Ownership, control, and performance in an underdeveloped market environment: The case of the Saudi banking industry.

摘要

Agency theory predicts that the separation of ownership from control may lead to incentive problems. When equity ownership is widely distributed, shareholders have less economic incentive to monitor management and to closely oversee the affairs of the firm. In contrast, when the stocks of a firm are owned primarily by its management or when a shareholder holds a significant stake in the firm equity, management is more likely to be constrained to pursue goals that are in the stockholders' interest.; Both capital and managerial labor markets play an important role in disciplining management and minimizing agency costs. When market constraints are weak, one would expect that managers are free to pursue policies that are to their advantage, and they are less likely to pay attention to the interests of their shareholders.; Furthermore, when both the external market disciplinary power and the internal shareholders' constraints are weak, one would expect a significant divergence from profit-maximizing behavior and a greater incentive to pursue self-interest discretionary behavior.; Using the agency theory framework, this study investigated the implications of ownership structure for firm's contracting processes, management discretionary behavior, and firm performance in five Saudi banking institutions. The five banks have been investigated as case studies.; The findings regarding managerial discretionary behavior (as measured by salaries and benefits, director's fees, attendance allowances, travel expenditures, number of staff, occupancy expenses, and operating expenses) are generally consistent with the agency theory predictions. The two measures that are not consistent across the five cases are average salary per employee and occupance costs to average costs.; The findings do not lend support to the prediction of more likelihood use of accounting earnings in management contracts and more reliance on detailed long-term contracts that involve extensive use of accounting performance measures in firms with low ownership concentration. In fact, neither earnings nor any other long-term performance measure was used in any of the five banks' compensation system.; The findings lend consistent and considerable support to the prediction of positive relationship between ownership concentration and firm performance (as measured by bad loan provision to average assets, customers' deposits growth, return on average equity (ROE), return on average assets (ROA), and earnings per share (EPS).