Undirectional Non-Monotonic Relationship Between Managerial Ownership and Firm Performance: The Case of Family Firms in Bangladesh

This paper provides evidence on the managerial ownership and performance relations from a developing and emerging economy, Bangladesh, whose governance system is a hybrid of, respectively, market-centric and bank-centric systems of the UK/US and the Japan/Germany. Based on agency theory and exogeneity assumption, it looks at 'one-way' causality of relation implying that governance variables, in particular ownership determine performance of the firm. Like many of the existing studies of developed economies, we find evidence of non-monotonic/non-linear relation between ownership and performance. Using an unbalanced 7 years pooled sample, cubic-form regression results show that both Tobin’s Q and ROA as performance measures decrease at a certain level of board ownership, then increase as the level of ownership increases and finally decrease for further increase in board ownership. Other governance variables also support the view emerging from developed country studies. These results suggest similarity of firm's internal governance mechanisms and agency costs in between developed and emerging economies, despite their institutional differences.