Author:Jinadu, Olugbenga


The relationship between ownership structure and corporate performance has been a topical issue within the framework of corporate governance. The agency theory predicts that ownership is a significant determinant of corporate performance (Hu & Izumida, 2008; Akman et al., 2015). Also, ownership structure is a mechanism to reduce agency cost (Kangarlouei et al., 2012). In addition, it is widely accepted that concentrated ownership has the potential to limit the agency problem, and therefore enhances performance (Hu & Izumida, 2008; Kangarlouei et al., 2012). They further opined that if concentrated ownership has a positive effect on corporate performance, it may be as a result of better monitoring by large shareholders. Ownership concentration, therefore, can be described as the amount of stock owned by individual investors and large shareholders. These large shareholders are investors that hold at least 5% of equity ownership within the firm (Zingales, 1994 as cited in Santos, 2015). A higher level of ownership concentration suggests a stronger monitoring power from shareholders over a firm managerial decision because of the greater incentives for these owners in order to proactively safeguard their investment. Owners with a significant amount of shares may take aggressive actions, either directly or indirectly, over firm decisions on accounting, auditing, reporting process, the election of board members, poor management with their voting right. As such, ownership concentration can be an internal governance mechanism that helps to ensure accountability and corporate performance (Adams, 2004).

Similarly, shareholders with a large stake in the company show more willingness to play an active role in corporate decisions because they partially internalise the benefits of their monitoring effort (Hu & Izumida, 2008). In contrast, banks with a low level of ownership concentration might indicate weaker governance power because investors with fewer ownership interests might have little incentive to closely monitor the behaviours of top management and the performance of the organisation (Son et al., 2015). Thus, the development of robust stakeholder involvement (ownership structure), as advocated by the Institute of Social and Ethical Accountability (1999) will help to mitigate the ownership-performance gap in order to strengthen corporate governance, transparency and disclosure levels. To this end, ownership structure's variables are an important subject in the field of financial management (Ezazi et al., 2011) for analysing the relationship, impact and differences in corporate performance. Therefore, ownership structure is considered as being concentrated ownership, foreign ownership, domestic and state ownership (Javid & Iqbal, 2008; Peong et al., 2012; Kiruri, 2013; Gugong et al., 2014; Son et al., 2015). Ownership concentration is the percentage of shareholders having 5% or more holdings, while the percentage of the entire worth of stocks held by investors outside Nigeria represents the foreign ownership. In addition, a domestic ownership is a percentage of total value of shares held by individuals resident in the country where the business operates; while state ownership is the percentage of the total value of shares held by the government for the interest of the public or a community.

However, with the growing need for stakeholder engagement in the governance system, research on ownership structure and corporate performance has been dominated by studies conducted in developed countries (Munday et al., 2003; Douma et al., 2006; Hu & Izumida, 2008; Akman et al., 2015). However, this is not the same in developing countries (e.g. Nigeria) where there is weighty pressure for stakeholder involvement in ensuring proper monitoring and improvement in corporate performance of firms. In addition, many findings on the impact of ownership structure on corporate performance have shown mixed results (Yudaeva et al., 2003; Barbosa & Louri, 2005; Hu & Izumida, 2008; Gurbuz & Aybars, 2010; Kiruri, 2013). Also, the development of robust stakeholder engagement mechanisms at all stages of accounting and governance process as advocated by the Institute of Social and Ethical Accountability (ISEA) is yet to be adopted in the developing countries (Adams & Kuasirikun, 2000; Adams, 2004) as bank crises are linked to ownership structure (Ezugwu & Itodo, 2014).

In view of these problems, the study basically investigated whether a significant relationship exists between ownership concentration and corporate performance of Nigerian multinational Banks. To achieve this objective, the study restricted its ownership structure to ownership concentration, foreign ownership and domestic ownership in Nigerian multinational Banks. In addition, corporate performance was measured by return on assets and return on equity.


Theoretical Framework

The theory underpinning this study is hinged on Agency theory. This is defined by Urhoghide & Emeni (2014), as the contractual relationship that exists between the manager and the shareholders in which shareholders authorise the manager to run their business activities. In so doing, investors employ the services of managers (based on their managerial expertise) to invest their surplus funds in profitable ventures in order to generate good returns and the managers are rewarded for their services. However, low levels of governance are likely to attract costs thereby lowering profitability (Core et al., 2006). As a result, management that is dedicated to the entity's interest will try to lower transaction/agency costs in order to increase performance results. On the basis of this, Jensen & Meckling (1976) describe this as an agency relationship, where the management is accountable to all stakeholders and must be able to safeguard their interest. Thus, the managers' propensity to increase corporate performance depends on ownership structure (Oyerogba et al., 2014).

Review of Related Literature

Many researchers have recently investigated the relationship between ownership structure and corporate performance of firms. This is assumed to have occurred as a result of the increase in the amount of foreign investment in world economies arising from the influence of increased globalisation. Nevertheless, despite the increase in prior studies, there seems to be no consensus despite the plethora of empirical literature. According to Gomes & Ramaswamy (1999), as cited in Gurbuz & Aybars (2010), the costs of internationalization which have often been neglected in prior studies have been adduced to have accounted for the lack of consistent findings.

Prior studies that investigated the relationship between foreign ownership and firm performance have observed that foreign ownership had a significant positive influence on firm's performance. This is, however, contrary to the results from prior studies on domestic ownership (Akman et al., 2015, Sueyoshi et al., 2010; Douma et al., 2006). Similarly, Douma et al. (2006) in an attempt to explain the impact of firm performance in emerging markets by integrating agency-institutional and resource-based theories espoused a multi-theoretical viewpoint in providing answers. They averred that with concentrated foreign ownership, foreign direct investments that could bring additional financial support and improved managerial technique. In addition, they observed as part of their findings that firms with foreign shareholders coupled with strategic business interests had better performance profile. In...

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