To What Extent Can Profit Margin, Value Added Growth and Ownership Concentration Portrait Corporate Governance Systems?

This paper examines how product market competition and corporate governance variables affect differently the productivity growth of corporations. Corporate governance systems are expected to have different patterns regarding the relationship determining the impact of corporate governance mechanisms, product market competition and ownership structure. Corporate performance is measured by value added growth as a proxy of the variable indicating productivity, which is generally supposed to be determined by product market competition, capital and labor changes and other variables related to ownership structure, governance style and financial structure. The performance analysis methodology is based on a Cobb-Douglas production function which allows for an effort function measuring productivity. The data sample used for illustration purposes is composed of 48 non-financial firms with only 20 listed on the Tunisian Stock Exchange, and covers the period from 1996 to 2001 allowing for the construction of a panel dataset of 288 observations. The information used to compute productivity and competition variables is based on published audited accounts of balance sheets and income statements. Ownership structure information includes the identity of all shareholders holding more than the mandatory disclosure threshold of 5% of the shares and the percentage of the capital they own. We find that productivity growth is higher when competition is severe and that low and high levels of ownership have positive effects on productivity growth, especially when they are introduced with competition variable. Coefficient estimates show that competition is not likely to be a substitute for bad governance structures (in particular ownership levels between 20% and 50% of capital).