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International Research Journal of Finance and Economics ISSN 1450-2887 Issue 84 (2012) © Euro Journals Publishing, Inc. 2012 http://www.internationalresearchjournaloffinanceandeconomics.com

Impact of Ownership Structure on Firm Performance Evidence from Non-Financial Listed Companies at Karachi Stock Exchange Khalil-Ur-Rehman Wahla Faculty of Management Sciences International Islamic University, Islamabad E-mail: khalilwahla@gmail.com Tel: +92-333-6334293 Syed Zulfiqar Ali Shah Faculty of Management Sciences International Islamic University, Islamabad E-mail: zulfiqar.shah@gmail.com Tel: +92-51-9019764 Zahid Hussain Department of Business Administration National Textile University Faisalabad E-mail: zahid@ntu.edu.pk Tel: +92-41-9230081 Ext: 169 Abstract This study is conducted to analyze the significant relationship of Ownership Structure with Firm Performance in non-financial companies listed at Karachi Stock Exchange during the period 2008 to 2010. Ownership Structure is represented by Managerial Ownership and Concentrated Ownership. Tobin’s Q is used as a proxy for Firm Performance. Panel Data Technique has employed to foresee the significant relationship among the variables. Results showed that Managerial Ownership has a significant negative relationship with Firm Performance, whereas Concentrated Ownership has shown insignificant relationship with Firm Performance. Leverage, a controlled variable has shown a significant negative relationship with Firm performance while insignificant relationship found between Assets Turnover and Firm Performance. Our results suggested that Firm Performance critically depends on Managerial Ownership. Agency problems arise due to increase in Managerial Shareholdings in Pakistani context, which ultimately impacts the performance of the firms. Keywords: Karachi Stock Exchange, Ownership Structure, Firm Performance

International Research Journal of Finance and Economics – Issue 84 (2012)

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1. Introduction
The relationship of ownership structure and firm performance is an important area of study in the broader field of Corporate Governance from last two decades. Researchers have focused mainly on managers and major shareholders interests on firm ownership. These researchers explored the relationship of ownership structure and firm performance keeping in view the conflict of interests of managers and owners of the firm. Research revealed that firm’s market value is based not on its investment projects only but other factors such as financial structure, dividend policy and its governance / control and ownership structure also add value to the firms. The role of ownership in adding value to the firm is has been proved now. This new role of ownership is two folded: the asymmetric information approach and the agency approach. The former approach found the ownership structure as a way to reduce the unbalanced information disclosure in capital markets between insiders and outsiders (Eland and Pyle, 1977, Bergstrom and Rydqvist, 1990). Though, the literature on the subject is not conclusive and has two-way conclusions. Some of the researchers have found non-monotonic relationship between managerial ownership and firm performance (Morck et al, 1988). Others found that investment decisions act as a transmission mechanism between ownership and value of the firm. Jensen and Meckling (1976) suggested that investments are affected by managerial ownership, which in turn affects the value of the firm. Morck et al (1988) further suggested that the stake of managers in firm ownership can act as a mechanism with decisive impact on the alignment of interests between manages and owners and then ultimately on firm market value, when managers own a reasonable amount of shares of a firm. Generally accepted view of finance theory was that the shareholders of an individual firm could be featured as a homogenous group of relatively un-involved absentee owners. It also assumed that managers have to act...
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