اداره امور شرکت و عملکرد شرکت در بازارهای سهام کشورهای عربی: آیا تمرکز مالکیت اهمیت دارد؟

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.

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 publicly-held ones – although the evidence differs on the relative merit of the identity of each private owner.1 The second question is perhaps the most interesting because it has spawned a rich research agenda pioneered by La Porta et al., 1997, La Porta et al., 1998, La Porta et al., 1999 and La Porta et al., 2000. The upshot of their findings is that when the legal framework does not offer sufficient protection for outside investors, entrepreneurs and original owners are forced to maintain large positions in their companies which result in a concentrated form of ownership.2 What makes this finding interesting is its implications for the third question, since most of the evidence shows that there is no significant effect of ownership concentration on firm performance. As a result, one is led to conclude that corporate governance or the lack of it is immaterial to firm performance.3 In fact, the widely-held firm is not a widely-observed phenomenon in most countries. This could be attributed to several reasons. In the developed countries, it could be a rational response to a legal system that does not protect minority investors (ala La Porta et al.), but it could also be the result of entrenched financial structures and practices that determine and shape the enactment of corporate law.4 For developing countries, in addition to the aforementioned reasons, it could also be due to the underdeveloped nature of their financial markets – that would allow limited access to external financing – and the preponderance of family firms.5 But perhaps what is more important as far as this phenomenon is concerned, especially in developing countries, is that sound governance should go beyond the textbook example of the widely-held firm and concentrate on redesigning corporate practices that are more peculiar to their case, such as: lack of agency between concentrated and minority owners, reduced liquidity of shares, cross ownership and pyramiding of shareholdings, dual-class shares, and the like.6 This is of course an ambitious agenda, but it reflects better the corporate structure of these countries and in the process acts as a better guide for future corporate reforms. In this context, the Arab economies are no exception. Their corporate legal system largely follows the civil-law system, but one can reasonably argue that the relation between legal origin and financial arrangements in the Arab countries merely reflects the influence of a third exogenous variable, which is the role of the state or the nature of the political system and its national governance. Here, and to nobody's surprise, the Arab world does not fare well, having a relatively closed and highly concentrated political system with a poor mode of national governance.7 This naturally spills over to its system of corporate governance, as the majority of Arab firms are either government- or family-owned with stock markets still in a rudimentary stage. But firms are changing, prompted by increased competition from trade openness, by privatization, and by the need for more external financing. And, to better understand their future trajectory, we need to understand their current corporate make-up and performance. In fact, most of previous research studies on corporate governance and firm performance issues have been, mainly, limited to those of developed economies or large emerging economies. It seems, then, that small economies such as those of the Arab countries are very much understudied in the literature, so in this paper we try to fill this gap by looking at the determinant of ownership concentration and the impact of both ownership concentration and ownership identity on firm performance. Using a sample of more than 300 representative Arab firms, we find that ownership concentration in these firms seem to be negatively associated with legal protection. 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. Also, the results indicate that ownership concentration 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-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. The rest of the paper will be organized as follows: in Section 2 we present crucial descriptive statistics on the firms’ corporate ownership, identity, and their performance and market measures, whereas in the following sections we use unstructured but credible equations to capture the relationship between these variables. Specifically, in Section 3 we study the determinants of ownership concentration as given by firm and country characteristics; while in Section 4 we look at 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. Sections 5 and 6 follow largely the same approach as in Section 4, but with Sections 5 and 6 dealing, respectively, with the effects of ownership identity and blockholdings on performance and market measures. Lastly, Section 7 closes the paper with a conclusion and some policy recommendations.

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 indicated. 33 Hence, future improvements in corporate governance practices are better gauged through their effect on performance measures rather than market measures. (4) Large-size firms and firms operating in a less open economic environment have higher profitability and performance measures than other firms. This could be the result of favorable advantages seized by monopoly power, not advantages gained through more efficiency. As a result, efforts that aim at better corporate practices should be coupled with reforms of product markets, competition policy, and the overall operating environment for firms. (5) The identity of owners matters more than the concentration of ownership. Particularly important in this regard is the negative association of individual investors with performance measures in financial institutions, a result that could be explained by the tendency of individual owners to manage banks’ assets recklessly in the absence of checks and oversight by other major owners. Also interesting is the lack of a significant relation between foreign investors and performance measures but the presence of a positive one with market measures. This, however, should not mean taking a neutral or indifferent stand regarding foreign investors, because of the better governance practices that they could bring to domestic markets (as reflected by the higher Q-ratios), and consequently should not act as a deterrent for attracting more of them.