Post-Privatization Corporate Governance and Firm Performance: The Role of Private Ownership Concentration, Identity and Board Composition

16 Pages Posted: 26 Nov 2008 Last revised: 31 Dec 2009

See all articles by Mohammed Omran

Mohammed Omran

The Insurance Holding Company; Arab Academy for Science and Technology

Date Written: November 25, 2008

Abstract

We examine and analyze the post-privatization corporate governance of a sample of 52 newly privatized firms from Egypt over the 1995-2005 period. We look at the ownership structure that results from privatization and its evolution; the determinants of private ownership concentration; and the impact of private ownership concentration, identity and board composition on firm performance. We find that the state gives up control over time to the private sector, but still controls, on average, more than 35 percent of these firms. We also document a trend in private ownership concentration over time, mostly for the benefit of foreign investors. Firm size, sales growth, industry affiliation, and timing and method of privatization seem to play a key role in determining private ownership concentration. Ownership concentration and ownership identity, in particular foreign investors, prove to have a positive impact on firm performance, while employees ownership concentration has a negative ones. The higher proportion of outside directors and the change in the board composition following privatization affect firm performance positively. These results could have some important policy implications; in which private ownership by foreign investors seem to add more value to firms; while selling state-owned enterprises (SOEs) to employees is not recommended. Also, the state is highly advised to relinquishes control and allow for changes in the board of director following privatization as changing ownership, per se, might not have an impact on firm performance unless it is coupled with new management style.

Keywords: Privatization, ownership concentration, corporate governance, Egypt

JEL Classification: F3, G3

Suggested Citation

Omran, Mohammed M., Post-Privatization Corporate Governance and Firm Performance: The Role of Private Ownership Concentration, Identity and Board Composition (November 25, 2008). Journal of Comparative Economics, Vol. 37, pp. 658–673, 2009, Available at SSRN: https://ssrn.com/abstract=1306883

Mohammed M. Omran (Contact Author)

The Insurance Holding Company ( email )

7 Talet Herb Street
Cairo
Egypt

Arab Academy for Science and Technology ( email )

P.O. Box. 1029
College of Management and Technology
Miami, Alexandria
Egypt
(203) 5482 532 (Phone)
(203) 5566 072 (Fax)

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