Institutional Ownership and Insolvency Risk: The moderating Role of Share Ownership Concentration in Nigeria
Abstract
Sequel to seeming paradox of having institutional shareholders and growing business mortality rate, despite their reputation of monitoring expertise, this study was carried out to evaluate the impact of institutional ownership oninsolvency risk of quoted manufacturing companies in Nigeria, within the moderating framework of share ownership concentration. Insolvency risk was measured using Altman’s Z-score to construct insolvency probability, based on the Z-score as log-odd ratio function of solvency probability. Institutional ownership and share ownership concentration were operationalized in terms of their proportion to total number of shares in issue. Secondary data were collected from the annual financial reports of thirty-three listed manufacturing companies, using purposive sampling technique. Multiple linear regression was used as the statistical tool. Following analyses, it was found that institutional ownership exerts negative impact on insolvency risk, while ownership concentration exerts positive influence on insolvency risk. But when the moderating influence of share ownership concentration was isolated and put under control, insolvency risk’s response coefficient became a decreasing linear function of share ownership concentration. Therefore, this study has produced conclusive evidence that the avowed monitoring effectiveness of institutional shareholders depends on their block-shareholding status, without which they gravitatetowards passive opportunism.Hence, among other recommendations, companies with high concentration of corporate share ownership should seek to attract institutional investors and create incentives for them to maintain high equity stakes in order to minimize their insolvency risk.
Downloads
References
Abdoli, G. (2011). Institutional ownership and bankruptcy risk: Evidence from Tehran Stock Exchange. African Journal of Business Management, 5(13), 5221–5232. doi: 10.5897/AJBM11.009
Agresti, A. (2013). Categorical data analysis (3rd ed.). Wiley, Journal of the American Statistical Association review:
Al-Najjar, B. (2015), Does ownership matter in publicly listed tourismfirms? Evidence from Jordan. Tourism Management, 49, 87-96.
Alfaraih, M., Alanezi, F., Almujamed, H. (2012), The influence ofinstitutional and government ownership on firm performance:Evidence from Kuwait. International Business Research, 5(10),192-200.
Alzoubi, E.S.S. (2015). Ownership structure andearnings management: evidencefrom Jordan, International Journal of Accounting and Information Management, 24 (2), 135-161
Annither, A., Johann, M.K., Hidayat, A.A., Farhana, S. (2020), Theimpact of ownership structure on the indicator of financial distress inIndonesian companies. Journal Akuntansi Dan Bisnis, 20(2), 223-236.
Boubakri, N., Cosset, J.C. &Guedhami, O. (2005).Post-privatization corporate governance: the role of ownership structure & investor protection.Journal of Financial Economics, 76 (2): 369-399.
Chen, K., Elder, R., & Hung, M. (2010). Corporate governance, ownership structure, and earnings management: Evidence from Taiwan. Journal of Accounting and Public Policy, 29(2), 133–155. doi: 10.1016/j.jaccpubpol.2009.12.004
Donker, H., Santen, B., Zahir, S. (2009), Ownership structure and thelikelihood of financial distress in the Netherlands. Applied Financial Economics, 19(21), 1687-1696.
Edward, A.I.; Kishore, V. (1999). The default experience of U.S. Bonds, Working Paper. In Damodaran on Valuation: Security Analysis for Investment and Corporate Finance; Damodaran, A., Ed.; Wiley: New York.
Fred-Horsfall, F. (2019). Corporate Ownership Structure and Earnings Management of Listed Industrial Goods Manufacturing Companies in Nigeria, Unpublished PhD Thesis, Post-Graduate School, Rivers State University
Gabrielsen, G., Gramlich, J. D. &Plenborg, T. (2002).Managerial ownership, information content of earnings, & discretionary accruals in a non–US setting. Journal of BusinessFinance& Accounting, 29 (7/8): 967-988.
Gantchev, N., Gredil, O., &Jotikasthira, C. (2018). Governance under the gun: Evidence from takeover defenses. Review of Financial Studies, 31(10), 3815– 3847. doi: 10.1093/rfs/hhy053
Gillan, S., & L. T. Starks. Relationship Investing and Shareholder Activism by Institutional Investors. Journal of Financial Economics, 57 (2000), 275–305.
Gregory, A., Wang, Y.H. (2013), Cash acquirers: Can free cash flow, debtand institutional ownership explain long‐run performance? Review of Behavioural Finance, 5(1), 35-57.
Halioui, K., & Jerbi, Y. (2012). Ownership structure and earnings management in France. International Journal of Accounting and Information Management, 20(2), 130–145. doi: 10.1108/18347641211223245
Hartzell, J. C., & Starks, L. T. (2003). Institutional investors and executive compensation. Journal of Finance, 58(6), 2351–2374. doi: 10.1111/1540- 6261.t01-1-00542
Hashim (2008). Corporate Governance Ownership Structure and Earnings Quality, University Malaya,50603 Kuala Lumpur, Malaysia.
Jensen, M.C. & Meckling, W.H. (1976).Theory of the firm: managerial behavior, agency costs, and ownership structure.Journal of Financial Economics, 3 (4), 303-360.
Jorion, P. (2017). Sources of Systemic Risk (Presentation Slides). Presentation at Conference on Systemic Risk and the Organization of the Financial System, Chapman University,Available at SSRN: https://ssrn.com/abstract=3048079 or http://dx.doi.org/10.2139/ssrn.3048079
Klein, A., & Zur, E. (2016). Hedge fund activism and the market for corporate control. Journal of Financial Economics, 119(2), 285–305. doi: 10.1016/j.jfineco.2015.12.005
Kyereboah-Coleman, A. &Biekpe, N. (2005). Corporate Governance and The Performance of Microfinance Institutions (MFIs) in Ghana. Working paper, UGBS, Legon.
Lajili, K., &Zéghal, D. (2010). Corporate Governance and Bankruptcy Filing Decisions. Journal of General Management, 35(4), 3–26. https://doi.org/10.1177/03063070100350040I
McConnell, J. J., & Servaes, H. (1990). Additional evidence on equity ownership and corporate value. Journal of Financial Economics, 27(2), 595–612. doi: 10.1016/0304-405X(90)90069-C
Morck, R., Shleifer, A. & Vishny, R.W. (1988). Management ownership and market valuation: an empirical analysis”, Journal of Financial Economics, 20,293- 315.
Obiosa, R.L. & Briggs, O.O. (2022). Prospect Of Mandatory Environmental Sustainability Reporting in Nigeria: A Note of Caution. International Academic Conference, 1 - 18
Oranefo, P. C. (2022). Effect of Institutional Ownership on Bankruptcy Risk in Nigerian Banks, African Journal of Business and Economic Development, 2 (11), 50 - 57
Pivin, Y., Yagil, Y. (2024). The relationship between institutional investors’ holding in public firms and the level of corporate solvency. Journal of Management & Governance, 28, 1237–1256. https://doi.org/10.1007/s10997-024-09707-x
Ramsay, J., & Blair, B. F. (1993). Ownership concentration, ownership dispersion and corporate governance: The UK case. Managerial and Decision Economics, 14(2), 179–187. doi: 10.1002/mde.4090140207
Rashid, A. (2011). Revisiting agency theory: Evidence from post-Enron corporate governance reforms. Journal of Business Ethics, 98(3), 415–433. doi: 10.1007/s10551-010-0656-1
Roodposhti, F. R., &Chasmi, S. R. (2010). Investigating the relationship between corporate governance and earnings management: Evidence from Tehran Stock Exchange. European Journal of Scientific Research, 43(2), 237–247.
Rossouw, G.J. (2005). Business Ethics and Corporate Governance in Africa. Business & Society, 44(1): 94-106.
Shleifer, A., & Vishny, R. W. (1986). Greenmail, share repurchases, and managerial entrenchment. Journal of Financial Economics, 20(1), 47-71.
Shleifer, A. & Vishny, R.W. (1997).A survey of corporate governance.The Journal of Finance,52 (2), 737-783.
Tarighi, H., Appolloni, A., Shirzad, A., Azad, A. (2022), Corporate social responsibility disclosure (CSRD) and financial distressed risk (FDR):Does institutional ownership matter? Sustainability, 14(2), 742.
Thomsen, S., & Pedersen, T. (2000). Ownership structure and economic performance in the largest European companies. Strategic Management Journal, 21(6), 689–705. doi: 10.1002/(SICI)1097-0266(200006)21:6<689:AID-SMJ115>
Udin, S., Khan, M.A., Javid, A.Y. (2017), The effects of ownershipstructure on likelihood of financial distress: An empirical evidence, Corporate Governance: The International Journal of Business in Society, 17(4), 589-612.
Uwuigbe, U., &Olusanmi, O. (2012). 'Anempirical examination of the relationship
between ownership structure and theperformance of firms in Nigeria' International business research, 208-215.
Wang, W., Xu, X., & Zhu, N. (2001). Ownership structure and corporate performance: Evidence from Chinese stock markets. Journal of Accounting and Public Policy, 20(1), 29–52. doi: 10.1016/S0278-4254(01)00023-6
White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48(4), 817-838.
Yeo, G.H., Tan, P., Ho, K.W. & Chen, S.S. (2002). Corporate ownership structure and the informativeness of earnings. Journal of Business Finance and Accounting, 29 (7/8),1023-1046.
Zhong, Z., Gribben, A., & Zheng, L. (2007). Information content of trading volume and open interest: Evidence from the option market. Journal of Financial Markets, 10(3), 278–301. doi: 10.1016/j.finmar.2007.03.001
The authors and co-authors warrant that the article is their original work, does not infringe any copyright, and has not been published elsewhere. By submitting the article to GPH-International Journal of Business Management, the authors agree that the journal has the right to retract or remove the article in case of proven ethical misconduct.