Does ownership affect a firm's performance and default risk in Jordan?

Rami Mohammad Ahmad Zeitun · Gary Gang Tian

202 citations0/0 files storedCorporate Governance

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Corporate Finance and Governance Corporate Insolvency and Governance Political Influence and Corporate Strategies

Abstract

Purpose This paper seeks to examine the impact of ownership structure on firm performance and the default risk of a sample of publicly listed firms. Design/methodology/approach This paper examines the impact of ownership structure on firm performance and the default risk of a sample of 59 publicly listed firms in Jordan from 1989 to 2002. Findings The main findings were: ownership structure has significant effects on the accounting measure of performance return on assets (ROE); government shares are significantly negatively related to the firm's performance ROE; defaulted firms have a high concentration ownership compared with non‐defaulted firms and also high foreign ownership firms have a low incidence of default; government ownership is significantly negatively related to the firm's probability of default; both mix and concentration ownership structure data can be used to predict the probability of default as the largest five shareholders (C5) and government ownership fraction (FGO) are significantly negatively correlated with the probability of the default. These results further suggest that reducing government ownership can increase a firm's performance but will also cause some firms to go bankrupt, at least in the short term. Originality/value This paper provides useful information on the impact of ownership structure on firm performance and the default risk of a sample of publicly‐listed firms.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1997A Survey of Corporate Governance 1986Large Shareholders and Corporate Control 1933The Modern Corporation and Private Property 1988Management ownership and market valuation 1985The Structure of Corporate Ownership: Causes and Consequences 1990Additional evidence on equity ownership and corporate value

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