UAE otherwise known as United Arab Emirates is amalgamation of 7 Emirates namely Umm Al, Quwain, Ras Al Khaimah, Ajman, Sharjah, Dubai, Abu Dhabi, and Fujairah. UAE is the second biggest Arabian Middle East economy. The United Arab Emirates is the number 3 biggest in this region in crude oil exporting, following Iran and Saudi Arabia. It possesses the number 6 biggest recognized conservative crude oil reverse and the 5th biggest natural gas reserves. The swift growth in demand of water and electricity has generated the necessity to appraise unconventional power generation sources. In the year 2008, the United Arabs Emirates produced energy white paper on study of energy that confirmed that nuclear power to be environmentally friendly and safe alternative which would increment the prevailing plants of power in accomplishing increasing energy requirements.
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2.1 Objective of this study accomplishment
The objective of this study of examining whether ownership structure matters for the performance of firms in United Arabs Emirates was achieved. Empirical evidence suggests that privately held firms tend to be more efficient and more profitable than publicly held firms. This shows that ownership structure matters. The question now is how does it affect firm performance? This question is very important because it is based on a research agenda that has been strongly promoted by La Porta et al. (1998; 1999; 2000). According to these studies, failure of the legislative framework to provide sufficient protection for external investors, entrepreneurs and founding investors of a company tend will maintain large positions in their firms thus resulting in a concentrated ownership structure.
This paper aimed at looking at whether ownership structure has an impact on firm performance in UAE. This region has witnessed significant economic growth over the last few decades. The region is also facing turbulent times with respect to corporate governance practices, resulting in poor firm performance. Corporate governance issues are not limited to the Gulf region. From a global point of view, corporate governance has witnessed significant transformations over the last decade (Gomez and Korine, 2005).
The data that is used in this study includes 362 non-financial listed firms during the period of 2006-2011 from Thomson one banker, Thomson.com, DataStream and annual report. Panel data is used to analyse the impact of ownership structure on firm performance number of independent directors on the board are controlled for. The different types of ownership structure that are included in the study are: managerial ownership, family ownership, government ownership, institution ownership, foreign ownership and concentrated ownership.
Evidence personal learning and development
1.0 Effects of structure on firm performance
It is indisputable, managerial ownership, Chairman own share, institutional investors, corporate total own, institutional owner domestic and corporate foreign all have positive effects on firm performance. The evidence is also consistent with theoretical and empirical arguments. On the contrary, When Return on Assets (ROA) is used as a measure of performance; the evidence shows that government ownership has negative effects on firm performance in United Arab of Emirates oil firms. Therefore, performance of United Arab of Emirates oil companies is affected by government ownership.
The relationship between performance and ownership structure also differs for firm specific variables such as leverage, GDP growth and firm size. When the Tobin’s Q is used, the relationship is negative for leverage, GDP growth and firm size. The negative and significant impact of firm size on firm performance when Tobin’s Q is used can be attributed to the fact that large firms have limited investment opportunities, which limit their potential to grow and make profit. Surprisingly, the impact of GDP growth is significantly negative. However, when ROA is used, we did not find any significant relationship with firm performance in United Arab of Emirates oil firms.
This study also shows that there may be a necessity to motivate policy makers of United Arab of Emirates oil firms to ensure that banks practice the mechanisms of corporate governance effectively. This practice should be compatible for the business environment of United Arab of Emirates oil firms, whereas adopting the same governance standards in order to ensure unification of disclosure level among the banks. It is expected that the best practice of the corporate governance characteristics will contribute to improve efficiency, effectiveness and monitoring in the Islamic banks of UAE. Therefore, this can only be applied by developing the regulatory and compelling frameworks.
In the last 4 decades, researchers have believed that there is a connection between the firm performance and the ownership structure. In this regards, there has been publications of many studies on different markets to inspect this relationship. This connection between performance and ownership structure dates back to empirical study of Mean and Berle in the year 1932 that got that the weakness of shareholding in a negative way influence the performance of affirm via an inverse relationship. Generally, the number of well-developed policies and the present legal systems are poorly developed in the markets that are emerging. These new markets, according to most analysis studies, lack protection for their creditors and shareholders (La Porta, 1999).
2.0 Ownership structure in relation to firm performance
The issue as to whether ownership structure matters for the performance of firms has been an important subject of debate in the finance literature. Empirical evidence suggests that privately held firms tend to be more efficient and more profitable than publicly held firms. This shows that ownership structure matters. The question now is how does it affect firm performance? This question is very important because it is based on a research agenda that has been strongly promoted by most researchers in economics. According to these studies, failure of the legislative framework to provide sufficient protection for external investors, entrepreneurs and founding investors of a company tend will maintain large positions in their firms thus resulting in a concentrated ownership structure.
This finding is interesting because it implies that ownership structure can affect the performance of the firm in one way or the other. It is indisputable; the lack of regulations in corporate governance gives managers who intend to mishandle the flow of cash for their own personal interest a low control level. The empirical results from the past studies of impacts of ownership structure on performance of corporate have been inconclusive and mixed up.
Gomez, P.Y. & Korine, H. 2005, Democracy and the Evolution of Corporate Governance. Corporate Governance, 13, 739-752.
La Porta, R., L. et al. 1999, Corporate ownership around the world. The Journal of Finance, 54(2), 471–517.