EFFECT OF OWNERSHIP STRUCTURE ON FIRM STOCK RETURNS AND FINANCIAL PERFORMANCE:EVIDENCE FROM THE EGYPTIAN STOCK MARKET

Abstract

The effect of institutional ownership and ownership concentration on the firm’s stock returns and volatility and financial performance has long been an interesting issue in the international business literature. A lot of debate has been going on regarding the relationship between institutional ownership, ownership concentration, returns, volatility and financial performance.

The objective of this thesis is to study the effect of institutional ownership and ownership concentration on firm stock returns and financial performance of the listed companies in the Egyptian Stock Exchange. For this purpose, panel data model is employed.

The results from the analysis show that institutional ownership has no effect on ex post stock returns as well as ex ante stock returns. On the contrary, institutional ownership represented by top management and individuals have a negative and significant effect on stock volatility, while employee associations have a positive and significant effect. No significant effect is detected on ex ante risk except for employee associations that have negative and significant effect on ex ante risk. In addition, the results show that institutional ownership has no effect on stock liquidity except employee associations and individuals that have a negative and significant effect on stock liquidity. Finally, the results show that institutional ownership represented by companies, holdings and individuals have negative effect on financial performance represented by ROA and ROE. Also, institutional ownership has no effect on debt to equity ratio except banks that have negative and significant effect and employee associations that have positive and significant effect. The results also show that ownership concentration has no effect on ex post stock returns but it has a positive effect on ex ante stock returns. Also, it has no effect on ex post risk but it has a positive effect on ex ante risk. On the other hand, ownership concentration has a negative and significant effect on stock liquidity. Finally, the results show that ownership concentration has no effect on either financial performance represented by ROA and ROE or debt to equity ratio.

As such, the thesis makes an important contribution to the literature, since it tests the impact of ownership type and concentration on ex ante returns and volatility of stocks in Egypt, an emerging country that has been ignored in literature. Also, the analysis extends the literature by decomposing institutional ownership to several types. Moreover, it adds two components of volatility, volatility clustering and persistence, testing their effect on ex post and ex ante risk, which is not dealt by previous studies.