Government Ownership and Value of Listed Firms in Kenya: A Panel Data Evidence
Keywords:
Government Ownership, Performance, Nairobi Securities Exchange, Panel DataAbstract
This study examines the relationship between government ownership and performance of listed firms on the Nairobi Securities Exchange. The quadratic term of government ownership is included in the model to test for the effect of increasing government ownership levels on performance. We use panel data techniques on 102 firm-year observations between 2003 and 2013 for all the listed firms in which the government directly owns some shares. We find no relationship between government ownership and performance at lower levels of government ownership. We find a negative relationship between government ownership and performance at higher levels of government ownership. We estimate, through differentiation of the Tobin’s Q model, that government ownership has a negative effect on performance when government ownership exceeds 41%. The study concludes that lower government ownership levels do not affect firm performance but as the ownership rises, government ownership has a detrimental effect on firm performance. We provide implications of these results for policy and practice.
JEL Classifications Code: G34
Downloads
References
Alfaraih, M., Alanezi, F., & Almujamed, H. (2012), “The Influence of Institutional and Government Ownership on Firm Performance: Evidence from Kuwait”, International Business Research; 5(10), 192 – 200. DOI: https://doi.org/10.5539/ibr.v5n10p192
Brink, A. (2010), “Enlightened Corporate Governance: Specific Investments by Employees as Legitimisation for Residual Claims”, Journal of Business Ethics, 93, 641 – 651. DOI: https://doi.org/10.1007/s10551-009-0245-3
Choi, S. B., Park, B. I. & Hong, P. (2012), “Does Ownership Structure Matter for Firm Technological Innovation Performance? The Case of Korean Firms”, Corporate Governance: An International Review, 20(3), 267–288. DOI: https://doi.org/10.1111/j.1467-8683.2012.00911.x
Cornett, M.M., Guo, L., Khaksari, S., & Tehranian, H. (2008), “The Impact of State Ownership on Performance Differences in Privately-Owned versus State-Owned Banks: An International Comparison”, Journal of Financial Intermediation, Forthcoming. DOI: https://doi.org/10.2139/ssrn.1268989
Drukker, D.M. (2003), “Testing for serial correlation in linear panel-data models”, Stata Journal, 3, 168 – 177. DOI: https://doi.org/10.1177/1536867X0300300206
Fama, E.F., & Jensen, M.C., (1983), “Separation of ownership and control”, Journal of Law and Economics, 26 (2), 301–325. DOI: https://doi.org/10.1086/467037
Haniffa, R., & Hudaib, M. (2006), “Corporate Governance Structure and Performance of Malaysian Listed Companies”, Journal of Business Finance and Accounting, 33(7-8), 1034-1062. DOI: https://doi.org/10.1111/j.1468-5957.2006.00594.x
Hess, K., Gunasekarage, A., & Hovey, M. (2010), “State-dominant and non-state-dominant ownership concentration and firm performance: evidence from China”, International Journal of Managerial Finance, 6 (4) (2010), 264–289. DOI: https://doi.org/10.1108/17439131011074440
Hovey, M., Li, L. & Naughton, T (2003), “The relationship between valuation and ownership of listed firms in China”, Corporate Governance: An International Review, 11 (2), 112–122. DOI: https://doi.org/10.1111/1467-8683.00012
Jensen, M., & Meckling, W. (1976), “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure”, Journal of Financial Economics, 3(3), 305-360. DOI: https://doi.org/10.1016/0304-405X(76)90026-X
Jiang, B.B., Laurenceson, J. & Tang, K.K. (2008), “Share reform and the performance of China’s listed companies”, China Economic Review, 19 (3), 489–501. DOI: https://doi.org/10.1016/j.chieco.2008.02.001
Kiruri, R.M. (2013), “The effects of ownership structure on bank profitability in Kenya, European”, Journal of Management Sciences and Economics, 1(2), 116-127.
Kobeissi, N., (2004), “Ownership structure and bank performance: evidence from the Middle East and North Africa”. Working Paper presented in 2004 at the Economic Research Forum Conference in Beirut- Lebanon.
Ongore, V.O. & K’Obonyo, P.O. (2011), “Effects of Selected Corporate Governance Characteristics on Firm Performance: Empirical Evidence from Kenya”, International Journal of Economics and Financial Issues, 1(3), 99-122.
Phung, D.N. & Hoang, T.P.T. (2013), “Corporate Ownership and Firm Performance in Emerging Market: A Study of Vietnamese Listed Firms”, Proceedings of World Business and Social Science Research Conference 24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand. DOI: https://doi.org/10.2139/ssrn.2332622
Ping, Z., & Wing, C. (2011), “Corporate Governance: A Summary Review on Different Theory Approaches”, International Research Journal of Finance and Economics, (68), 7-13.
Saleh, N.M., Rahman, M.R.C.A. & Hassan, M.S. (2009), “Ownership Structure and Intellectual Capital Performance in Malaysia”, Asian Academy of Management Journal of Accounting and Finance, 5(1), 1-29.
Sun, Q., Tong, W.H.S., & Tong, J. (2002), “How does government ownership affect firm performance? Evidence from China’s privatization experience”, Journal of Business Finance and Accounting, 29 (1–2), 1–27. DOI: https://doi.org/10.1111/1468-5957.00422
Tian, L.H. & Estrin, S. (2008), “Retained shareholding in Chinese PLCs: does government ownership always reduce corporate value?” Journal of Comparative Economics, 36 (1), 74–89. DOI: https://doi.org/10.1016/j.jce.2007.10.003
Wei, G., (2007), “Ownership structure, corporate governance and company performance in China”, Asia Pacific Business Review, 13 (4), 519–545. DOI: https://doi.org/10.1080/13602380701300130
Wiggins, V. & Poi, B. (2001), “Testing for panel-level heteroskedasticity and autocorrelation” [Online] http://www.stata.com/support/faqs/statistics/panel-level-heteroskedasticity-and-autocorrelation/ (Accessed March 20, 2015).
Wooldridge, J.M. (2002), Econometric Analysis of Cross Section and Panel Data, MIT Press, Cambridge, MA.
Yu, M. (2013), “State ownership and firm performance: Empirical evidence from Chinese listed companies”, China Journal of Accounting Research, 6(2), 75–87. DOI: https://doi.org/10.1016/j.cjar.2013.03.003
--0--
Downloads
Published
Issue
Section
License
This journal operates under a hybrid access model. Published articles may be available through paid access or subscription, while selected articles may be published as Open Access upon payment of an Open Access fee.
For non-Open Access articles, all rights are reserved by the publisher. No part of these publications may be reproduced, distributed, stored, or transmitted in any form or by any means without prior written permission from the publisher, except for brief scholarly citation and referencing.
Open Access articles, when applicable, are distributed under the specific Creative Commons license indicated on the individual article page.
