Open AccessImpact of the Corporate Governance and the Ownership Structure on the Firm’s Financial Performance and its Risk Taking Behavior
Author(s) -
Abid Ali Shah,
Muhammad Aamir,
Irum Saba,
Zeeshan Mahmood
Publication year - 2017
Publication title -
journal of accounting and finance in emerging economies
Language(s) - English
Resource type - Journals
eISSN - 2519-0318
pISSN - 2518-8488
DOI - 10.26710/jafee.v3i1.70
Subject(s) - corporate governance , expropriation , shareholder , business , accounting , agency cost , panel data , finance , economics , market economy , econometrics
Purpose: In the developing country like Pakistan the agency problem may have different dimensions as it may not only be among the ownership and the management but also regarding the expropriation of the corporate profits by the largest shareholder at the cost of the many small shareholders. This paper examines the relationship between the Ownership Structure with its two dimensions i.e. Ownership Type and Concentration with the Corporate Governance adaptation level by the firms and its Financial Performance and Risk Taking Behavior judged by the Stock Market Returns.
Methodology: The analysis was conducted in three sections using Panel Data Estimation using the data from 2006 to 2010 for 40 listed KSE firms.
Findings: The results indicates that the improvement in the Corporate Practices increase the firm’s financial performance and reduction in the level of risk during undertaking of the riskier ventures. The Corporate Governance also has negative relationship with the Ownership Concentration proving the fact that the increase in the level of the ownership concentration results in the reduction of the level of good practices by the firms.
Practical Implications: These results also provided a view of the Corporate Structure of the Pakistani firms and prove the fact that the Ownership Concentrated in single largest owner results in the reduction of Corporate Governance level and the Financial Performance of the firms and also results in the increase in the level of the risk undertaken by the firms.