Ownership Concentration and Corporate Performance: A Simultaneous Equation Framework for Turkish Companies

Abstract

One of the key elements for the development of financial markets is better protection of outside investors. Ownership concentration is a typical feature of firms in emerging countries where laws are not sufficient to protect investors from expropriation of their funds. This chapter investigates whether concentrated equity ownership creates an agency problem or better monitoring on expropriation of minority shareholders by using Turkish industrial firms as a laboratory. Our analysis depends on a simultaneous equation system in which concentrated ownership measured by the total percentage of shares owned by the three largest shareholders is endogenous. While OLS regression estimates show that there is a reverse causation, 2SLS estimation suggests that there is no systematic relationship between ownership concentration and the firm market performance. We find some evidence that ownership concentration is affected by the firm accounting performance rather than it affects the performance.

Keywords: Corporate Governance, Ownership Concentration, Firm Performance, Emerging Market

JEL Classification: G32, G34