Are board attributes and ownership structure value relevant in developing economies: new institutionalist perspective

Abstract

Purpose – The author aims to find value relevance of board characteristics and ownership structures in the banking industry of Bangladesh, an emerging economy with absence of good governance. Design/methodology/approach – Pooled Ordinary Least Square (OLS), fixed effect and generalized method of moments (GMM) methods have been utilized to analyse 5-year data of 28 listed banks. Findings – All governance indicators except institutional ownership have insignificant impact on return on asset (ROA) and return on equity (ROE). Institutional ownership has significant negative impact indicating that institutional investors can worsen bank performance in unregulated environments. Additional analysis shows significant positive impact of higher institutional ownership ratios. Research limitations/implications – Small sample from a single industry of one country may limit the applicability of the findings to all developing economies. Practical implications – During the fast growth periods of developing economies, institutional investors with small stakes may become value destructive due to speculative behaviour. Originality/value – This is one of the pioneering studies to suggest that governance mechanisms have insignificant, in some instances adverse, impact on firm value in emerging economies.

Keywords

• Bangladesh
• Developing countries
• Corporate governance
• Board of directors
• Ownership structure
• New institutionalism