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Corporate Governance and Firm Performance in

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 International Review of Law and Economics 28 (2008) 3245

Corporate governance and firm performance in Arab equity markets:

Does ownership concentration matter?
Mohammed M. Omran a,b, , Ali Bolbol c , Ayten Fatheldin c
a Arab Academy for Science and Technology, College of Management and Technology, P.O. Box 1029, Miami, Alexandria, Egypt
b Cairo and Alexandria Stock Exchanges, 4 (A) El Sherifein St., Down Town, Postal Code 11513,

P.O. Box 358, Mohammed Farid, Cairo, Egypt

c Economic Policy Institute, Arab Monetary Fund, P.O. Box 2818, Abu Dhabi, United Arab Emirates

Abstract
The paper works with a sample of 304 firms from different sectors of the economy, and from a representative group of Arab countries
(Egypt, Jordan, Oman and Tunisia) where related data could be gathered. We first present crucial descriptive statistics on the firms corporate
ownership, identity, and their performance and market measures, and then use unstructured but credible equations to capture the relationship
between these variables. Specifically, we study the determinants of ownership concentration; the effect of ownership concentration on firms
performance and market measures, after controlling for the endogeneity of ownership concentration through the use of country and firm
characteristics as instrumental variables; and, the effects of ownership identity and blockholdings. The broad conclusion that emerges is that
ownership concentration is an endogenous response to poor legal protection of investors, but seems to have no significant effect on firms
performance.
2008 Elsevier Inc. All rights reserved.

JEL classication: G3; F3

Keywords: Ownership concentration; Performance and market measures; Corporate governance; Arab countries

1. Introduction is perhaps the most interesting because it has spawned a rich

Does ownership matter? And what are its implications for
corporate governance, and its effects on firm performance?
The easiest to answer of these three questions is probably the
first, since the bulk of the evidence shows that privately-held
firms are more efficient and more profitable than publicly-
held ones although the evidence differs on the relative merit
of the identity of each private owner.1 The second question
The views expressed in this paper are entirely those of its authors and do
not necessarily reflect those of the Cairo and Alexandria Stock Exchanges
(CASE), the board of directors, or CASE policy. They do not also represent
the views of the Arab Monetary Fund.
Corresponding author at: Arab Academy for Science and Technology,
research agenda pioneered by La Porta, Lopez-de-Silanes,
Shleifer, and Vishny (1997, 1998, 1999, 2000). The upshot of
their findings is that when the legal framework does not offer
sufficient protection for outside investors, entrepreneurs and
original owners are forced to maintain large positions in their
companies which result in a concentrated form of ownership.2
What makes this finding interesting is its implications for
the third question, since most of the evidence shows that
there is no significant effect of ownership concentration on
firm performance. As a result, one is led to conclude that
corporate governance or the lack of it is immaterial to firm
performance.3
2 They also find that common-law countries generally have the strongest,

College of Management and Technology, P.O. Box 1029, Miami, Alexandria, and French civil-law countries have the weakest, legal protection of investors,
Egypt. with German and Scandinavian civil-law countries located in the middle. In
E-mail addresses: mmomran@egyptse.com, momran@aast.edu addition, they argue that the legal system is a more fruitful way to under-
(M.M. Omran). stand corporate governance and its reforms than the conventional distinction
1 This is particularly true for enterprises that are not monopolistic in nature. between bank-based and market-based financial systems.
See Shirley and Walsh (2001). 3 See Denis and McConnell (2003) and Berglof and von Thadden (1999).

0144-8188/$ see front matter 2008 Elsevier Inc. All rights reserved.
doi:10.1016/j.irle.2007.12.001
 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
In fact, the widely-held firm is not a widely-observed
phenomenon in most countries. This could be attributed to
several reasons. In the developed countries, it could be a
rational response to a legal system that does not protect minor-
ity investors (ala La Porta et al.), but it could also be the
result of entrenched financial structures and practices that
determine and shape the enactment of corporate law.4 For
developing countries, in addition to the aforementioned rea-
sons, it could also be due to the underdeveloped nature of their
financial markets that would allow limited access to exter-
nal financing and the preponderance of family firms.5 But
perhaps what is more important as far as this phenomenon is
concerned, especially in developing countries, is that sound
governance should go beyond the textbook example of the
widely-held firm and concentrate on redesigning corporate
practices that are more peculiar to their case, such as: lack of
agency between concentrated and minority owners, reduced
liquidity of shares, cross ownership and pyramiding of share-
holdings, dual-class shares, and the like.6 This is of course an
ambitious agenda, but it reflects better the corporate structure
of these countries and in the process acts as a better guide for
future corporate reforms.
In this context, the Arab economies are no exception.
Their corporate legal system largely follows the civil-law sys-
tem, but one can reasonably argue that the relation between
legal origin and financial arrangements in the Arab countries
merely reflects the influence of a third exogenous variable,
which is the role of the state or the nature of the political
system and its national governance. Here, and to nobodys
surprise, the Arab world does not fare well, having a rela-
tively closed and highly concentrated political system with
a poor mode of national governance.7 This naturally spills
over to its system of corporate governance, as the major-
ity of Arab firms are either government- or family-owned
with stock markets still in a rudimentary stage. But firms
are changing, prompted by increased competition from trade
openness, by privatization, and by the need for more external
financing. And, to better understand their future trajectory,
we need to understand their current corporate make-up and
performance.
In fact, most of previous research studies on corporate
governance and firm performance issues have been, mainly,
limited to those of developed economies or large emerging
economies. It seems, then, that small economies such as those
of the Arab countries are very much understudied in the lit-
4 For example, countries with a tradition of strong bank involvement in
corporate control and ownership have often found ways of accommodating
this tradition in legal practice (as in Japan and Sweden).
5 The evidence on family firms especially in East Asia is that they
are robust over time, dispelling the notion that their ownership becomes
dispersed over time. See Claessens, Djankov, Fan, & Lang (2000).
6 See Berglof and von Thadden (1999). For instance, Lins (2003) finds for
a sample of 1433 firms from 18 emerging countries that when a manage-
ment groups control rights exceed its cash-flow rights then firm values are
markedly lower.
7 See Sadik, Bolbol, and Omran (2004).
33
erature, so in this paper we try to fill this gap by looking at
the determinant of ownership concentration and the impact
of both ownership concentration and ownership identity on
firm performance.
Using a sample of more than 300 representative Arab
firms, we find that ownership concentration in these firms
seem to be negatively associated with legal protection. In
addition, more active stock markets and fewer restrictions
on economic activity are correlated with dilution and less
concentration of corporate ownership. Hence, if the latter is
desired in its own right, then naturally better laws protecting
investors and their implementation and more developed stock
markets are surely welcome. Also, the results indicate that
ownership concentration does not seem to have a significant
effect on Arab firms profitability and performance measures.
Nor does the separation between CEO and chairperson posi-
tions. This means that-given the fact that firms typically raise
equity not so much in public markets but through family ties
or personal relationships-legal protection of creditors is more
important than improving other aspects of corporate gover-
nance since any substantial growth in external finance is likely
to be debt.
The rest of the paper will be organized as follows: in
Section 2 we present crucial descriptive statistics on the
firms corporate ownership, identity, and their performance
and market measures, whereas in the following sections we
use unstructured but credible equations to capture the rela-
tionship between these variables. Specifically, in Section 3
we study the determinants of ownership concentration as
given by firm and country characteristics; while in Sec-
tion 4 we look at the effect of ownership concentration
on firms performance and market measures, after control-
ling for the endogeneity of ownership concentration through
the use of country and firm characteristics as instrumen-
tal variables. Sections 5 and 6 follow largely the same
approach as in Section 4, but with Sections 5 and 6 deal-
ing, respectively, with the effects of ownership identity and
blockholdings on performance and market measures. Lastly,
Section 7 closes the paper with a conclusion and some policy
recommendations.
2. Data and descriptive statistics
The countries under study provide a selective but repre-
sentative coverage of the Arab regions Oman (the Gulf),
Egypt and Jordan (the Mashreq) and Tunisia (the Maghreb).
As important, and as Table 1 shows, the sample of firms
from each country covers all major sectorsindustry (both
manufacturing and non-manufacturing), financial institutions
and services (other than financial); with manufacturing firms
comprising close to half the total of 304 firms, and financial
institutions slightly more than a quarter. All firms, whether
majority-private or majority-government owned, are tradable
on their respective stock markets (see Appendix A for data
sources).
34 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245

Table 1
Number of sample firms in each country, classified according to industry affiliation
Manufacturing Non-manufacturing Financial institutionsa Services Total
Egypt 45 6 21 9 81
Jordan 56 2 29 29 116
Oman 37 3 12 18 70
Tunisia 8 0 18 11 37
Pool 146 11 80 67 304
a Includes banks, insurance and investment firms.

The time frame for the study stretches over the 20002002
period, so as to allow some longitudinal dimension to the
data; and, as a result, the estimation process draws on a panel
data of firms and years for all four countries. Table 2 shows
some descriptive statistics for size and profitability pertain-
ing to each country panel and the pooled panel. It is clear that
Egyptian firms are the most profitable, in terms of return on
assets and equity, and they have the largest market capitaliza-
tions reflecting perhaps their deeper stock market penetration.
Tunisian firms, on the other hand, have the highest Q-ratio
defined as the ratio of market value plus total liabilities to
book value plus total liabilities and are largest in terms of
assets, something that could be explained by the large pres-
ence (close to half) of financial institutions in the sample.
Jordanian firms, however, reveal features that are notice-
ably more extreme. Not only are they the least profitable
and have Q-ratios less than one, but their median asset size
is close to 5% of their corresponding mean size, implying
large size differences amongst themselves due most likely
to their lopsided nature a few large firms in finance and
the extractive industries, and a majority of small firms in
other sectors. Omani firms also exhibit low returns as a result
of the preponderance of low profit service-sector firms, but
their size distribution is much more balanced than that of
Jordan.
Before we explore the descriptive characteristics pertain-
ing to ownership, a note on country-level characteristics is
useful. Table 3 shows the pooled country data for some

Table 2
Descriptive statistics of firm level data
Mean Median Minimum Maximum S.D.
Panel A: Egypt (239 observations)
MV 88,469 35,294 623 2,170,795 190,088
ASSETS 379,623 101,148 8692 4,375,919 667,572
ROA 7.0% 6.1% 10.0% 24.7% 0.06
ROE 18.9% 17.3% 46.1% 72.3% 0.14
Q 1.01 0.98 0.34 2.35 0.31
Panel B: Jordan (341 observations)
MV 46,944 9309 339 2,482,370 214,085
ASSETS 301,616 15,418 816 20,753,389 1,914,313
ROA 2.1% 1.4% 32.5% 27.5% 0.09
ROE 3.0% 3.7% 66.8% 59.7% 0.14
Q 0.98 0.93 0.38 3.08 0.39
Panel C: Oman (203 observations)
MV 26,530 11,313 390 364,785 47,708
ASSETS 75,580 24,278 1891 1,920,593 234,129
ROA 2.9% 3.1% 29.0% 27.4% 0.07
ROE 5.2% 8.6% 66.8% 59.8% 0.18
Q 1.08 0.99 0.41 2.80 0.40
Panel D: Tunisia (106 observations)
MV 53,871 31,749 4052 288,668 55,254
ASSETS 483,209 90,463 7934 2,974,467 728,121
ROA 4.4% 2.0% 5.9% 34.0% 0.06
ROE 12.5% 11.5% 48.1% 51.8% 0.12
Q 1.19 1.01 0.71 3.38 0.50
Panel E: Pool (889 observations)
MV 54,272 15,321 339 2,482,370 169,183
ASSETS 292,625 33,748 816 20,753,389 1,270,781
ROA 3.9% 2.9% 32.5% 34.0% 0.08
ROE 8.9% 9.6% 66.8% 72.3% 0.16
Q 1.04 0.98 0.34 3.38 0.39
MV, market value in thousands of US$; ASSETS, total assets in thousands of US$; ROA, return on assets; ROE, return on equity; Q, Q-ratio.
 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245 35

Table 3 equity.11 From Table 5, we see that for all countries the share
Descriptive statistics for pooled country level data
of companies with at least one blockholder as local individ-
Mean Median Minimum Maximum S.D. uals increased during the period, especially for Oman whose
PS 0.40 0.25 0.44 1.01 0.52 share reached up to 45%. Egypt looks to be the only coun-
ROL 0.57 0.53 0.09 1.25 0.37 try whose corresponding share of local government in fact
COC 0.31 0.24 0.29 1.03 0.44
ECFR 3.03 2.94 2.60 3.58 0.33
increased to a high of 67%; whereas Tunisia, not surpris-
Y 4.4% 4.5% 1.7% 9.3% 0.02 ingly, is the country that witnessed a significant rise in its
VT/GDP 6.0% 4.2% 1.1% 14.4% 0.05 corresponding share of foreign investors to 53%. It seems that
PS, political stability index (ranges from a low of 2.5 to a high of 2.5); both foreign and individual participation in ownership is on
ROL, rule of law index (ranges from a low of 2.5 to a high of 2.5); COC, the rise, which bodes well for improvements in both the cul-
control of corruption index (ranges from a low of 2.5 to a high of 2.5); ture of investment and the degree of international confidence
ECFR, economic freedom index (ranges from a low of 5 to a high of 1); in these respective economies.
rate of growth of real GDP; VT/GDP, value traded/GDP. Source: AMF,
Y,
Economic Indicators of Arab Countries (various issues) and Database of
Table 6 shows ownership concentration by the top three
Arab Stock Markets (various issues); Kaufmann et al. (2003); and Heritage blockholders and their identity. The mean for the pooled sam-
Foundation, Index of Economic Freedom (http://www.heritage.org). ple of the top three blockholders is 48%, which is between
the corresponding mean of the countries whose legal origin
governance indicators: political stability, rule of law, and is English of 43%, and those whose legal origin is French
control of corruption; and the data for an index of eco- of 54%.12 The highest concentration is found in Egypt at
nomic freedom, ratio of the value of shares traded to GDP, 58% and the lowest in Oman at 43%. As to the identity of
and growth rate of GDP. Although the governance indica- blockholders, in cases where at least one of the blockhold-
tors are largely comparable to those of developing countries, ers is a local individual, then average ownership by all local
both the economic freedom index and the value traded individuals is highest in Egypt at 42%; similarly for average
ratio for the latter countries, at 2.5% and 17%, respec- ownership by local government and foreign investors at 43%
tively, are markedly higher than those of our country sample and 42%, respectively. Egypt, then, seems to be the country
and no doubt better freedom to entrepreneurship and with a relatively compartmentalized ownership structure, in
higher financial development help explain the higher growth the sense that firms are either largely owned by local indi-
performance of developing countries of 5%.8 Among the viduals or local government or foreign investors. To a lesser
countries in the sample, however, Oman comes as the top extent, the same pattern is true for Jordan and Tunisia, but
performer with a GDP growth rate of 5.3%, but also for an ownership structure dominated by either local private
and not surprisingly with scores for governance indica- institutions or local government or foreign investors. Omans
tors, economic freedom and value traded that are mostly pattern, however, seems to be the one that is most balanced
above average: 1.0%, 1.1%, 0.73%, 2.75% and 2.65%, among all four types of investors.
respectively.9 Lastly, Table 7 records the results of the mean (para-
The ownership structures of the firms in the sample are metric) and median (MannWhitney, non-parametric) tests
portrayed in Table 4. Jordan and Oman emerge as the coun- of significance for differences in ownership concentration.
tries with the highest private ownership, having more than In the case of tests according to differences in sectoral
80% of firm ownership in the hands of private institutions affiliation, ownership of financial institutions comes as sig-
and individuals. nificantly less concentrated than those of manufactured and
Egypt, on the other hand, remains the country with the non-manufactured industries. This is somewhat of a surpris-
largest presence of government ownership at 34%, despite its ing result, given that banks have relatively lower equity ratios
diligent efforts at privatization in the second half of 1990s.10 and, as a result, equity ownership would likely be more con-
Tunisia comes as the country with the largest foreign par- centrated than otherwise. In addition, unlike firms in other
ticipation in firm ownership at 18% surely facilitated by industries, banks have also a sizable presence of foreign
the free trade agreement with the EU and also appears ownership at 23%, against 12% for manufacturing, 4% for
to be the one with the least participation by local individ- non-manufacturing, and 9% for services although firms
uals. from all industries seem to have a significant ownership by
As to ownership concentration, it is depicted in local private institutions at 30% or more. In terms of tests
Tables 5 and 6, with concentration defined as ownership by based on country differences, and in agreement with the
the top three blockholders who own a minimum of 10% of results in Table 6, both Egypt and Tunisia emerge as the
two countries that are significantly more concentrated in their
firm ownership than either Jordan or Oman. And, as would
8 For more on the role of governance indicators in enhancing growth, see

World Bank (2003); and on the role of financial development, see Bolbol,
Fatheldin, and Omran (2005).
9 Jordan, Tunisia, and Egypt follow in order; for more on these scores, see
the table in Appendix B.
10 For more on Egypts privatization experience, see Omran (2004a,b).
11 Choosing 10% as the cut-off point is necessary due to data limitations,
since the sources for Oman and Jordan only list the identities of shareholders
who own at least 10% of the equity.
12 See La Porta et al. (1998).
36 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245

Table 4
Ownership structure
Mean Median Minimum Maximum S.D.
Panel A: Egypt (239 observations)
Local individuals 18% 9% 0% 99% 0.23
Local private institutions 35% 30% 0% 100% 0.28
Local government 34% 33% 0% 95% 0.28
Local other 1% 0% 0% 45% 0.05
Foreign 12% 0% 0% 96% 0.23
Panel B: Jordan (341 observations)
Local individuals 45% 44% 1% 97% 0.23
Local private institutions 28% 22% 0% 86% 0.22
Local government 9% 2% 0% 85% 0.16
Local other 4% 1% 0% 46% 0.07
Foreign 15% 7% 0% 97% 0.20
Panel C: Oman (203 observations)
Local individuals 38% 36% 0% 100% 0.21
Local private institutions 44% 44% 0% 88% 0.21
Local government 6% 2% 0% 71% 0.12
Local other 3% 0% 0% 53% 0.06
Foreign 10% 3% 0% 66% 0.14
Panel D: Tunisia (106 observations)
Local individuals 10% 0% 0% 92% 0.17
Local private institutions 23% 20% 0% 74% 0.21
Local government 20% 0% 0% 78% 0.25
Local other* 30% 30% 0% 71% 0.20
Foreign 18% 11% 0% 78% 0.22
Panel E: Pool (889 observations)
Local individuals 32% 29% 0% 100% 0.26
Local private institutions 33% 30% 0% 100% 0.24
Local government 16% 4% 0% 95% 0.23
Local other 6% 0% 0% 71% 0.13
Foreign 14% 4% 0% 97% 0.20
Due to data limitations, this entry was calculated as the residual.

be expected, smaller firms are more concentrated than larger
ones.
3. Determinants of ownership concentration
We begin our exploration of the relationship between own-
ership structure and firm performance by first investigating
the determinants of ownership concentration. We measure
ownership concentration (CONC) as the percentage of shares
owned by the largest three blockholders in a firm; and we
define a blockholder to be any entity owning more than 10%
of the firms equity.13 Our empirical findings are, however,
robust to using alternative measures of ownership concentra-
tion, such as: the percentage of shares owned by the largest
five blockholders, the log transformation of these concentra-
tion measures, and using approximations of the Herfindahl
index.14
13 Choosing 10% as the cut-off point is necessary due to data limitations,
since the sources for Oman and Jordan only list the identities of shareholders
who own at least 10% of the equity.
14 The Herfindahl index is measured as the sum of squared ownership
We incorporate both firm-level and country-level explana-
tory variables in our analysis, using the following equation:
CONCit = + FLVit + CLVit + t + it (1)
where CONCit is the ownership concentration of firm i at time
t; FLVit is a vector which represents firm-level variables for
firm i at time t; CLVit is a vector which represents country-
level variables for firms in country i at time t; t are fixed-year
effects; and it is the error term.
With respect to the firm-level variables (FLVit ), we control
for firm size and sectoral affiliation. Firm size (SIZE) is prox-
ied by the log of a firms total assets, and we expect an inverse
relationship between SIZE and CONC due to the risk-neutral
and risk-aversion effects.15 More specifically, because the
market value of a given stake of ownership is greater in larger
firms, this higher price should, in itself, reduce the degree of
ownership concentration. Also the influence of the size of the
firm on the degree of concentration of ownership arises from
the assumption that the increase in value of a given portion
of the firm would be compatible with a dispersion of owner-
ship. In addition, large companies could also have high costs

shares. 15 See Demsetz and Lehn (1985).

 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245 37

Table 5
Number of firms whose ownership structure is characterized by the presence of at least one blockholdera
2000 2001 2002
Number of firms % of total Number of firms % of total Number of firms % of total
Panel A: Egypt
Local individuals 7 9 8 10 12 15
Local private institutions 41 53 40 50 42 52
Local government 50 64 52 65 54 67
Foreign 14 18 17 21 17 21
Panel B: Jordan
Local individuals 36 31 42 36 42 38
Local private institutions 56 49 58 50 59 54
Local government 22 19 21 18 24 22
Foreign 28 24 28 24 23 21
Panel C: Oman
Local individuals 23 34 27 40 31 45
Local private institutions 29 43 38 57 38 55
Local government 5 7 7 10 7 10
Foreign 8 12 8 12 8 12
Panel D: Tunisia
Local individuals 4 12 5 14 4 11
Local private institutions 14 42 16 43 17 47
Local government 14 42 15 41 16 44
Foreign 12 36 19 51 19 53
Panel E: Pool
Local individuals 70 24 82 27 89 30
Local Private institutions 140 48 152 51 156 53
Local government 91 31 95 32 101 34
Foreign 62 21 72 24 67 23
a A blockholder is defined as an entity owning a minimum of 10% of equity.

of capital and a high risk of maintaining the degree of con-
centration of stockholder control. Demsetz and Lehn (1985),
nevertheless, comment that large companies will tend, by
virtue of their aversion to risk, to have a low degree of own-
ership concentration. At the same time, risk-aversion should
discourage any attempt to preserve concentrated ownership in
the face of larger capital, because this would require owners
to allocate more of their wealth to a single venture. As for sec-
toral affiliation, the firms in our sample are divided according
to whether they belong to the industrial (IND), financial (FIN)
or services (SERV) sector. The industrial sector in turn is sub-
divided into manufacturing (MAN) and non-manufacturing
(NONMAN) firms. As such, five sectoral dummies are used:
IND, MAN, NONMAN, FIN and SERV; with 1 assigned
to firms belonging to the given sector or sub-sector, and 0
otherwise.
In addition to these firm-level explanatory variables, the
three country-level variables (CLVit ) that we control for are:
economic freedom, legal environment and level of stock mar-
ket development. In particular, an index of economic freedom
(ECFR) is included in order to capture cross-country differ-
ences in the institutional environment.16 We anticipate that
ownership will be less concentrated in economies that are
16 The economic freedom index is a score based on the average performance
of an economy in the following 10 areas: Trade Policy, Fiscal Burden, Gov-
ernment Intervention, Monetary Policy, Foreign Investment, Banking and
freer, because these economies create conditions which are
more likely to encourage participation in firm ownership.
Next, in order to reflect the findings of La Porta et al. (1998)
that ownership concentration of firms is related to cross-
country differences in legal environments, we include the
rule of law index (ROL) as a proxy for the efficiency of the
legal environment.17 We expect to find a negative relation-
ship between CONC and ROL because in countries with poor
investor protection ownership concentration might become a
substitute for legal protection, as shareholders may need to
own more capital in order to exercise control. Finally, finan-
cial sector development is measured by the ratio of value of
shares traded to GDP (VT/GDP), based on the argument that
firm ownership is likely to be less concentrated in countries
where the degree of stock market activity and depth is higher.
Using these aforementioned variables, we utilize ordinary
least squares to estimate Eq. (1) for three different specifi-
cations of the dummy variables, and the results, which are
Finance, Wages and Prices, Property Rights, Regulation, Informal Market.
Scores between 11.99, 22.99, 33.99 and 45 indicate that an economy is
free, mostly free, mostly unfree and repressed, respectively.
17 The rule of law index is provided by Kaufmann, Kraay, and Mastruzzi
(2003). We also estimate the same models with contract enforceability as
another proxy for legal protection and we find similar results as those reported
for the ROL. We were not able, however, to to extract quantitative data from
the laws (points for other forms of minority protection) as alternative proxy
for the efficiency of legal environment because of the data limitations.
38 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245

Table 6
Ownership concentration by top three blockholders, and by identity of blockholders
Mean Median Minimum Maximum S.D.
Panel A: Egypt
Top three blockholders 58% 58% 10% 97% 0.21
Local individuals 42% 36% 10% 90% 0.25
Local private institutions 24% 13% 10% 95% 0.22
Local government 43% 39% 10% 92% 0.22
Foreign 42% 33% 10% 96% 0.28
Panel B: Jordan
Top three blockholders 40% 38% 10% 87% 0.21
Local individuals 24% 19% 10% 79% 0.15
Local private institutions 30% 23% 10% 80% 0.17
Local government 30% 23% 10% 83% 0.21
Foreign 30% 20% 10% 97% 0.24
Panel C: Oman
Top three blockholders 43% 46% 10% 90% 0.19
Local individuals 30% 25% 10% 90% 0.18
Local private institutions 36% 35% 10% 70% 0.17
Local government 31% 25% 15% 64% 0.16
Foreign 29% 30% 11% 49% 0.14
Panel D: Tunisia
Top three blockholders 52% 50% 13% 88% 0.18
Local individuals 25% 20% 10% 51% 0.16
Local private institutions 31% 28% 10% 70% 0.15
Local government 41% 39% 10% 78% 0.20
Foreign 33% 22% 10% 78% 0.22
Panel E: Pool
Top three blockholders 48% 49% 10% 97% 0.22
Local individuals 28% 23% 10% 90% 0.18
Local private institutions 30% 25% 10% 95% 0.19
Local government 39% 36% 10% 92% 0.22
Foreign 33% 24% 10% 97% 0.24

Table 7
Tests for significant differences in ownership concentration
Means T-statistic for differences Medians Z-statistic for differences in
in means medians average rank
Panel A: comparison of differences in ownership according to industry affiliation
Manf.Non Manf. 48%57% 2.09** 49%60% 205246***
Manf.Services 48%48% 0.19 49%49% 286281
Manf.Fin. Inst. 48%45% 1.97** 49%46% 302270**
Non Manf.Services 57%48% 2.26** 60%49% 125104***
Non Manf.Fin. Inst. 57%45% 2.94* 60%46% 141109**
ServicesFin. Inst. 48%45% 1.62 49%46% 202181***
Panel B: comparison of differences in ownership according to country
EgyptJordan 58%41% 9.07* 58%41% 326214*
EgyptOman 58%43% 7.21* 58%46% 229155*
EgyptTunisia 58%52% 2.46** 58%50% 170143**
JordanOman 41%.43% 1.16 40%46% 229250
JordanTunisia 41%52% 4.66* 40%50% 186248*
OmanTunisia 43%52% 3.73* 46%50% 125157*
Panel C: comparison of differences in ownership according to firm size
LargeSmall 41%45% 2.29** 42%48% 425465**
* , ** , *** refer to 1%, 5% and 10% levels of significance, respectively.

listed in Table 8, largely confirm our expectations. In partic- that document a negative association between firm size and
ular, we find that the impact of SIZE on CONC is negative ownership concentration.18
and significant at the 10% level in two out of the three mod-
els. These results are consistent with a number of studies 18 See, among others, Boubakri, Cosset, and Guedhami (2003).
 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245 39

Table 8
Regression results for ownership concentration
Independent variables Dependent variable: CONC
Model 1 Model 2 Model 3
SIZE 0.01 (1.63)*** 0.01 (1.78)*** 0.00 (0.62)
IND 0.01 (0.31)
MAN 0.00 (0.05)
NONMAN 0.01 (0.19)
FIN 0.06 (2.50)**
SERV 0.03 (1.59)
ECFR 0.18 (4.39)* 0.18 (4.37)* 0.16 (4.06)*
ROL 0.11 (2.43)** 0.11 (2.41)** 0.12 (2.64)*
VTGDP 0.73 (3.04)* 0.73 (3.09)* 0.73 (3.09)*
N 889 889 889
Adj. R2 (%) 9.04 8.93 10.20
F-ratio 23.82* 19.02* 21.76*
* , ** , *** refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.

As to country-level variables, the effect of ROL on owner-
ship concentration is always negative and significant at either
the one or five percent levels, a result which suggests that
ownership concentration is indeed a response to poor legal
protection. Similarly, we also find the effect of VT/GDP to be
negative and significant, which supports our conjecture that
larger, more sophisticated markets provide a greater oppor-
tunity for ownership dilution by allowing for wider access
to funds and share ownership. In addition, and as expected,
the effect of ECFR is always positive and significant at the
one percent level, which shows that less restrictions on eco-
nomic activity (smaller index) leads to lower concentration
of ownership and control.
Furthermore, we find that IND, MAN, NONMAN and
SERV are not statistically significant determinants of own-
ership concentration. Instead, model (3) highlights that the
only significant dummy variable is FIN, with the negative
sign of its coefficient indicating that ownership concentra-
tion in financial institutions is significantly lower than that in
all other sectors.
4. Ownership concentration and rm performance
In fact, the weakness of investor protection and the absence
of well-developed markets for corporate control, has led
investors in developing countries as elsewhere in the Arab
world to rely on governance structures that are dominated
by highly concentrated ownership. With this in mind, we test
in this section the impact of ownership concentration on firm
performance. It is not, however, a task that should produce
clear results because there is no consensus in the corporate
governance literature as to whether or not concentrated own-
ership structures enhance firm performance. On the one hand,
firm performance improves when ownership and managerial
interests are merged through concentration of ownership.19
19 See, for example, Agrawal and Mandelker (1987), Castianas and Helfat
When major shareholdings are acquired, control cannot eas-
ily be disputed and the resulting concentration of ownership
might lower, or even completely eliminate, agency costs.20
On the other hand, blockholder ownership might provide an
opportunity to extract corporate resources for private ben-
efits in a way that would have a negative impact on firm
performance.21
To examine the relationship between ownership con-
centration and firm performance, we estimate a regression
equation linking the two variables, after controlling for some
firm-and country-level characteristics.22 However, in order to
avoid problems of endogeneity, we resort to a two-stage least
squares regression defined by the following equations:23
PERFit = + CONCit + 1 FLV1it + 1 CLV1it
+t + 1it (2a)
CONCit = + 2 FLV2it + 2 CLV2it + t + 2it (2b)
where in Eq. (2a) PERFit is a measure of performance for firm
i at time t: return on assets (ROA), return on equity (ROE),
and the firm relative market value (Q-ratio)24 ; FLV1it is a
vector which represents firm-level variables for firm i at time
t: SIZE, sectoral dummies, and a CEO dummy that takes one
if the chief executive officer and the chairman of the board
are the same person and zero otherwise25 ; CLV1it is a vector
20
See Anderson, Makhija, and Spiro (1997).
21 For more details, see Denis and McConnell (2003).
22 If some of the unobserved determinants of firm performance also explain
ownership concentration, then this method could be misleading and might
result in a spurious relationship between ownership concentration and firm
performance.
23 Himmelberg, Hubbard, and Palia (1999) and Palia (2001), among others,
document the endogenous nature of ownership structure; hence, the need for
using instrumental variables for ownership concentration.
24 All countries follow the international accounting standards and we
believe that both the accounting and market performance measures are
consistent across firms and countries.
25 It is a widely accepted principle of good governance that the CEO should

(1991), and Baker and Weiner (1992). not be the chairperson. In fact the separation allows a balance of power and
40 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245

that represents country-level variables for firms in country i

0.02 (1.93)***

0.06 (1.90)***
0.03 (0.61)
0.08 (0.08)
0.10 (2.66)*
at time t: economic freedom (ECFR), and real GDP growth

0.08(2.99)*

0.03 (1.02)
rate (RGDP); t is fixed year effects; and 1it is the error term.

Model 9

4.64*
Eq. (2b) is the instrumental variables equation, for which

2.08
795
the instruments have to be carefully chosen: on the one hand,
they should be highly correlated with ownership concentra-

0.11 (1.83)***

0.04 (0.60)
0.14 (0.14)
0.06 (1.97)**
tion; and, on the other hand, they should have no impact on the

0.09(3.38)*
0.00 (0.41)

0.01 (0.18)
dependent variable, firm performance. For the firm-level vari-

Model 8

3.40*
ables, FLV2it , we select debt-to-equity ratio (LEV) and log of

1.27
GDP (LGDP). We control for debt ratio because of the pos-

795
Dependent variable: Q
sibility that creditors might be able to minimize managerial

0.06 (1.91)***
agency costs and in the process affect ownership concentra-

0.02 (0.38)
0.01 (0.69)
0.02 (0.77)

0.09 (0.08)
0.09(3.34)
tion; see Lins (2003). Also, since firm size is a determinant
of both ownership concentration and firm performance, we

Model 7

3.50*
1.06
use log GDP instead of log of total assets as a proxy of firm

795
size, given the fact that larger economies have larger firms
and hence less ownership concentration.

0.06 (4.19)*
0.01 (0.80)
0.02 (1.39)

0.88 (2.42)**
0.02 (5.43)*

0.15 (6.94)*
0.00 (0.25)
As for country-level variables, CLV2i , we include control
of corruption (COC) and rule of law (ROL). And, as usual, t

Model 6

30.71*
16.48
represents the fixed year effects and 2it the error term. Given

795
this, the two-stage estimation process proceeds by first esti-
mating Eq. (2b) to obtain the fitted values of CONC, and then

0.02 (1.41)

0.94 (2.42)**
secondly by replacing these values in Eq. (2a)26 to examine

0.01 (4.46)*

0.03 (2.70)*

0.16 (6.97)*
0.01 (0.63)

0.01 (0.43)
the relationship between ownership concentration and firm

Model 5

28.66*
performance.27

15.51
Dependent variable: ROE

795
The results obtained from Eq. (2a) are reported in Table 9
for the entire sample firms, and Table 10 for the sample
firms excluding financial institutions.28 We estimate differ-

0.02 (1.37)

refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.
0.02 (4.53)*
0.03 (2.85)*

0.16 (7.14)*
0.94 (2.45)*
0.01 (0.59)

ent specifications for each performance measure to control for

Model 4

34.59*
industry dummies. We can see from models 1 to 6 in Table 9

15.67
795
that neither ROA nor ROE is correlated with ownership con-
centration. These findings tend to be consistent with several
0.05 (6.73)*
0.02 (2.47)*
research results that document no significant relationship 0.01 (1.39)
0.00 (2.30)**

0.04 (4.26)*
0.00 (0.13)

0.15 (0.79)
between ownership concentration and firm performance.29
However, it seems that firm-level variables exhibit significant
Model 3

18.88*
10.51
Regression results for performance and ownership concentration (full sample)

relationships with firm performance. We find that large-size 795

firms are more likely to achieve better performance, which
might be due to competition (or lack thereof) effects, whereby
0.01 (1.44)
0.03 (5.12)*

0.05 (4.50)*
0.00 (0.64)
0.00 (0.54)

0.01 (0.48)

0.19 (1.03)

the market power of large-size firms enables them to outper-

form small-size firms in Arab countries. The positive and
Model 2

15.63*
8.71
Dependent variable: ROA

significant coefficients of IND and MAN imply that indus-

795

trial firms, in particular manufacturing firms, achieve superior

performance compared to other firms; whereas financial
0.01 (1.35)
0.03 (5.37)*

0.05 (4.51)*
0.00 (0.58)
0.00 (0.70)

0.18 (1.00)
Model 1

19.10*
8.97

authority, so that no individual person has unlimited power. However, such

795

separation would carry costs such as agency and information costs.

26 The results from Eq. (2a) indicate that the instrumental variables are

significant at the five and ten percent levels. We do not, however, report the
results here for the sake of the space, but they are available from the authors
upon request.
Independent variables

27 We estimate this equation twice; once for the full sample without includ-

ing LEV in the regression, and the other with LEV but excluding financial
firms.
Adj. R2 (%)

28 We estimate the same equation using the actual CONC figures without
NONMAN

* , ** , ***

controlling for endogeneity. Qualitatively the results are identical, and the
Table 9

CONC

F-ratio
RGDP
ECFR
SERV
MAN
SIZE

CEO

differences are quantitative.

IND

FIN

29 See, among others, Demsetz and Lehn (1985).

N
 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245 41

Table 10
Regression results for performance and ownership concentration (excluding financial institutions)
Independent variables Dependent variable: ROA Dependent variable: ROE Dependent variable: Q

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

CONC 0.00 (0.04) 0.00 (0.06) 0.00 (0.01) 0.00 (0.01) 0.09(2.50)** 0.09(2.44)**
SIZE 0.01 (3.39)* 0.01 (3.40)* 0.02 (3.89)* 0.02 (3.90)* 0.02 (1.18) 0.02 (1.16)
IND 0.01 (1.93)*** 0.01 (0.95) 0.04 (1.01)
MAN 0.01(2.03)** 0.01(0.99) 0.05(1.31)
NONMAN 0.00 (0.10) 0.00 (0.09) 0.14 (1.64)***
CEO 0.01 (0.90) 0.01 (0.95) 0.02 (1.27) 0.02 (1.29) 0.10(2.20)** 0.10(2.35)**
ECFR 0.05 (3.46)* 0.05 (3.51)* 0.17 (6.05)* 0.17 (6.06)* 0.00 (0.03) 0.01 (0.15)
RGDP 0.21 (0.95) 0.22 (0.99) 1.15 (2.48)* 1.16(2.49)** 0.04(0.03) 0.17 (0.13)
N 552 552 552 552 552 552
Adj. R2 (%) 9.62 9.59 17.76 17.65 1.29 2.01
F-ratio 15.32* 12.90* 29.46* 24.54* 3.28* 3.70*
* , ** , *** refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.

institutions underperform other firms as indicated by their
negative and significant coefficient. Surprisingly, the CEO
dummy coefficients are not significant at any level, suggest-
ing that firm performance is not affected by whether there is
a separation between CEO and chairperson positions.
With regard to country-level variables, we observe that
ECFR has a positive and significant coefficient for all models,
which suggests that more restrictive economic arrange-
ments and market control (higher ECFR) enhance firm
profitability.30 As to the RGDP coefficients, they are as
expected positive in all models, but only significant for ROE
at the 5% level.
When we move to the market performance measure (Q-
ratio), however, a different conclusion is reached. CONC
coefficients (models 79) are positive and highly significant
(at the one percent level), implying that ownership concen-
tration matters in determining the firm value.
Table 10 repeats the same regressions for all firms exclud-
ing financial institutions, and its results mirror to a large
extent those obtained in Table 9. Qualitatively the results
reported in both tables are identical, and the differences are
only quantitative.
So what can we conclude from the analysis of
Tables 9 and 10? Collectively, their results reveal that own-
ership concentration does not really matter in determining
firms accounting performance measures, whereas its impact
on firm value is unanimously positive and highly significant.
If we would like to rank firms according to their accounting
performance measures, the conclusion to draw here is that
larger firms, industrial firms, in particular manufacturing ones
and those that operate in a less open economic environment
appear to achieve superior performance. In addition, a higher
GDP growth rate and what it implies in terms of more business
30 These findings are inconsistent with several research results, in which
economic freedom presumably creates a healthier economic environment
that enables firms to achieve better performance (see, among others,
Boubakri et al. (2003)). However, our results seem to imply that firms achieve
better performance when they operate in a less open economic environment
activity to firms could be conducive to better performance. As
to the market measure, we find that firms with higher owner-
ship concentration, non-manufacturing firms, and those with
no separation between CEO and chairperson have a higher
market value.
5. Ownership identity and rm performance
Since the types of ownership concentration might vary
across firms according to the identity of larger shareholders,
we postulate that the relationship between large shareholders
and firm performance depends on who the large sharehold-
ers are.31 To delve deeper into this issue and provide further
evidence to the existing literature, we split the concentrated
ownership structure into four separate groups of owners:
individual investors, domestic institutional investors, gov-
ernment, and foreign investors, and then we estimate the
following system of equations:

PERFit = + j OWNERijt + 1 FLV1it + 1 CLV1it
j
+t + 1it (3a)
OWNERijt = + 2 FLV2it + 2 CLV2it + t + 2it (3b)
where OWNERijt is the percentage of shares held by the
owner of type j of firm i at time t. We employ the same tech-
nique applied to Eq (2a) and (2b), with the notable difference
that we instrument for each type of the four large sharehold-
ers in Eq. (3b) using the same variables as in Eq. (2b). The
fitted values of each type of owners are then placed in Eq.
(3a).
The results of Eq. (3a) are reported in Tables 11 and 12,
in which the former table includes the entire sample, while
31 See, among others, Boycko et al. (1996), Claessens, Djankov, Fan, and

because of the lack of competition pressures. Lang (1998), and Denis and McConnell (2003).
42 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245

the latter one excludes financial institutions. Models 16 of

0.12 (3.06)*
0.03 (0.53)

0.04 (0.68)
0.23 (2.27)**
0.12 (2.14)**
0.28 (5.03)*
0.01 (1.17)

0.04 (1.14)
0.04 (1.28)

0.16 (0.16)
Table 11 relate to the accounting performance measures, and
Model 9 we can see that after controlling for a host of relevant vari-

5.30*
3.87
ables, individual ownership concentration has a negative and

795
significant impact on ROA and ROE. At the same time, con-
centrated government ownership has positive impact on firm
0.05 (1.09)

0.01 (0.66)

0.05 (0.84)
0.27 (2.67)*
0.16 (2.88)*
0.28 (5.04)*

0.01 (0.32)
0.12 (2.02)

0.05 (1.51)

0.05 (0.05)
performance, although only significant with ROE. Surpris-
ingly, we fail to find any significant impact of either local
Model 8

4.19*
2.82
institution or foreign investors on firm performance.
Dependent variable: Q

795
In models 710, which reflect the outcomes of the market
measure, we obtain the following results: INDVCONC is
0.05 (0.99)

0.00 (0.31)

0.04 (0.61)
0.28 (2.76)*
0.16 (2.89)*
0.28 (5.04)*

0.03 (0.95)

0.05 (1.46)

0.29 (0.29)
no longer significant, whereas all other types of ownership
concentration are positive and highly significant. We can also
Model 7

4.30*
2.57
detect that foreign ownership concentration results in better
795
firm value relative to other types of owners, as indicated by the
higher coefficients and significance levels. These findings are
0.06 (3.82)*

consistent with theoretical arguments claiming that foreign

0.03 (1.51)

0.01 (1.09)
0.02 (1.38)

0.87 (2.27)**
0.02 (4.70)*

0.14 (6.42)*
0.03 (0.66)
0.03 (1.25)
0.01 (0.52)

investors bring better governance and monitoring practices, in

Model 6

addition to more valuable technology transfer and know-how,

21.09*
16.68

and in the process increase the value of the firm.32

795

Lastly, Table 12 repeats the same regression of Eq. (3a)

but excluding financial institutions, and the results obtained
(1.80)***

0.04 (1.87)***

0.02 (1.34)

0.89 (2.27)**

tend to reproduce those given in Table 11 with some minor

0.01 (3.97)*

0.03 (2.82)*

0.14 (6.21)*
0.04 (1.03)

0.01 (0.57)

0.01 (0.64)

differences. INDVCONC turns insignificant (models 14)

Model 5

20.22*

and positive and significant (models 5 and 6). And, recall-

0.03

14.94
Dependent variable: ROE

795

ing that we exclude financial institutions from our sample, it

seems then that the negative impact of INDVCONC on firm
(1.84)***

refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.

performance obtained in Table 11 is solely due to the dom-

0.04 (1.77)***

0.02 (1.31)

0.91 (2.36)**
0.01 (4.03)*
0.03 (2.89)*

0.15 (6.45)*
0.04 (1.00)

0.01 (0.56)

inant influence of financial institutions. As a result, we can

argue that concentrating ownership in the hands of individual
Model 4

22.82*
0.04

16.19

investors does not auger well for the performance of financial

795

institutions. The results also corroborate with our previous

argument that concentrated foreign ownership improves firm
0.05 (6.50)*
0.02 (2.63)*
0.00 (1.90)***

value.
0.01 (1.37)

0.01 (1.48)
0.04 (3.96)*
0.01 (0.53)
0.01 (0.59)
0.00 (0.47)

0.15 (0.81)
Model 3

12.87*
10.46

6. Ownership concentration and rm performance: a

795
Regression results for performance and ownership identity (full sample)

further investigation
(1.70)***

0.01 (1.42)
0.04 (3.91)*

While testing for the impact of ownership concentration

0.03(5.22)*
0.02 (1.06)
0.01 (1.46)
0.01 (0.53)
0.00 (0.33)

0.01 (0.69)

0.17 (0.92)

and identity on firm performance in the previous two sections,

Model 2

11.09*

we only included in our regressions those firms in which the

0.02

9.00
Dependent variable: ROA

795

ownership structure was characterized by the presence of at

least one blockholder. As such, 14% of our sample firms
(1.83)***

were excluded since there was no concentration of owner-

0.01 (1.37)
0.03 (5.43)*

0.04 (4.00)*
0.02 (1.04)
0.01 (1.27)
0.01 (0.51)
0.00 (0.47)

0.17 (0.94)

ship in these firms. In this way, we were testing for the impact
of different levels of concentration on firm performance, as
Model 1
0.02

9.24

opposed to testing whether firm performance is sensitive to

795

the actual presence of blockholders. In light of this, we now

extend our analysis to incorporate the latter proposition, i.e.
Independent variables

our aim is now to determine whether firms in which owner-

ship is concentrated perform significantly different than firms
in which ownership is not concentrated.
INDVCONC
INSTCONC
GOVCONC

Adj. R2 (%)
FORCONC

NONMAN
Table 11

* , ** , ***
F-ratio
RGDP
ECFR
SERV
MAN
SIZE

CEO
IND

FIN

32 See, for example, Boycko, Shleifer and Vishny (1996), and Dyck (2001).
N
 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245 43

Table 12
Regression results for performance and ownership identity (excluding financial institutions)
Independent variables Dependent variable: ROA Dependent variable: ROE Dependent variable: Q

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

INDVCONC 0.00 (0.16) 0.00 (0.12) 0.01 (0.34) 0.01 (0.31) 0.15 (1.75)*** 0.14 (1.61)***
INSTCONC 0.00 (0.02) 0.00 (0.01) 0.01 (0.24) 0.01 (0.23) 0.13 (1.63)*** 0.13 (1.61)***
GOVCONC 0.00 (0.14) 0.00 (0.18) 0.03 (0.85) 0.02 (0.88) 0.16 (2.06)** 0.15 (1.93)***
FORCONC 0.02 (1.00) 0.01 (0.99) 0.02 (0.51) 0.02 (0.51) 0.44 (5.14)* 0.45 (5.19)*
SIZE 0.01 (2.90)* 0.01 (2.92)* 0.02 (3.16)* 0.02 (3.16)* 0.00 (0.22) 0.00 (0.18)
IND 0.01 (1.83)*** 0.01 (1.02) 0.06 (1.45)
MAN 0.01 (1.91)*** 0.02 (1.06) 0.07 (1.78)***
NONMAN 0.00 (0.15) 0.00 (0.11) 0.15 (1.74)***
CEO 0.01 (1.12) 0.01 (1.15) 0.02 (1.12) 0.02 (1.13) 0.06 (1.39) 0.07 (1.49)
ECFR 0.05 (3.35)* 0.05 (3.39)* 0.17 (5.82)* 0.17 (5.83)* 0.01 (0.18) 0.03 (0.32)
RGDP 0.23 (1.03) 0.24 (1.06) 1.19 (2.55)* 1.19 (2.56)** 0.28 (0.22) 0.15 (0.11)
N 552 552 552 552 552 552
Adj. R2 (%) 9.51 9.46 17.84 17.74 4.87 5.85
F-ratio 9.85* 8.82* 18.89* 16.79* 5.51* 5.78*
* , ** , *** refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.

Table 13
Tests for significant differences in firm performance
Means T-statistic for means differences Medians Z-statistic for differences
in means in medians average rank
Panel A: comparison of differences in ROA
Concentrated vs. non-concentrated 3.9%3.7% 0.31 2.9%2.9% 446432
Panel B: comparison of Differences in ROE
Concentrated vs. 9.6%8.3% non-concentrated 8.9%8.8% 0.07 9.6%8.3% 446436
Panel C: comparison of differences in Q-ratio
Concentrated vs. non-concentrated 1.040.99 1.37 0.980.97 448418

We investigate the above proposition by first carrying ling for country-and firm-level variables:
out statistical tests (parametric t-test and non-parametric
MannWhitney test) to compare the performance of the 260 PERFit = + CONCDUMit + 1 FLVit + 1 CLVit
firms with concentrated ownership to that of the 44 firms +t + it (4)
with no concentrated ownership (see Appendix B for more
details). The results are reported in Table 13, and they prelim- where CONCDUMit is a dummy variable which takes one
inarily indicate that there are no significant differences in any if firm i is characterized by the presence of at least one
of the performance measures between the two sets of data. blockholder at time t, and where the country- and firm-level
In an effort to investigate further, we also estimate the variables are the same as those used in Eq. (2a).
regression below, which captures whether the presence of The results, which are shown in Table 14, duplicate
blockholders significantly affects performance, after control- qualitatively those found in Table 9. Most important are

Table 14
Regression results for performance and ownership concentration dummies (full sample)
Independent variables Dependent variable: ROA Dependent variable: ROE Dependent variable: Q

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9

CONCDUM 0.00 (0.29) 0.00 (0.30) 0.00 (0.53) 0.01 (0.55) 0.01 (0.55) 0.01 (1.72) 0.07 (1.66)** 0.07 (1.72)*** 0.06(1.46)
SIZE 0.00 (0.65) 0.00 (0.66) 0.00 (2.27)** 0.01 (4.47)* 0.01 (4.47)* 0.02 (1.95)* 0.01 (0.59) 0.00(1.95) 0.02(1.95)***
IND 0.03 (5.36)* 0.03 (2.83)* 0.02 (0.82)
MAN 0.03 (5.39)* 0.03(2.82)* 0.01(0.34)
NONMAN 0.02 (1.49) 0.03 (0.94) 0.21 (2.91)*
FIN 0.05 (6.76)* 0.06 (2.85)* 0.01 (2.85)*
SERV 0.02 (2.43)** 0.01 (0.74) 0.04(1.11)
CEO 0.01 (1.38) 0.01 (1.41) 0.01 (1.42) 0.02 (1.41) 0.02(1.42) 0.02 (1.42) 0.06(1.98)** 0.07(1.97)** 0.06(1.97)**
ECFR 0.05 (4.63)* 0.05 (4.32)* 0.05 (7.30)* 0.15 (7.30)* 0.16(7.30)* 0.15 (7.05)* 0.050(0.02) 0.01 (0.18) 0.02(0.30)
RGDP 0.19 (1.02) 0.19 (1.05) 0.15 (0.81) 0.95 (2.49)** 0.96 (2.49)** 0.89 (2.32)** 0.16 (0.16) 0.06(0.03) 0.03(0.03)

N 889 889 889 889 889 889 889 889 889

Adj. R2 (%) 8.94 8.89 10.54 15.66 16.42 16.53 0.12 0.89 1.32
F-ratio 19.04* 15.93* 18.93* 34.59* 28.79* 30.80* 1.81** 2.83* 3.48*
* , ** , *** refer to 1%, 5% and 10% levels of significance, respectively. Figures in parenthesis are t-statistics.
44 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245
the coefficients pertaining to CONCDUM, which indicate
that although the presence of a blockholder does not affect
the accounting performance measures, it does significantly
raise the Q-ratio. This complements our previous finding
with respect to the impact of ownership concentration on
the market valuation of firms. It also allows us to refine
our conclusion as follows: although ownership concentra-
tion has no impact on accounting performance measures,
not only does the presence of blockholders improve the
market valuation of firms, but also the higher the level
of such ownership concentration the higher the market
valuation.
7. Conclusion
Using a sample of more than 300 representative Arab
firms, the paper studied the determinants of ownership con-
centration, and the effect of this and other aspects of corporate
governance on firm performance and profitability. The fol-
lowing conclusions and policy recommendations could be
summed up from the analysis:
(1) Ownership concentration in Arab corporations seem to
be negatively associated with legal protection, thus vindi-
cating the view of La Porta et al. In addition, more active
stock markets and fewer restrictions on economic activity
are correlated with dilution and less concentration of cor-
porate ownership. Hence, if the latter is desired in its own
right, then naturally better laws protecting investors and
their implementation and more developed stock markets
are surely welcome.
(2) Notwithstanding the desirability of less concentrated
ownership, it does not seem to have a significant effect
on Arab firms profitability and performance measures.
Nor does the separation between CEO and chairperson
positions. This means that at least in the short term and
especially given the fact that firms typically raise equity
not so much in public markets but through family ties or
personal relationships legal protection of creditors is
more important than improving other aspects of corpo-
rate governance since any substantial growth in external
finance is likely to be debt.
(3) Q-ratios tend to be positively related to concentrated
ownership, presence of blockholders, and conflation of
CEO and chairperson positions. However, this result
seems to depend more on reputational effects and lower
agency costs than on market fundamentals pertaining
to firms actual performance, as previous research had
indicated.33 Hence, future improvements in corporate
governance practices are better gauged through their
effect on performance measures rather than market mea-
sures.
(4) Large-size firms and firms operating in a less open
economic environment have higher profitability and per-
formance measures than other firms. This could be
the result of favorable advantages seized by monopoly
power, not advantages gained through more efficiency.
As a result, efforts that aim at better corporate practices
should be coupled with reforms of product markets, com-
petition policy, and the overall operating environment for
firms.
(5) The identity of owners matters more than the concentra-
tion of ownership. Particularly important in this regard is
the negative association of individual investors with per-
formance measures in financial institutions, a result that
could be explained by the tendency of individual own-
ers to manage banks assets recklessly in the absence of
checks and oversight by other major owners. Also inter-
esting is the lack of a significant relation between foreign
investors and performance measures but the presence
of a positive one with market measures. This, how-
ever, should not mean taking a neutral or indifferent
stand regarding foreign investors, because of the better
governance practices that they could bring to domestic
markets (as reflected by the higher Q-ratios), and conse-
quently should not act as a deterrent for attracting more of
them.
Appendix A
The accounting and ownership data for the four coun-
tries were obtained from the following sources: Jordan,
Amman Stock Exchange: Jordanian Shareholding Companies
Guide; Egypt, Kompass Egypt Financial Yearbook; Oman,
Muscat Securities Market (MSM): Shareholding Guide of
MSM Listed Companies; and Tunisia, Bourse de Tunis:
http://www.bvmt.com.tn.
Appendix B
Number of firms in each country that are characterized by
the presence/absence of concentrated ownership, classified
according to industry affiliation
33 See Bolbol and Omran (2005).
 M.M. Omran et al. / International Review of Law and Economics 28 (2008) 3245 45

Manufacturing Non-manufacturing Financial institutionsa Services Total

Number %
Panel A: firms with ownership concentration
Egypt 41 5 18 9 73 90
Jordan 48 2 24 26 100 86
Oman 27 2 10 13 52 74
Tunisia 8 0 16 11 35 95
Pool
Number 124 9 68 59 260 86
% 85 82 85 88 86
Panel B: firms without ownership concentration
Egypt 4 1 3 0 8 10
Jordan 8 0 5 3 16 14
Oman 10 1 2 5 18 26
Tunisia 0 0 2 0 2 5
Pool
Number 22 2 12 8 44 14
% 15 18 15 12 14
a Includes banks, insurance and investment firms.

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