Does Ownership Affect a Firm's Performance and Default Risk in Jordan?

Abstract

This paper examines the impact of ownership structure on firm performance and the default risk of a sample of 59 publicly listed firms in Jordan from 1989 to 2002. The main findings were: (1) ownership structure has significant effects on the accounting measure of performance return on assets (ROE). (2) Government shares are significantly negatively related to the firm's performance ROE. (3) Defaulted firms have a high concentration ownership compared with non-defaulted firms. Also high foreign ownership firms have a low incidence of default. (4) Government ownership is significantly negatively related to the firm's probability of default. (5) Both mix and concentration ownership structure data can be used to predict the probability of default as the largest five shareholders (C5) and government ownership fraction (FGO) are significantly negatively correlated with the probability of the default. These results further suggest that reducing government ownership can increase a firm's performance and but will also cause some firms to go bankrupt, at least in the short term.

Keywords: ownership structure, corporate governance, emerging markets, Jordan, default risk

JEL Classification: G32, G34