Corporate governance has emerged as an important issue related to global business management. One internal mechanism of key significance for corporate governance is the ownership structure that is explained as equity distribution in terms of capital and votes and also in terms of equity owners’ identity. Reason of significance of structures in corporate governance is that they form the basis of managers’ incentives and hence are also affect the economic efficiency of the organizations.
There are two dimensions of ownership structure that are:
- Ownership concentration: It is the degree of concentration of right of voting and is measured in terms of largest shareholders’ voting right
- Owner identity: It is based on the largest shareholder’s type
Financial performance of any organization is actually an evaluation at subjective levels of the ways in which the firm uses efficiently and effectively its assets for the purpose of generating revenue and carrying out primary modes of business.
Financial performance is understood as the general financial health of the firm over a certain time period such that it allows comparing similar firms in the same industry or comparing sectors or industries as one unit. There exists a relationship between the corporate performance and ownership structure as the concentration and identity of own affects the incentives of parties in the organization and hence affects the ability of that organization to find agency problems’ solution. However, this relationship remains blurred between these two variables (ownership structure & firm performance) as explored from previous studies.
There have been contradicting conclusions from previous studies regarding the effects of ownership concentration in corporate performance. There are positive impact of high concentration. On the other hand, similarly, there have been contradicting conclusions from studies carried out on impact of owner identities on firm performance. The structure of ownership is the shares’ concentrations that shareholders hold and that top five and top twenty shareholders can be considered as a distinction. Ownership identity likes to the types of owners that can be either:
- Insiders: those shareholders who have any working related with the organization:
- Outsiders: those shareholders who have never worked in the organization Also, types of owners for listed firms are:
- Government ownership
- Institutional ownership
- Foreign ownership