Corporate Governance and Ownership Structure in Sub Sahara Africa: The Case of Ethiopia

Abstract

This paper examines the reform issues that relate to corporate governance in Ethiopia. We examined Ethiopia’s large business sector using theories developed in the capital structure literature. There are five findings. First, we find that Ethiopia’s large business sector can be classified into three groups of enterprises. They are State Owned Enterprises (SOEs), political party owned companies and family owned and controlled private limited companies (Plcs). Second, when control is invoked and cash flow rights are considered, we find that the ruling party exercises control over the resources of both the SOEs and the party owned enterprises. Third, when related party transactions are considered, one finds an interesting set of associations between few family-owned businesses and the ruling party. Fourth, when the large business sector is examined using the definitions for public interest entities, all three forms of enterprises can be classified as public interest companies. Fifth, we observe that the absence of separation of powers in the institutional settings of the country and weak corporate laws are serious voids for complying with international corporate governance standards.

Keywords: corporate governance, ownership structure, ownership concentration, Sub Sahara Africa, Political party owned companies, Ethiopia

JEL Classification: K12, K22, L22, M14, M41, N27