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Licensed Unlicensed Requires Authentication Published by De Gruyter January 19, 2018

The Impact of Ownership on Corporate Performance: The Case of the UAE

Magda Elsayed Kandil and Minko Markovski

Abstract

This study attempts to identify whether government ownership has an effect on corporate performance, such as Return on Assets (ROA), Price to Book value, and Profits for a sample of 102 listed companies on the UAE stock exchanges and a subsample of 17 banks listed on the same bourses over a period of 31 quarters. In the case of the sample of 102 companies, government ownership has a positive impact on some of the corporate performance indicators, as well in the banking subsample. In addition, the analysis evaluates the impact of state ownership on debt accumulated across the two samples. The results indicate that state ownership reduced the need to accumulate debt in general across the larger sample. However, focusing on banks, state ownership facilitates borrowing and accumulating debt. The results point to the positive effect of state ownership on corporate performance. Further, state ownership eases constraints on banks’ borrowing as it boosts confidence in the outlook, facilitating higher ratings and cheaper sources of funding. In the case of the UAE, similar to some other countries, where there is a strong trend toward government ownership in listed companies and banks, it has a positive effect on their performance for the period 2008–2016, i. e., there is a positive relationship between the block-holder ownership and firms’ performance, subject to efficiency control measures.

JEL Classification: G30; G32; G39

Appendix

Table 11:

Variables’ Definition.

VariableDefinitionSource
AssetsTotal Assets in AED mnBloomberg
CashflowNet Cashflow in AED mnBloomberg
DebtTotal Outstanding Debt in AED mnBloomberg
Debt/EquityThis is the Debt in AED divided by the Equity in AED and is a measure of leverageBloomberg
ProfitsThe Total Amount of net profits in AED mnBloomberg
DFMThe variable takes the value 1 if it is listed on DFM and 0 if it is listed on ADXBloomberg
Gov_ownershipThis is a dummy variable taking the value 0 if the Government ownership is below 50 %, 1 if it is between 50 % and 75 % and 2 if it is above 75 %Bloomberg
P/B baluePrice per Book ValueBloomberg
ROAReturn on AssetsBloomberg
SalesTotal Revenue in AEDBloomberg
Time_listedThe number of Quarters the Company/Bank is listedBloomberg
Figure 5: Distribution and descriptive statistics of the Assets series for the overall sample.

Figure 5:

Distribution and descriptive statistics of the Assets series for the overall sample.

Table 12:

Unit Root Test of the Assets series for the overall sample.

Panel unit root test: Summary
Series: ASSETS
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−3.027910.0012992911

→ Stationary series

Figure 6: Distribution and descriptive statistics of the Cashflow series for the overall sample.

Figure 6:

Distribution and descriptive statistics of the Cashflow series for the overall sample.

Table 13:

Unit Root Test of the Cashflow series for the overall sample.

Panel unit root test: Summary
Series: CASHFLOW
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−39.61920.00001022906

→ Stationary series

Figure 7: Distribution and descriptive statistics of the Debt series for the overall sample.

Figure 7:

Distribution and descriptive statistics of the Debt series for the overall sample.

Table 14:

Unit Root Test of the Debt series for the overall sample.

Panel unit root test: Summary
Series: DEBT
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−6.540870.0000892648

→ Stationary series

Figure 8: Graphical representation of the Debt to Equity series for the overall sample.

Figure 8:

Graphical representation of the Debt to Equity series for the overall sample.

Table 15:

Unit Root Test of the Debt to Equity series for the overall sample.

Panel unit root test: Summary
Series: DEBT_TO_EQUITY
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−6.854070.0000922688

→ Stationary series

Figure 9: Distribution and descriptive statistics of the Profit series for the overall sample.

Figure 9:

Distribution and descriptive statistics of the Profit series for the overall sample.

Table 16:

Unit Root Test of the Profit series for the overall sample.

Panel unit root test: Summary
Series: PROFIT
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−30.74160.00001002902

→ Stationary series

Figure 10: Distribution and descriptive statistics of the Price per Book value series for the overall sample.

Figure 10:

Distribution and descriptive statistics of the Price per Book value series for the overall sample.

Table 17:

Unit Root Test of the Price per Book value series for the overall sample.

Panel unit root test: Summary
Series: P_B_VALUE_PER_SHARE
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−12.14620.00001023056

→ Stationary series

Figure 11: Distribution and descriptive statistics of the ROA series for the overall sample.

Figure 11:

Distribution and descriptive statistics of the ROA series for the overall sample.

Table 18:

Unit Root Test of the ROA series for the overall sample.

Panel unit root test: Summary
Series: ROA
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−11.53490.00001022844

→ Stationary series

Figure 12: Distribution and descriptive statistics of the Sales series for the overall sample.

Figure 12:

Distribution and descriptive statistics of the Sales series for the overall sample.

Table 19:

Unit Root Test of the Sales series for the overall sample.

Panel unit root test: Summary
Series: SALES
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−12.66750.0000982931

→ Stationary series

Figure 13: Distribution and descriptive statistics of the Assets series for the banks sample.

Figure 13:

Distribution and descriptive statistics of the Assets series for the banks sample.

Table 20:

Unit Root Test of the Assets series for the banks sample.

Panel unit root test: Summary
Series: ASSETS
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*3.346350.999616475

→ Stationary series

Figure 14: Distribution and descriptive statistics of the Cashflow series for the banks sample.

Figure 14:

Distribution and descriptive statistics of the Cashflow series for the banks sample.

Table 21:

Unit Root Test of the Cash flow series for the banks sample.

Panel unit root test: Summary
Series: CASHFLOW
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−19.03620.000017473

→ Stationary series

Figure 15: Distribution and descriptive statistics of the Debt series for the banks sample.

Figure 15:

Distribution and descriptive statistics of the Debt series for the banks sample.

Table 22:

Unit Root Test of the Debt series for the banks sample.

Panel unit root test: Summary
Series: DEBT
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−4.259120.000016461

→ Stationary series

Figure 16: Distribution and descriptive statistics of the Debt to Equity series for the banks sample.

Figure 16:

Distribution and descriptive statistics of the Debt to Equity series for the banks sample.

Table 23:

Unit Root Test of the Debt to Equity series for the banks sample.

Panel unit root test: Summary
Series: DEBT_TO_EQUITY
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−3.355910.000417470

→ Stationary series

Figure 17: Distribution and descriptive statistics of the Profit series for the banks sample.

Figure 17:

Distribution and descriptive statistics of the Profit series for the banks sample.

Table 24:

Unit Root Test of the Profit series for the banks sample.

Panel unit root test: Summary
Series: PROFIT
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−8.159740.000017467

→ Stationary series

Figure 18: Distribution and descriptive statistics of the Price to Book value series for the banks sample.

Figure 18:

Distribution and descriptive statistics of the Price to Book value series for the banks sample.

Table 25:

Unit Root Test of the Price to Book value series for the banks sample.

Panel unit root test: Summary
Series: P_B_VALUE_PER_SHARE
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−4.707000.000017482

→ Stationary series

Figure 19: Distribution and descriptive statistics of the ROA series for the banks sample.

Figure 19:

Distribution and descriptive statistics of the ROA series for the banks sample.

Table 26:

Unit Root Test of the ROA series for the banks sample.

Panel unit root test: Summary
Series: ROA
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−5.894610.000017470

→ Stationary series

Figure 20: Distribution and descriptive statistics of the Sales series for the banks sample.

Figure 20:

Distribution and descriptive statistics of the Sales series for the banks sample.

Table 27:

Unit Root Test of the Sales series for the banks sample.

Panel unit root test: Summary
Series: SALES
Sample: 2008Q3 2016Q1
Newey-West automatic bandwidth selection and Bartlett kernel
Cross-
MethodStatisticProb.**sectionsObs
Null: Unit root (assumes common unit root process)
Levin, Lin & Chu t*−3.211450.000717483

→ Stationary series

Table 28:

Matrix of correlations of the variables for the overall sample.

ASSETSBREAKCASHFLOWDEBTDEBT_TO_EQUITYDFMGOV_OWNERSHIPP_B_VALUEPROFITROASALESTIME_LISTED
ASSETS100 %
BREAK0 %100 %
CASHFLOW12 %6 %100 %
DEBT17 %−2 %9 %100 %
DEBT_TO_EQUITY5 %−2 %−2 %58 %100 %
DFM0 %−1 %−2 %21 %9 %100 %
GOV_OWNERSHIP17 %1 %−5 %−4 %−12 %−2 %100 %
P_B_VALUE−2 %−18 %2 %2 %6 %−3 %−2 %100 %
PROFIT25 %4 %29 %44 %5 %2 %−4 %4 %100 %
ROA−8 %−14 %4 %−12 %−20 %−10 %5 %8 %19 %100 %
SALES19 %1 %21 %55 %14 %17 %0 %5 %73 %16 %100 %
TIME_LISTED6 %46 %6 %4 %3 %−16 %4 %−20 %6 %−12 %2 %100 %

→ No multicollinearity in the regression equations, as very low correlation between the different variables.

Table 29:

Matrix of correlations of the variables for the banks sample.

ASSETSBREAKCASHFLOWDEBTDEBT_TO_EQUITYDFMGOV_OWNERSHIPP_B_VALUEPROFITROASALESTIME_LISTED
ASSETS100 %
BREAK0 %100 %
CASHFLOW3 %4 %100 %
DEBT11 %−8 %12 %100 %
DEBT_TO_EQUITY12 %−13 %3 %63 %100 %
DFM19 %−4 %6 %36 %35 %100 %
GOV_OWNERSHIP−30 %3 %5 %44 %33 %34 %100 %
P_B_VALUE−9 %−9 %2 %−5 %9 %−15 %0 %100 %
PROFIT26 %5 %16 %56 %12 %10 %14 %6 %100 %
ROA−17 %3 %3 %−12 %−27 %−23 %−10 %23 %27 %100 %
SALES30 %1 %11 %81 %35 %35 %41 %−1 %83 %2 %100 %
TIME_LISTED31 %39 %6 %−1 %33 %12 %21 %1 %8 %−6 %12 %100 %

→ No multicollinearity in the regression equations, as evident by very low correlation between the different variables except Government ownership and Assets, however the levels are acceptable (−30 % of correlation).

Table 30:

Profit equation for the overall sample – Hausman test.

Correlated Random Effects - Hausman Test
Equation: EQ_PROFIT
Test cross-section random effects
Test SummaryChi-Sq. StatisticChi-Sq. d.f.Prob.
Cross-section random186.12635060.0000

→ Random effect

Table 31:

Price to book value equation for the overall sample – Hausman test.

Correlated Random Effects - Hausman Test
Equation: EQ_P_B
Test cross-section random effects
Test SummaryChi-Sq. StatisticChi-Sq. d.f.Prob.
Cross-section random75.69684760.0000

→ Random effect

Table 32:

Profit equation for the banks sample – Hausman test.

Correlated Random Effects - Hausman Test
Equation: EQ_PROFIT
Test cross-section random effects
Test SummaryChi-Sq. StatisticChi-Sq. d.f.Prob.
Cross-section random16.52761860.0112

→ Random effect

Table 33:

ROA equation for the banks sample – Hausman test.

Correlated Random Effects - Hausman Test
Equation: EQ_ROA
Test cross-section random effects
Test SummaryChi-Sq. StatisticChi-Sq. d.f.Prob.
Cross-section random87.34285760.0000

→ Random effect

Figure 21: Test for Normality of the residuals for the equation of Profits for the overall sample.

Figure 21:

Test for Normality of the residuals for the equation of Profits for the overall sample.

→ Normally distributed

Table 34:

Cross section dependence test of the residuals for the equation of Profits for the overall sample.

TestProb.
Breusch-Pagan LM0.3841
Pesaran scaled LM0.3974
Pesaran CD0.7712

→ Residuals not correlated

Figure 22: Test for Normality of the residuals for the equation of Price to Book value for the overall sample.

Figure 22:

Test for Normality of the residuals for the equation of Price to Book value for the overall sample.

→ Normally distributed

Table 35:

Cross section dependence test of the residuals for the equation of Price to Book value for the overall sample.

TestProb.
Breusch-Pagan LM0.6431
Pesaran scaled LM0.6714
Pesaran CD0.7745

→ Residuals not correlated

Figure 23: Test for Normality of the residuals for the equation of ROA for the overall sample.

Figure 23:

Test for Normality of the residuals for the equation of ROA for the overall sample.

→ Normally distributed

Table 36:

Cross section dependence test of the residuals for the equation of ROA for the overall sample.

TestProb.
Breusch-Pagan LM0.6754
Pesaran scaled LM0.5134
Pesaran CD0.4213

→ Residuals not correlated

Figure 24: Test for Normality of the residuals for the equation of Debt for the overall sample.

Figure 24:

Test for Normality of the residuals for the equation of Debt for the overall sample.

→ Normally distributed

Table 37:

Cross section dependence test of the residuals for the equation of Debt for the overall sample.

TestProb.
Breusch-Pagan LM0.6054
Pesaran scaled LM0.3485
Pesaran CD0.4761

→ Residuals not correlated

Figure 25: Test for Normality of the residuals for the equation of Profit for the banks sample.

Figure 25:

Test for Normality of the residuals for the equation of Profit for the banks sample.

→ Normally distributed

Table 38:

Cross section dependence test of the residuals for the equation of Profit for the banks sample.

TestProb.
Breusch-Pagan LM0.6978
Pesaran scaled LM0.7154
Pesaran CD0.4579

→ Residuals not correlated

Figure 26: Test for Normality of the residuals for the equation of Price to Book value for the banks sample.

Figure 26:

Test for Normality of the residuals for the equation of Price to Book value for the banks sample.

→ Normally distributed

Table 39:

Cross section dependence test of the residuals for the equation of Price to Book value for the banks sample.

TestProb.
Breusch-Pagan LM0.6317
Pesaran scaled LM0.6124
Pesaran CD0.6277

→ Residuals not correlated

Figure 27: Test for Normality of the residuals for the equation of ROA for the banks sample.

Figure 27:

Test for Normality of the residuals for the equation of ROA for the banks sample.

→ Normally distributed

Table 40:

Cross section dependence test of the residuals for the equation of ROA for the banks sample.

TestProb.
Breusch-Pagan LM0.5417
Pesaran scaled LM0.4864
Pesaran CD0.5234

→ Residuals not correlated

Figure 28: Test for Normality of the residuals for the equation of Debt for the banks sample.

Figure 28:

Test for Normality of the residuals for the equation of Debt for the banks sample.

→ Normally distributed

Table 41:

Cross section dependence test of the residuals for the equation of ROA for the banks sample.

TestProb.
Breusch-Pagan LM0.7715
Pesaran scaled LM0.6955
Pesaran CD0.4897

→ Residuals not correlated

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Published Online: 2018-1-19

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