A Simultaneous Equations Approach to Analysing the Relation between Ownership Structure and Performance in Bangladesh

Author(s)
Farooque, Omar
van Zijl, Tony
Dunstan, Keitha
Karim, AKM Waresul
Publication Date
2005
Abstract
This paper models the managerial (board) ownership and financial performance relationship in Bangladesh using a simultaneous equations approach. This approach is deemed to be the most appropriate methodology to control for the potential endogenous relationship between managerial (board) ownership and performance. Consistent with recent literature employing this method of analysis in developed markets, we document a 'reverse-way' causality of relationship between them in Bangladesh listed firms. Using an unbalanced/random pooled sample of 660 firm-years, our results suggest that board ownership does not have a significant impact on performance as measured by Tobin's Q or Return on Assets ("ROA"). However, performance does appear to have a significant negative impact on board ownership. With few exceptions, other corporate governance and control variables have effects on performance and ownership consistent with both theoretical and empirical expectations. These results imply that despite huge institutional and governance differences between Bangladesh, an emerging market economy, and developed countries (US, UK, Japan, Germany) there is nevertheless similarity in governance mechanisms, in particular, 'internal governance mechanisms' and agency problems.
Citation
The Inaugural Asia-Pacific Corporate Governance Conference Proceedings, p. 115-115
Link
Publisher
Hong Kong Baptist University, School of Business
Title
A Simultaneous Equations Approach to Analysing the Relation between Ownership Structure and Performance in Bangladesh
Type of document
Conference Publication
Entity Type
Publication

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