMAN
FIN
SERV
CEO
ECFR
RGDP
N
Adj. R2 (%)
F-ratio
* , ** , *** refer
Model 2
0.00 (0.30)
0.00 (0.66)
Model 4
0.01 (0.55)
0.01 (4.47)*
0.03 (2.83)*
0.03 (5.39)*
0.02 (1.49)
Model 5
0.01 (0.55)
0.01 (4.47)*
Dependent variable: Q
Model 6
0.01 (1.72)
0.02 (1.95)*
Model 7
0.07 (1.66)**
0.01 (0.59)
0.02 (0.82)
0.03(2.82)*
0.03 (0.94)
0.01 (1.38)
0.05 (4.63)*
0.19 (1.02)
0.01 (1.41)
0.05 (4.32)*
0.19 (1.05)
0.05 (6.76)*
0.02 (2.43)**
0.01 (1.42)
0.05 (7.30)*
0.15 (0.81)
889
8.94
19.04*
889
8.89
15.93*
889
10.54
18.93*
Model 8
0.07 (1.72)***
0.00(1.95)
Model 9
0.06(1.46)
0.02(1.95)***
0.01(0.34)
0.21 (2.91)*
0.02 (1.41)
0.15 (7.30)*
0.95 (2.49)**
0.02(1.42)
0.16(7.30)*
0.96 (2.49)**
0.06 (2.85)*
0.01 (0.74)
0.02 (1.42)
0.15 (7.05)*
0.89 (2.32)**
889
15.66
34.59*
889
16.42
28.79*
889
16.53
30.80*
to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.
0.06(1.98)**
0.050(0.02)
0.16 (0.16)
889
0.12
1.81**
0.07(1.97)**
0.01 (0.18)
0.06(0.03)
0.01 (2.85)*
0.04(1.11)
0.06(1.97)**
0.02(0.30)
0.03(0.03)
889
0.89
2.83*
889
1.32
3.48*
44
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
7. Conclusion
Using a sample of more than 300 representative Arab
firms, the paper studied the determinants of ownership concentration, and the effect of this and other aspects of corporate
governance on firm performance and profitability. The following conclusions and policy recommendations could be
summed up from the analysis:
(1) Ownership concentration in Arab corporations seem to
be negatively associated with legal protection, thus vindicating the view of La Porta et al. In addition, more active
stock markets and fewer restrictions on economic activity
are correlated with dilution and less concentration of corporate ownership. Hence, if the latter is desired in its own
right, then naturally better laws protecting investors and
their implementation and more developed stock markets
are surely welcome.
(2) Notwithstanding the desirability of less concentrated
ownership, it does not seem to have a significant effect
on Arab firms profitability and performance measures.
Nor does the separation between CEO and chairperson
positions. This means that at least in the short term and
especially given the fact that firms typically raise equity
not so much in public markets but through family ties or
personal relationships legal protection of creditors is
more important than improving other aspects of corporate governance since any substantial growth in external
finance is likely to be debt.
(3) Q-ratios tend to be positively related to concentrated
ownership, presence of blockholders, and conflation of
CEO and chairperson positions. However, this result
seems to depend more on reputational effects and lower
agency costs than on market fundamentals pertaining
to firms actual performance, as previous research had
Appendix A
The accounting and ownership data for the four countries were obtained from the following sources: Jordan,
Amman Stock Exchange: Jordanian Shareholding Companies
Guide; Egypt, Kompass Egypt Financial Yearbook; Oman,
Muscat Securities Market (MSM): Shareholding Guide of
MSM Listed Companies; and Tunisia, Bourse de Tunis:
http://www.bvmt.com.tn.
Appendix B
Number of firms in each country that are characterized by
the presence/absence of concentrated ownership, classified
according to industry affiliation
33
M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
Manufacturing
Non-manufacturing
124
85
22
15
Services
Total
Number
5
2
2
0
18
24
10
16
9
26
13
11
73
100
52
35
90
86
74
95
9
82
68
85
59
88
260
86
86
1
0
1
0
3
5
2
2
0
3
5
0
8
16
18
2
10
14
26
5
2
18
12
15
8
12
44
14
14
Financial institutionsa
45
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