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Firm Performance and the Nature of Agency Problems in Insiders-controlled Firms: Evidence from Pakistan

Author

Listed:
  • Fahad Abdullah

    (Institute of Management Sciences, Peshawar)

  • Attaullah Shah

    (Institute of Management Sciences, Peshawar)

  • Safi Ullah Khan

    (Kohat University of Sciences and Technology, Kohat)

Abstract

This paper studies the impact of corporate ownership structure on firm performance. This paper tests whether policy intervention with respect to blockholding and higher managerial ownership is required in Pakistan. We hypothesise that market places expropriation premium on stocks of such firms where large insiders are present. In addition to poor market performance, such firms are expected to show poor accounting performance due to various forms of expropriations. These hypotheses are tested on a sample of 183 firms listed at the Karachi Stock Exchange over the period 2003-2008 with the help of OLS and 2SLS regressions while controlling for other explanatory variables that have been identified in the literature. The results indicate that both the market- and accounting-based measures of performance are negatively related to the ownership percentage of incumbent managers. Among the control variables, Tobin’s Q increases with growth opportunities and tangibility of assets, whereas it decreases with firm size, market risk, firm-specific risk, and ownership percentage of institutional shareholders.

Suggested Citation

  • Fahad Abdullah & Attaullah Shah & Safi Ullah Khan, 2012. "Firm Performance and the Nature of Agency Problems in Insiders-controlled Firms: Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 161-183.
  • Handle: RePEc:pid:journl:v:51:y:2012:i:4:p:161-183
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    File URL: http://www.pide.org.pk/pdf/PDR/2012/Volume4/161-183.pdf
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    Cited by:

    1. repec:eee:riibaf:v:42:y:2017:i:c:p:865-873 is not listed on IDEAS
    2. repec:eee:riibaf:v:42:y:2017:i:c:p:365-375 is not listed on IDEAS
    3. Kamran & Attaullah Shah, 2014. "The Impact of Corporate Governance and Ownership Structure on Earnings Management Practices: Evidence from Listed Companies in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 19(2), pages 27-70, July-Dec.
    4. Zubaida Batool & Attiya Yasmin Javid, 2014. "Dividend Policy and Role of Corporate Governance in Manufacturing Sector of Pakistan," PIDE-Working Papers 2014:109, Pakistan Institute of Development Economics.

    More about this item

    Keywords

    Ownership Structure; Firm Performance; Large Insiders; Tobin’s Q; Pakistan;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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