Corporate Governance in Bangladesh: Link between Ownership and Financial Performance

Abstract

This paper investigates empirically the effect of board ownership on firm performance in Bangladesh. By estimating single equation and simultaneous equation models on an unbalanced pooled sample of listed firms, it offers some new insight into the ownership-performance link in Bangladesh. Building on extant literature, it examines the ownership-performance relationship in an emerging market economy considering ownership as exogenous and as endogenous. The latter approach is favoured as recent empirical evidence shows that ownership and performance are endogenously determined and there is either a reverse-way or two-way causality relationship between the two. While OLS regression analysis indicates a linear and non-linear relationship between board ownership and performance, this disappears when 2-SLS estimation of a simultaneous equation model is carried out. Instead, a reverse causality relationship emerges. Other governance and control variables appear to have effects consistent with the literature. These results suggest a need to strengthen the internal control mechanisms within listed firms in Bangladesh. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Blackwell Publishing Ltd.

Family Ownership, Corporate Governance and Performance: Evidence from Saudi Arabia

“…As stated by Kapopoulos and Lazaretou (2007); firm size as calculated by the book value of total assets, had an inverse relation to performance. Firm size was negatively related to performance, as discovered by Farooque et al (2007). Firm size was positively and considerably linked with Tobin's q, as concluded by Hu and Izumida (2008).…”

The Effect of Board of Directors Characteristics, Audit Committee Characteristics and Executive Committee Characteristics on Firm Performance in Oman: An Empirical Study

“…A similar negative result was revealed between CEO tenure and firm performance by studies dedicated to the developing countries (e.g. Al Farooque et al, 2007;Bektas & Kaymak, 2009;Herly & Sisnuhadi, 2011;Jackling & Johl, 2009;Roselina, 2009;Tsai et al, 2006). On the other hand, other studies reported the absence of a relationship between CEO tenure and firm performance (e.g Bhagat & Bolton, 2008;Fidrmuc & Fidrmuc, 2007;Firth et al, 2006;Gibson, 2003;Kyereboah-Coleman, 2007).…”

“…Similarly, in the developing countries, Al Farooque et al (2007) found the relationship to be negative. Apart from that, there are some authors who found no relationship between CEO compensation and firm performance e.g, Adjaoud et al (2007).…”

“…A thorough review of the current literature reveals conflicting results regarding this relationship (Adjaoud et al, 2007;Bauer et al, 2009;Deutsch, 2007;Herrmann et al, 2010;Junarsin, 2011;Kubo & Saito 2008;Lee et al, 2008;Makri et al, 2006;Pissaris et al, 2010;Schiehll & Bellavance, 2009;& Yawson, 2006) found a positive relationship between CEO compensation and firm performance in the developed countries. In the developing countries, many researchers also found a positive association between CEO compensation and firm performance (Al Farooque et al, 2007;.…”

Corporate Governance Disclosure and Security’s Market Risk in The United Arab Emirates

“…Using a set of corporate governance indices based on 64 individual governance attributes, they found a strong and positive relation between firm-level corporate governance and firm valuation. Similar evidence is also found in emerging countries such as Venezuela (Garay & Gonzalez, 2008), India (Balasubramanian et al, 2010), China (Hu et al, 2010), and Bangladesh (Farooque et al, 2007). The review of extant literature on the relationship between the corporate governance and firm valuation shows that various factors relating to corporate ownership structure and internal governance mechanism, management and board structure, corporate leadership structure (CEO duality), and agency problem between different stakeholders could affect the valuation of corporate firms.…”