Empirical Study of the Relationship between Ownership Structure and Firm Performance: Some Evidence of Listed Companies in Tehran Stock Exchange

Abstract

The study of effective factors seems essential since, the operation of profiting entities is very important in the decision of internal and external organization users. The effect of various factors on the assessment scale of operation was measured in different researches, e.g. the structure of ownership. In this study, the relationship between three kinds of various structures of ownership including the structure of shareholder's ownership and other firms and the structure of state ownership Q Tobin's operation scale of listed firms in TSE was considered. The effect of firm's age and size has considered as two control variables on the Q Tobin's operation scale. In this study, the statistical population is listed firms in Tehran Stock Exchange (TSE). Theories are tested by multilateral Regression on the basis of T and F statistics. Finding shows that Q Tobin operation scale has significant relationship with two kinds of investment organization's ownership scale and other companies and state ownership, but it does not have significant relationship with minor shareholder's scale. Age and size of firms do not effect on Q Tobin operation scale as two control variables. Keywords: Ownership structure, Minor shareholders, Investment organizations, State ownership, Q Tobin operation scale 1. Introduction Efficient performance of entities earning profit effects on the process of current stock profit and on the application of investment to provide the future stock profit. Therefore, investor's especially common investors are interested in management efficiency. Present shareholders can change management in absence of efficient management and/or consider some rewards or advantages for efficient management. Potential shareholders try to assess the efficiency of management prior to investment or prior to assessment of profiting entities shares. In two above mentioned cases, efficiency scale provides a basis for making decision. The aim of entities earning profit efficiency assessment present in number one standards of financial statement: financial reports should provide information about profiting entities performance in financial period (Shabahang, 2004). Profiting entities performance effect on the decision of finance provider and creditors profiting entity, they consider profiting entity as a scale of making decision to granting debt and financial facilities to profiting entities. The study of effective factors seems essential, since the operation of profiting entity is important in the decision of internal and external organization users. The better performance of profiting entity caused the more investment of interested people and visa versa. One of the factors that its effect is confirmed on the profiting entities performance according to researches is firm ownership structure, while in internal researches the structure of ownership is studied from private or public perspective and/or the rate of share percent under the individual authority, but the kind of ownership structure was not studied individually, company or state approach. In this paper the relationship between ownership structure and firm is studied from different views. 2. Research problem Investors, creditors and shareholders assess firm performance to make decisions. Performance assessing needs for some scales that called performance scale. One can define them in different ways as follows: • The scale or assessment is kind of measuring that represents how to do and provide its doing motivation for us. • One can make controllable indexes on the basis of scale (Zairi, 1994). In different researches the effect of various factors were assessed on the scale of measuring; we can point to the 265 ownership structure. In this paper, the effect of various ownership structures is measured on the scale of profiting entities performance includes Q Tobin. Some questions that were answered in this paper are as follows: What is mean by ownership structure? What kind of scales is used to measure the performance of profiting entities? What is the effect of ownership structure on the scale of measuring performance? Which kind of firm ownership structure will provide maximum Q Tobin? Do the age and size of company effect on the performance scale of Q Tobin? After answering to this question will conclude that which kind of ownership is appropriate to better performance of TSE, for investors can sell or purchase their shares on the basis of firm performance. 3. Review of literature The nature of relationship between ownership structure and firm's economic performance is originated from the authority literature of firm. From the viewpoint of firm's authority, profiting and firm performance are influenced by ownership structure (Barbosa and Laurie, 2002). Especially the ownership structure is kind of motivating means to decrease the cost of related agencies with the separation of ownership from the management. Theoretical literature of company's authority has suggested six different and important mechanisms to control the cost of agencies as follows: 1) The ownership structure (investment models in shares); 2) The structure of investment; 3) The structure of management board; 4) The reward of management; 5) The competition market of products; and 6) Dominant market (Kumar, 2006). In this paper, the ownership structure is studied as an effective factor on the firm performance. The relationship between the ownership structure and firm performance has been the topic of various studies for the first time suggested by Berle and Means (1932). Berle and Means concluded in their research that with the increase of professionalism management, company use other management's profit rather than ownership profit that are company's shareholders. This wills effects on firm performance. Research center that studies relationship between ownership structure and firm performance is the agency theory that is used to explain the opposition of between the shareholders and decision makers (managers) within the company. According to Jensen and Meckling, The agency's cost of company is as a result of benefit opposition between ownerships and shareholders (Jensen and Meckling, 1976). In the record of related researches which are accompanied by the approach of agency cost, there are some mechanisms which are suggested to explain the relationship between firm performance and the ownership structure. Generally, theory of agency is used to analyze the relationship between management agents. But there is an increasing need to understand the opposition between the different levels of management, because some of ownerships have different techniques and tools to control the agency cost. It is possible that they have better information about management condition that leads to increase of firm performance. Recently some researchers have studied the role of company's authority in emerging economics with focus on the relationship between the ownership structure and firm performance. Clay (2002) studied the relationship between the organization's ownership and firm performance for US companies. He got following conclusions in his studies as follows: 1) One per cent increasing in the organization ownership leads to 2-6 per cent increase in the company's Q Tobin as a performance measurement scale. Therefore, there is positive relationship between organization's ownership and firm performance. 2) The positive relationship between investment organizations of firm performance is more powerful in firms with high discretionary cash flows. 3) If organizations ownership and managers ownership considered as complementary, percentage increase in both of them lead to the increase of Q Tobin as a measurement scale of firm performance. Therefore, there is positive relationship between the percent of organization ownership and managers' ownership (while they considered as complementary to each other). In fact, in companies which have more internal employee's ownership, there is more effect in the percent of organization ownership on firm performance. Generally these findings support the idea that increase in the supervision motivations by managers' board and organization investors leads to increase the firm credit. Zuobawei and Zhang (2004) conducted a survey regarding the relationship between the ownership structure and firm performance in Chinese's private companies. At this reason he considered different kinds of ownership structures including state ownership, Organization's investing and external ownership as an independent variable and he studied its effect on the Q Tobin of 5284 companies Q Tobin as an assessment scale of ownership. The result of his survey shows that there is a negative relationship