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Performance of Government-Linked Firms Listed on Two Stock Exchanges of the United Arab Emirates: An Empirical Study

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  • Md Uddin
  • Sawsan Halbouni
  • Mahendra Raj

Abstract

In the United Arab Emirates, the government holds ownership in 48 percent of all stock exchange-listed firms. However, prior evidence does not make clear whether the government linkage of a company via ownership holding is good or bad for the firm's performance. We propose two hypotheses. The agency hypothesis holds that government ownership negatively affects firm performance. The support hypothesis postulates that government ownership helps a firm to improve performance. Using a sample of 114 companies, we find that the government-linked companies (GLCs) have better accounting results than do the companies that are not linked to the government (non-GLCs), yet the GLCs are undervalued in the financial market. Subsample analyses reveal that the best accounting results are those of the GLCs in which the government holds 20 to 50 percent of the ownership. If the government takes control of a company by holding more than 50 percent ownership, the accounting results are not improved, yet, unlike other GLCs, these GLCs are overvalued.

Suggested Citation

  • Md Uddin & Sawsan Halbouni & Mahendra Raj, 2014. "Performance of Government-Linked Firms Listed on Two Stock Exchanges of the United Arab Emirates: An Empirical Study," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S1), pages 212-236.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:s1:p:212-236
    DOI: 10.2753/REE1540-496X5001S114
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    Cited by:

    1. Michael Siemon, 2018. "Price Synchronicity, Inter-Firm Networks, and Business Groups in the Middle East and North Africa," Working Papers 1267, Economic Research Forum, revised 10 Dec 2018.
    2. Uddin, Md Hamid, 2016. "Effect of government share ownership on corporate risk taking: Case of the United Arab Emirates," Research in International Business and Finance, Elsevier, vol. 36(C), pages 322-339.
    3. Naz, Iram & Shah, Syed Muhammad Amir & Kutan, Ali M., 2017. "Do managers of sharia-compliant firms have distinctive financial styles?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 174-187.

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