The impact of ownership structure on firm performance: evidence from non-financial listed firms of Pakistan

Abstract

From more than two years, the debate over discrepancy lies between managers and shareholders. The impact of ownership structure and firm performance has been extensively measured by empirically as well as theoretically in literature. The substantive review of literature suggested that ownership structure is considered as the one of the core corporate governance mechanisms influencing the scale and growth of a firm’s agency costs. In the modern organizations, there is separation between ownership and control of the firm. There is lack of widely held corporations in Pakistan. The ownership is in few hands and large shareholders have plenty incentives and ability to control. In Pakistan, the large shareholdings are common. There is a divergence between the interests of the owners and managers. Due to non-availability of ownership structure data in organized form, this area has attracted little attention of empirical researcher in Pakistan. The purpose of study is to statistically examine the relationship between ownership structure like ownership concentration and owner identity on firm performance of non-financial listed firms of Pakistan with firm level control variables of size, age, liquidity, financial leverage and growth of firm. Furthermore, the study analyzes impact of ownership structure on firm performance. The present study used the accounting base measure like return on assets, return on equity and return on investment as performance measure. The present study has examined the impact of ownership structure on firm performance by using panel data of 65 non-financial listed firms from year 2008 to year 2012. The least square dummy variable model followed by random effect model has been used to statistically determining the impact of ownership structure on firm performance. The results of least square dummy variable model reveal that the ownership concentration has positive significant impact on firm performance according to t statistic and probability approach to signify the casual relationship. The owner identity like dispersed, family, institutional and government ownership has significant casual impact on firm performance but negative t value presenting the inverse casual relationship with firm performance. The firm level control variables like size, liquidity, financial leverage, firm age and growth reveal mixed results with firm accounting performance measure.