Non-monotonic Relationship between Ownership Concentration and Performance in Bangladesh under Mono-directional Perspective

Using Quadratic-form regression model this paper presents evidence on the ownership concentration (Top-1 shareholder's shareholding) and performance relations in corporate firms in Bangladesh, an emerging market economy. Assuming exogeneity assumption and agency theory, it follows a mono-directional 'one-way' causality of relation between ownership concentration and performance which runs from the prior to the latter. Employing an unbalanced 7 years pooled sample, regression results show that both Tobin's Q and ROA as performance measures decrease initially at a certain level of Top-1 shareholder's ownership, then increase as the level of ownership increases. This non-monotonic relation between ownership concentration and performance is consistent with many of the existing studies of developed economies. Other governance variables are also showing similar findings as in developed country studies. These results advocates that regardless of institutional and governance differences between developed and emerging economies, some similarity in firm's internal governance mechanisms and agency costs is apparent.