Ownership Structure Characteristics and Firm Performance: A Conceptual Study

This study aims to offer a comprehensive description of the relevant literature related to the association between the ownership structures, namely; ownership concentration, managerial ownership, government ownership, foreign ownership and institutional ownership; and firm performance. Ownership structure is among the corporate governance primary mechanisms that has been a focus of many researchers and scholars for few decades. Despite that, there is a lack of prior studies that examine these relationships in the developing countries. In the developed countries context, there are few studies to examine the aforementioned relationship. So, the main objective of this study was to bridge this gap and try to enrich existing literature.


Introduction
Ownership structure is one of the core mechanisms of corporate governance (CG). Ownership structure has been an attention seeker to both scholars and analysts alike. The pioneering study in the theory of the firm on contemporary firm was conducted by Berle and Means (1932). They discussed the conflicts of interest between controllers and managers and concluded that with increasing ownership diffusion, the authority of the shareholders to control management is minimized. Moreover, Demsetz and Lehn (1985) stated that ownership is always endogenously determined for the maximization of firm performance as these benefits all owners. There should be a lack of systematic association between ownership structures and performance as the existence of such a relationship would reflect

Literature Review and Hypotheses Development
The ownership structure-corporate performance relationship has been receiving significant attention in financial literature (Jiang, 2004;. Among the trademarks of the contemporary firm is the separation of ownership and control (Uwuigbe & Olusanmi, 2012). Consistent to the context is that fact that ownership structure is a way to minimize the asymmetric information disclosure within capital markets among insiders and outsiders (Wahla et al., 2012). In the same context,  and Jensen and Meckling (1976) revealed that the ownership diffusion has a significant effect on the validity of the profit-maximizing aim of firms as the separation control enables corporate managers to exert effort to serve their own interests. Moreover, Demsetz (1983) claimed that ownership structure is an endogenous aspect that maximizes the profit and value of a firm. Based on the above arguments, managers along with shareholders should have a united objective of increasing firm value (Jensen, 2000). Similarly, ownership structure can be categorized into widely held firms and firms having controlling owners/concentrated ownership where the former category of firms' owners does not have substantial control rights (Haslindar & Fazilah, 2011). From another perspective, under the resource dependence theory, it is argued that ownership signifies a source of authority that can be utilized to support or to go against management, according to the level of concentration and use (Pfeffer & Slanick, 1979). Furthermore, Fazlzadeh, Hendi and Mahboubi (2011) claimed that ownership structure plays a key role in firm performance and provides policy makers with insights for enhancing corporate governance system. In the majority of developed countries, ownership structure is significantly dispersed. On the contrary, in the developing countries characterized by a weak legal system safeguarding the investors' interests, the ownership structure is concentrated (Ehikioya, 2009). As such, the present study focuses on the examination of the ownership structure-firm performance relationship. Although the essence of the ownership structure, role is to improve performance, there are extensive studies, ignoring the examination of this role in firm performance. However, there are many studies that confined their study to only the relationship between board characteristics, audit committee, CEO with firm performance (e.g. Abdurrouf, 2011;Avantika, 2011;Chahine & Safieddine, 2011;Chiang & Lin, 2011;Chowdhury, 2010;Chugh et al., 2011;Dar et al., 2011;Galbreath, 2010;Heenetigala & Armstrong, 2011;Jackling & Johl, 2009;Kang & Kim, 2011;Khan & Javid, 2011;Kota & Tomar, 2010;Lin, 2011;O`Connell & Cramer, 2010;Rachdi & Ameur, 2011;Sa´nchez-Marı´n et al., 2010;Shao, 2010;Stanwick & Stanwick, 2010;Valenti et al., 2011;Yasser, Entebang & Al Mansor 2011). In addition, only a few researchers have investigated the association between some factors of ownership structure with firm performance (e.g. Akimova & Schwodiauer, 2004;Chen, Chen & Chung, 2006;Douma et al., 2006;Ganguli & Agrawal, 2009;Kapopoulos & Lazaretou, 2007;Lemmon & Lins, 2001;MoIlah & Talukdar, 2007;Sánchez-Ballesta & García-Meca, 2007). Therefore, given the importance of ownership structure, role to attract investors either local or foreign, to ensure future investment, this study investigates the relationship between ownership structure and firm performance. Based on the extensive discussion and recommendations above, that the true importance of ownership structure to improve the company's performance were addressed by the theoretical, practical and empirical studies along with the ownership structure. In sum, as mentioned above, the goal of the study is to examine the relationship between ownership structure comprising of ownership concentration and types of ownership, including government ownership, managerial ownership, foreign ownership and institutional ownership and firm performance.

Ownership Concentration and Firm Performance
The first element of the CG mechanism of ownership structure examined in this study is the concentration of ownership. It is a reaction to the various levels of legal protection of minority shareholders in the countries (Azam et al., 2011). Ownership concentration is also defined as the proportion of a firm's shares owned by a number of the major shareholders (Sanda et al., 2005). In the same context, ownership concentration is measured by the fraction owned by the five largest shareholders or by the significant shareholders Obiyo & Lenee, 2011;Singh & Gaur, 2009). While Berle and Means (1932) revealed a positive correlation between ownership concentration and performance, other studies revealed an absence of relation between the two (Demsetz & Lehn, 1985;Demsetz, 1983). This does not however negate the importance of ownership concentration as Shleifer and Vishny (1997) claimed that ownership concentration coupled with legal protection forms one of the two key elements that determine corporate governance. In other words, large shareholders can benefit their minority counterparts as they have the authority and incentive to stop managers from expropriation or asset stripping. In this vein, ownership concentration can be considered as a governance mechanism that is efficient. The agency theory postulates that ownership concentration is a critical factor for good corporate governance (Siala et al., 2009). Nevertheless, ownership concentration at a high level offers an opportunity for controlling shareholders and managers to take part in preventing expropriation from minority shareholders (La Porta, Lopez-De-Silanes & Shleifer, 1999;Morck et al., 1988;Shleifer & Vishny 1997). Regarding to above extensive debate among agency theory, resource dependence theory and empirical evidence, the relationship between ownership concentration and firm performance is still inconclusive. Indeed, there many authors around the world who revealed the relationship between concentration ownership and firm performance as positive whether in developed countries. On the other hand, empirically, there are many studies that found a negative relationship between ownership concentration and firm performance. With inconclusive findings found by previous discussions, this study offers extensive review and found both positive and negative association between ownership concentration and firm performance and there are some researchers who found no relationship. For more information, should refer to below tables.

Managerial Ownership and Firm Performance
The second vital factor of quality of ownership structure is the managerial ownership. The managerial ownership is represented as the proportion of shared owned in the firm by insiders and board members or insider ownership (Liang et al., 2011;Mandacı & Gumus, 2010;Wahla et al., 2012). While insider ownership appears to act as an effective corporate mechanism, managerial ownership is considered by Jensen and Meckling (1976) as a signal to align the shareholders' interests with that of the manager's. On a similar note to the latter contention,  and Shleifer and Vishny (1988) revealed that high managerial ownership may lead to management entrenchment as they have less BOD governance and market discipline for corporate control.
There are theoretical and empirical evidence that examined the relationship between managerial ownership and firm's performance and revealed mixed findings. This inconclusive finding will be reviewed in the following discussion. First of all, the agency theory perspective is discussed - Jensen and Meckling (1976) stated that managerial ownership leads to the improvement of manager-owner agency conflict as managers are also the owners of a majority of firm shares and hence they are encouraged to maximize job performance to realize superior performance. However, Demsetz (1983) and  considered high managerial ownership as the cause of management entrenchment and thus leading to serious agency problems. Moreover, Jensen and Meckling (1976) claimed that agency cost and managerial ownership are negatively related, while firm's performance and managerial ownership are positively so. On the other hand, Morck et al. (1998) and Wahla et al. (2012) stated that high managerial stake on firm ownership can act as a mechanism that influences the alignment of interests between managers and owners and eventually affect firm market value . On the other hand, the resource dependence theory supports a partnership with external resources because they provide the company with multiple sources and different experiences as they work to maximize shareholder rights and all parties associated with the company. It focuses on the involvement of all confiscated resources and merges them together in order to make the most of the experience and confiscation, which in turn helps to achieve the goals of the beneficiaries of the company. Therefore, the large ownership by members of the board do not help to improve performance of companies (Pfeffer, 1972). Regarding the above discussion, the relationship between managerial ownership and firm performance should be negative. For this logic, there are many researchers in developed countries that have verified the relationship between managerial ownership and firm performance. They have been revealing a negative association between them. On the other hand, this section also highlights some evidence in the developing countries. There were many researchers in developing countries that verified the relationship between managerial ownership and firm performance and found a negative association between them. For further information, should refer to below tables.

Regression Productivity
To empirically re-examine this relationship, this study proposes the following hypotheses. H2: There is a positive relationship between the managerial ownership and firm performance.

Government Ownership and Firm Performance
The third important issue of value of ownership structure is government ownership. The government ownership is measured by the ratio of shares owned by the government in the firm (Imam & Malik, 2007;Irina & Nadezhda, 2009;NazliAnum, 2010;NurulAfzan & Rashidah, 2011;Rhoades, Juleff & Paton, 2001) revealed that the choice of suitable governance mechanisms among owners and managers will guarantee the alignment of their interests. Under the agency theory, government ownership can be a solution to the issue of asymmetry of information provided to investors concerning the firm value and the shares owned by the state can align the interest between owners and managers (Jensen & Meckling, 1979). Generally, the government is capable of obtaining information from sources and it has a convenient access to various financing organizations and non-state firms (Eng & Mak, 2003). In addition, the aim of the government is mainly linked to the nation's well-being. However, according to Mak and Li (2001), the government will not be as likely to be active in investment monitoring in GLS. More importantly, the GLCs adoption of strong governance may be hindered by factors including weaker accountability for financial performance, easier access to financing, lack of exposure to market for corporate control and weaker monitoring by shareholders. Theoretically and empirically, there has been a growing researcher to examine the relationship between government ownership and firm performance. However, the result is still mixed. For explanation of these mixed findings, the next paragraphs provide a justification. From another perspective, under resource dependence theory, outsourcing helps to provide established sources of finding a variety of different and varied experience qualifications that work to reduce the cost of capital. It also works to provide an efficient control mechanism of several aspects in order to help create a favourable working and effective environment. This, in turn, works to improve the performance of the company (Pfeffer, 1972). And hence, the current study expects that the government is one of the most important outsourcing mechanism and effective and efficient in improving the function of the companies. Regarding both agency theory and resource dependence theory, the relationship between government ownership and firm performance should be positive. However, there is lack of empirical research that examined the relationship between government and firm performance. They revealed a positive relationship in the developed countries. On the other hand, very little evidence has revealed a negative association between government ownership and firm performance. . Finally, there is some studies that found there is no significant relationship between government ownership and firm performance. For more details, you can refer to provide below The present study attempts to contribute to literature regarding this relationship by proposing the following hypotheses. H3: There is a positive relationship between the government ownership and firm performance.

Foreign Ownership and Firm Performance
The fourth aspect of superiority of ownership stature is foreign ownership. The present study focuses on foreign shareholders' influence upon corporate performance. Foreign ownership is measured by the ratio of foreign ownership stake to total shareholding as evidenced by Al Manaseer et al., (2012), Chari et al., (2012) and Uwuigbe and Olusanmi (2012). The impact of foreign ownership upon bank profitability is associated to various reasons (Al Manaseer et al., 2012); first the capital contributed by foreign investors minimizes the fiscal costs of restructuring of banks (Tang, Zoli & Klytchnikova, 2000). Second, foreign banks may offer expertise in risk management and a more superior culture of corporate governance, resulting in more efficient banks (Bonin et al., 2005). Third, the presence of foreign banks heightens the competition and urges local banks to cut costs and enhance their efficiency (Claessens & Fan, 2002). Moreover, if a significant portion of the firm's shares is held by foreign shareholders, it may be an indication that foreign shareholders trust those companies which may result in the higher companies' valuation (NazliAnum, 2010). More importantly, the opening of national economies to foreign trade and investment has great significance on corporate governance practices in the economies (Kim & Yoon, 2007).The introduction of foreign financial institutions into developing economies is associated to implications in two aspects; first, foreign financial institutions, as they are privately owned and managed, have greater incentives to monitor management to guarantee higher returns on investment compared to public financial institutions. Second, the institutions have superior tools to monitor managers compared to their local counterparts in developing economies (Khanna & Palepu, 2000;Rapaczynsky, 1996).
As mentioned time and again in this research, the agency theory has its basis on the owners-managers relationship. The distinction of managers from owners in contemporary firms offers the context of the agency theory function. Contemporary firms are characterized as having widely dispersed ownership, in light of shareholders who have no role in the companies' management. In the same context, Jensen and Meckling (1976) suggested that the firm can be considered as a network of contracts (implicit and explicit) among parties or stakeholders including shareholders, bondholders, employees and even the society. There is a lack of supporting this variable in the previous empirical studies but the current study believes the foreign ownership is a factor that helps to align the interrelationship between owners and manager and at the same time it mitigates the agency cost between the owners and managers. From resource dependence theory, discussed by Pfeffer (1972) and Pfeffer and Salancik (1978) foreign sources are one outsourcing mechanism which helps to finance the company's capital. Moreover, foreign investors are of the most fundamental factors that help the separation between owners and shareholders and also helps the company to expand control over managers in the decision making process. It also provides established foreign expertise that gives a clear picture about the foreign investments. Finally, the foreign ownership helps to improve performance of firms. This present study provides many studies around the world that have investigated the relationship between foreign ownership and firm performance in both the developed countries and developing countries. In the end, they found a positive relationship. This current study begins to review the research done in the developed countries. On the contrary, there some authors who have examined the association between foreign and firm performance in both developed countries but they found no relationship (insignificant) between them as provided below. Employs quantile regression ROA Therefore, this study is planning to contribute to the literature by testing the following hypotheses. H4: There is a positive relationship between the foreign ownership and firm performance.

Institutional Ownership and Firm Performance
The fifth influence of value of ownership structure is institutional ownership. The institutional ownership is gauged through the ratio of shareholding held by institutions to the total number of shares (Fazlzadeh et al., 2011;Nuryanah & Islam, 2011). Institutional investors comprise of organizations pooling significant amounts of money to invest in companies for instance, banks, mutual funds, insurance companies among others. They can command the board to provide shareholders' protection and enhances company governance. With the authority to select directors (for some board seats), they may be able to employ them to oversee the company on their behalf. Lately, directors are more inclined to commit their loyalty to corporate officers as opposed to shareholders who the directors nominally serve. The separation of ownership and control also has a significant role. According to Khanchel (2007), the institutional investors' role in corporate governance system of the company is debatable. However, some are convinced that their role in governance moves the firm from good to great .
Studies reveal that institutional investors must have some say in the company's corporate governance system. The findings of these studies indicate that for the corporate governance system in the companies to be successful, institutional investors should play a role in the complete process. For instance, Shleifer and Vishny (1986), noted that institutional investors because of their large stock holdings would possess greater incentives for monitoring corporate governance in order to obtain benefits. Additionally, Cremers and Nair (2005) stressed that some institutional investors like pension funds may be more encouraged to monitor compared to others and as such, they are more insistent shareholder activists. In the same context, Moshe (2006) noted that the separation of ownership and control results in an agency problem because managers may run the firm for their benefit and not for the shareholders'; in other words, they may choose maximization of their personal utility and not of shareholder value . This perspective is similar to agency theory where it recalls the separation between Journal of Sociological Research ISSN 1948-5468 2013 www.macrothink.org/jsr 482 ownership and management to maximize the shareholder's value and give freedom to take decisions. And also resource dependence theory proved that outsource gives a firm a background to deal with expertise and professional person. The outsider has an important incentive to maximize the significance of shareholders.
From both agency theory and resource dependence theory and the above broad discussions, the relationship between institutional ownership and firm performance is supposed to be positive. There are some authors who examined the relationship between institutional ownership and firm performance in the developed countries such as Harjoto and Jo (2008) and Irina and Nadezhda (2009 Regression. Tobin-Q Thus, the following hypotheses are proposed for empirical examination. H5: There is a positive relationship between the institutional ownership and firm performance.

Conclusion
This study is an attempt to provide a comprehensive review of the relationship between ownership structure factors that related to the performance of the company. As the researcher approved that there is a lack of previous studies, in general, in the developed countries and, in particular, in the developing countries to investigate all these factors together with firm performance. So that, this study focused to fill this gap and enrich existing literature review for more improvement in this relation and give a clear recommendations for future studies. As a matter of fact, some authors proved that the ownership structure has a value and positive role to enhance the performance of the firm through offering a high disclosure of information report which, in turn, to lead attractive both local and foreign investors. The ownership is mechnisim that arrange the main relationship between owner and managers as well as, it helps to reduce the agency cost for improvement the firm's performance. This study is similar to prior study those have many recommendations. Firstly, as important points, this study highlighted the lack of the studies in literature with future recommendations to test this relation empirically in the emerging markets such as gulf countries. Secondly, this study suggested future studies to moderate or meditate some variables that have a significant relationship between ownership structure and firm performance and may lead to more improvement because of the inclusiveness in the previous research results. Thirdly, future studies should integrate ownership structure factors with corporate governance mechanisms , such as board of director's characteristics, audit committee characteristics, risk committee characteristics, executive committee characteristics, compensation committee and others that have an important association with firm performance and will help to enhance it. Finally, this study recommended future studies to test the firm performance through different perspective