Abstract This study aims to provide empirical evidence from Amman Stock Exchange (ASE) to address the impact of ownership structure and dividends payout on the performance of Jordanian Manufacturing Companies. To test the hypotheses and to achieve its objectives, the annual financial reports of all manufacturing companies and other related data during the period 2011 till 2015 were analyzed. Thus, Ownership structure and dividends payout are considered as independent variables, while firm’s performance is considered as the dependent variable.
The study applies four different acceptable measurement tools as a proxy of firm’s performance (dependent variable); Tobin’s Q (ROA), (ROE), and (NPM). The most representative indicators of firm’s performance that could be measured strongly by ROA and Tobin’s Q, additionally; the study variables (MO, CO, and DYLD) are significant predictors of firm’s performance and the control variables (EPS and Total Assets) are also significant predictors of firm’s performance. The study recommends considering another control variable to better predicting the firm’s performance such as governance mechanisms, board structure, management competence, incentive-based compensation structure, capital structure and external and internal auditing. Keywords: Concentrated ownership, management ownership, dividends payout, Tobin’s Q. ROA, ROE, and NPM. Introduction For many years, the relationship between ownership structure, dividends structure, and firm performance are considered key areas of study in the field of Corporate Governance.
To ensure efficient financial performance, the problem of agency costs needs to be addressed per the ownership structure of the firm. Berle and Means (1932) indicated that an increase in the professionalization of management, companies may operate for managers own benefit, not for the benefit of owners. Therefore; to ensure optimum performance and minimize agency costs, ownership structure is one of the core governance mechanisms along with other factors such as board structure leverage, incentive-based compensation structure, dividend structure, and external auditing. A study in Chinese corporate governance framework by Xu and Wang (1999) explored the relationship between ownership structure and firm performance. It showed that the mix and concentration of stock ownership are significant in explaining the firm?s performance. Also; Morck et al. (2000) investigated the relationship between ownership structure and firm performance in Japanese equity markets.
They found that the value of the firm regularly rises when managers’ ownership has increased. They also found a significant positive relationship between firm value and ownership of block shareholders. However, Domsetz and Villalonga (2001) suggested that there is no any systematic relationship between firm performance and ownership structure to be expected, they have found that ownership structure is insignificant in explaining the firm performance.
Furthermore; Fazlzadeh et al. (2011) in Iranian Stock Market, have examined the role of ownership structure, regarding Institutional ownership concentration, institutional ownership, and ownership concentration. They have found a mix of results. At one side institutional ownership concentration showed a significant negative impact on firm performance. Moreover, ownership concentration did not show any impact on the firm performance.
While previous studies have found that there is a need to provide further evidence on the nature of the association between firm?s performance and dividends payout. The proportion of dividends paid to the total earnings is technically referred to as payout ratio. The decision between paying the dividend and retaining earnings is taken seriously by both investors and management. (Ajanthan, 2013) concluded that dividends payout was a vital factor affecting firm performance. Dividends policy is relevant, so managers should pay attention and give adequate time in designing a dividends policy that will enhance firm profitability and therefore shareholder value. Also; (Azeez and Latifat, 2015) indicated that a significant relationship between dividend payout and firm?s performance exists. Furthermore; Dividend policy is, therefore, considered to be one of the most important financial decisions that corporate managers encounter (Baker and Powell, 1999). In their study; (Omran & Pointon, 2004) also have observed potential implications for share prices and hence returns to investors, the financing of internal growth and the equity base through retentions together with its gearing and leverage.
Dividends payout is usually emerged from the firm?s earnings, performance and cash flow (Ahmed & Javid, 2009). High payout ratio indicates management?s confidence in the stability and growth of future earnings, while a low payout ratio is not (Arnott & Asness, 2003). Dividends policy is important because it determines what funds flow to investors and what funds are retained by the firm for investment (Ross, S.
A., Westerfield, and R.W. & Jaffe, J., 2002). In addition to that, it provides information to shareholders concerning the company?s performance. Enhancing shareholders’ wealth and profit-making are the major objectives of a firm (Pandey, 2005).
Shareholder’s wealth is mainly influenced by growth in sales, improvement in profit margin, capital investment decisions and capital structure decisions (Azhagaiah & Priya, 2008). Firm performance, in this case, can be viewed as how well a firm enhances its shareholders’ wealth and the capability of a firm to International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.
com Page 65 generate earnings from the capital invested by shareholders. Dividend policy can affect the value of the firm and in turn, the wealth of shareholders (Baker, H.K.
, ; Powell, G.E, 2001). Researchers have different views about whether dividend payout materially affects the long-term share prices.
Dhanani, (2005) found that dividends policy enhances corporate market value. However, Farsio et al., (2004) argue that empirical studies which conclude a causal relationship exists between earnings and dividends are based on short periods of time and are therefore misleading to potential investors.
Therefore, dividends do not have an explanatory influence to predict future earnings. The patterns of corporate dividend policies do not only vary over time but also across countries, especially between developed, developing and emerging capital markets. Glen et al. (1995) found that dividend policies in emerging markets differed from those in developed markets.
They reported that dividends payout ratios in developing countries were only about two-thirds of the ones in developed countries. Ramcharran (2001) also observed low dividends yield for emerging markets. Many researchers around the world from developed to developing countries, were concerned about the effect of ownership structure and dividends payout policies on firm?s performance, few studies have addressed the Middle East countries. This study may be considered one of the entrepreneur studies which address Jordan as a developing country. (Amidu, 2007) has produced some interesting results and one possibility for future research is to extend the study to other emerging markets, especially those in the Middle East and North Africa (MENA) region. The incentives for further research on other emerging markets come from the conflicting results and the limitation of the studies which currently exist.
This study aims to provide empirical evidence from Amman Stock Exchange (ASE) to address the impact of ownership structure and dividends payout on the performance of Jordanian Manufacturing Companies listed on Amman Stock Exchange. A sample of firms that have been listed on ASE over the recent six-year period (2010-2015) was considered. The data was derived from the annual financial reports of listed manufacturing companies on ASE.
Taking on the consideration that many previous studies have measured the firm’s performance in different ways. Amidu (2007) in his study uses Return on Assets ROA, Returns on Equity ROE, and Tobin?s Q as a robustness check, While net profit after tax (NPAT) Margin was used by Murefefu and Ouma (2012), Also ROA and Tobin’s Q were used by Khamees et al.( 2014). Kumar (2003) investigated the relation between ownership structure and performance using ROA measurement. While Nadia (2004) used the accounting measurement (ROA). In order to diagnose and address the differences in results when using each one of the above measures and to assess the relevance of each one to justify the conflicting results found by previous studies; our study is going to use Tobin?s Q along with other relevant accounting measures (ROA, ROE, and NPAT Margin) as a proxy for firm performance, which will be discussed in the methodology section.
The results from this study are expected to be beneficial to many involved parties, such as; investors, finance directors, and academic sides. When making an investment decision and portfolio management, developing a dividends policy, and adds more updated empirical evidence to existing Accounting and financial literacy in Jordanian universities. The rest of this paper is organized as follows: Section two provides problem definition, Section three provides literature reviews and hypotheses development, section four deals with the methodology used in data collection and analysis for the study; Section five presents the discussion of findings while section six concludes the study. Problem Definition The relationship between ownership structure, dividends structure, and firm performance are important areas of study in the broader field of Corporate Governance from past years. Researchers explored the relationship between ownership structure and firm performance keeping in view the conflict of interests of managers and owners of the firm.
Also; Researchers have different views about whether dividend payout materially affects the firm’s performance. A study which was conducted in Jordan by Jaafar & El-Shawwa (2009) found that ownership concentration, board size, and multiple directorships have a significant and positive relationship with performance. Another study was conducted in Bahrain by Khamees et al., (2015). Two different measurements of performance were used (Returns on Assets ROA and Tobin’s Q).
The results of the study revealed that dividends have a positive and significant effect on performance when using both measurements of performance. Institutional ownership had the positive and statistically significant effect on performance when using T’Q while it had a negative effect without statistical significance when using ROA. The study found that ROA indicator is more representative and related to performance. This needs to be confirmed by other studies following the same methodology to confirm what was found in our study or other data needed to be known when applying the T?Q indicator to correctly assess its relevance to performance.
Another study in Chinese corporate governance framework by Xu and Wang (1999) explored the relationship between ownership structure and firm performance. It showed that mix and concentration of stock ownership are significant in explaining the performance of the firm. Also; Morck et al.
(2000) investigated the relationship between ownership structure and firm performance in Japanese equity markets. They found that the value of the firm regularly rises when managers’ ownership has increased. They also found a significant positive relationship between firm value and ownership of block shareholders.
However, Domsetz and Villalonga (2001) suggested that there is no systematic relationship between firm performance and ownership structure to be expected, they have found that ownership structure is insignificant in explaining the firm performance. Furthermore; Fazlzadeh et al. (2011) in Iranian Stock Market, have examined the role of ownership structure, in terms of. Institutional ownership concentration, institutional ownership, and ownership concentration.
They have found a mix of International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.com Page 66 results.
At one side institutional ownership concentration showed a significant negative impact on firm performance. Moreover, ownership concentration did not show any impact on the firm performance. Researchers have different views about whether dividend payout materially affects the long-term share prices. Dhanani, (2005) found that dividend policy serves to enhance corporate market value. However, Farsio et al., (2004) argue that empirical studies that conclude a causal relationship exists between earnings and dividends are based on short periods of time and are therefore misleading to potential investors. Therefore, dividends have no explanatory power to predict future earnings. Based on, our study, therefore, tries to provide further empirical evidence whether an impact exists of dividend payout on Jordanian manufacturing companies’ performance that listed on Amman Stock Exchange.
The patterns of corporate dividend policies do not vary over time but also across countries, especially between developed, developing and emerging capital markets. Glen et al. (1995) found that dividend policies in emerging markets differed from those in developed markets. They reported that dividend payout ratios in developing countries were only about two-thirds of that of developed countries. Ramcharran (2001) also observed low dividend yields for emerging markets. While several prior empirical studies from developed economies have shed light on the relationship between firm performance, Ownership structure, and dividend payout, the same is not true in developing economies like Jordan. This study, therefore, tends to fill this gap in the literature by examining the impact of Ownership structure and Dividend Payout on Firm’s performance in Jordan. On the other hand; (Amidu, 2007) has produced some interesting results and one avenue for future research is to extend the investigation to other emerging markets, especially those in the Middle East and North Africa (MENA) region.
The incentives for further research on other emerging markets come from the contradictory results and the limitation of the studies which currently exist. Studies conducted by many researchers, such as McConnell and Servaes (1990), Hermalin and Weisbach (1991), Loderer and Martin (1997), Cho (1998), Himmelberg, Hubbard, and Palia (1999), and Holderness, Kroszner and Sheehan (1999). They all used Tobin?s Q as a proxy for firm performance, although a few also examine accounting profit rate. On the other hand; Amidu (2007) used in his study, return on assets and return on equity as the main accounting measures of firm’s performance; However, as a robustness check, the study also uses TOBIN’S Q as a proxy for market-based measures ratio. While Murefefu and Ouma (2012) in there study; measured the firm’s performance by the net profit after tax (NPAT) Margin, Furthermore; Two different measurements of performance were used (Returns on Assets ROA and Tobin’s Q) by Khamees et al.
(2014 ).to capture the differences in results when using each one of them and to assess the relevance of each one to justify the conflicting results found by previous studies. Kumar (2003) investigated the relation between ownership structure and performance using ROA measurement. Also? Nadia (2004) explored the impact of ownership structure on firm?s performance which was measured using the accounting measurement Returns on Assets (ROA). Firm performance is the dependent variable of this study and has been measured in other empirical studies by the use of accounting-based indicators. Many prior studies have used these indicators to measure the firm?s performance. For example, Lev et al.
, (2005), measured firm´s performance by using three accounting-based indicators which were; ROA, Return on Equity (ROE) and Earnings. Also; (Muritala, 2012) revealed that the relationship between the two performance measures (ROA and ROE) and growth opportunity is positive but not significant. Shu-Ching ; Wenching (2006), measured firm´s performance by using four accounting-based indicators which were; ROA, EPS, Net Profit Margin (NPM) and ROE. Furthermore; Sher ; Yang (2005), also used three accounting based indicators which were; ROA, Return on Sales (ROS) and ROE to measure firm performance. Thus; the study will apply four performance measures (Return on Assets ROA, Return on Equity ROE, Net profit After Tax NPAT Margin -NPM, and Tobin?s Q) as a proxy of Firm?s Performance in order to provide further empirical evidence that addresses the conflicting results of previous studies. The study may provide answers to the following main questions: 1.
What is the impact of ownership structure on the performance of Jordanian manufacturing companies listed on Amman Stock Exchange? 2. What is the impact of dividend payout on the performance of Jordanian manufacturing companies listed on Amman Stock Exchange? Also; the study aims to provide empirical evidence among the following sub-questions. 3. Which factors significantly impact the performance of Jordanian manufacturing companies listed on Amman Stock Exchange? 4. Which firm?s performance proxy is more representative and related to firm?s performance? Literature Review and Hypotheses Development Ownership structure and Firm Performance The idea of the impact of ownership structure and dividends payout on firm value is continuously evolved in corporate governance and finance theory at both empirical and theoretical disciplines. International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.com Page 67 McConnell and Servaes (1990) during analysis of the relationship between firm performance and ownership structure by employing Tobin?s Q as a proxy for firm performance found a significant relationship among Q and the percentage shares held by the insiders.
They also found a significant positive relationship between Q and percentage shares held by the institutional investors. Another important finding is that the correlation of Q and block shareholder is insignificant. They concluded that the firm value is a function of the ownership structure. All the measures of ownership structure used by Demsetz and Lehn (1985) are based on the fraction of shares owned by the five largest shareholders.
The studies that came after the Demsetz and Lehn article focus on the fraction of shares owned by a firm?s management. Management holdings include shares owned by members of the corporate board, the CEO, and top management. Exclusive reliance on this measure to track the severity of the agency problems suggests that all shareholders classified as management have a common interest. This is not likely to be true. A board member, for example, may have a position on the board because he has, or represents someone who has, large holdings of the company?s stock.
Berle and Means (1932) indicated that an increase in the professionalization of management, companies may operate for managers own benefit, not for the benefit of owners. Therefore; to ensure optimum performance and minimize agency costs, ownership structure is considered to be one of the core governance mechanisms along with other factors such as board structure leverage, incentive-based compensation structure, dividend structure, and external auditing. A study by Xu and Wang (1999) explored the relationship between ownership structure and firm performance.
It showed that the mix and concentration of stock ownership are significant in explaining the firm’s performance. Morck, et al. (1988) examined the relationship between corporate ownership structure and performance. They found no significant relationship in the linear regressions they estimate when using Tobin’s Q and accounting profit rate as alternative measures of performance. Furthermore; Sulong and Nor (2008) stated that highly concentrated firms result in conflict of interest between corporate insiders (controlling shareholders and managers) and outside investors (minority shareholders), in the meantime; As mentioned by Claessens et al. (2000a) Managerial ownership can help reduce agency costs because a manager who owns a large fraction of the company?s stocks takes the implications and benefits of managerial actions that destroy and create value for the firm. When managers own a smaller portion of company shares, they have greater incentives to pursue personal benefits and less incentive to maximize firm value. In this instance, one way to reduce the associated increase in agency costs is with the increased shares hold by the managers.
The benefits of managerial ownership in ownership structure are highlighted under the convergence-of-interest hypothesis (Jensen and Meckling, 1976). Studies conducted by many researchers, such as McConnell and Servaes (1990), Hermalin and Weisbach (1991), Loderer and Martin (1997), Cho (1998), Himmelberg, Hubbard, and Palia (1999), and Holderness, Kroszner and Sheehan (1999). They all used Tobin?s Q as a proxy for firm performance, although a few also examine accounting profit rate, and all found that managerial shareholdings have defined as a function of ownership structure. Also; Morck et al. (2000) and ( Sulong and Nor, 2008 ) found that the value of the firm regularly rises when managers’ ownership has increased.
They also found a significant positive relationship between firm value and ownership of block shareholders. However, Domsetz and Villalonga (2001) suggested that there is no any systematic relationship between firm performance and ownership structure to be expected, they have found that ownership structure is insignificant in explaining the firm performance. Studies conducted by Sarac, (2002) and Berger (2003) found a positive relationship with a moderate statistic effect between institutional ownership and firm value. While Wan (1990) found a positive, statistical and significant correlation between the institutional ownership and firm value.
The study of Severin (2001) investigated the relationship between ownership structure, other variables and the economic performance in a sample of French companies. The results of this study indicated that there is a nonlinear relation between ownership structure and performance. In addition to that; Sulong and Nor (2008) on Malaysian listed firms, investigated the effect of dividends, ownership structure and board governance on firm value, it showed that concentrated ownership and managerial ownership have an insignificant effect on firm value. A study conducted by Vein, Krivogorsky (2006) found a positive and insignificant relationship between managerial ownership and firm performance. While Cornett et al. (2008) address a positive and significant relationship between managerial ownership and performance.
A study performed in Jordan by Jaafar & El-Shawwa (2009) found that ownership concentration, board size, and multiple directorships have a significant and positive relationship with performance. Reyana & Valdes (2012) in Mexico found that there is a negative relation between CEO ownership and performance. In addition to that; Chen et al. (2005) found an insignificant relationship between ownership concentration and firm performance. The findings of another study done by Arnott & Asness (2003) also revealed that future earnings growth is associated with high rather than low dividend payout. Shleifer and Vishny (1986) show that large shareholders have the incentive to monitor firm management and that the presence of large shareholders enhances firm performance. However; Thomsen and Pedersen (2000) found a positive relation between ownership concentration and firm performance. Cho (1998) does not detect any significant relationship between firm value and shares held by large shareholders.
More so; Minguez-Vera and Martin-Ugedo (2007) study revealed insignificant relationships between concentrated ownership and firm’s performance. A study was conducted in Bahrain by Khamees et al., (2015); two different measurements of performance were used (Returns on Assets ROA and Tobin’s Q).
The results of the study revealed that Institutional ownership had a positive and statistically significant effect on performance when using T’Q while it had a negative effect without statistical significance when using ROA. The study found that ROA indicator is more representative and related to performance. Furthermore, ownership concentration or ownership structure did not show any effect on market-based performance measures. (Athula S. Manawaduge et al.
2009). According to (Wahla et al., 2012 ), the results show that Managerial Ownership has a significant negative impact on Firm Performance, It is concluded that Firm Performance critically depends on Managerial Ownership. They argue that future research may be conducted International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.com Page 68 by keeping in view the capital structure and dividend policy along with the ownership structure, which may provide more vital predictors of the Firm Performance. Based on the presented literature review, we could develop the following hypothesis to be tested in order to report on the Impact of Ownership Structure on Firm?s Performance, by applying the four suggested measures of Firm?s Performance (Tobin?s Q, ROA, ROE, and NPM). H01: There is no significant impact of ownership structure on the performance of Jordanian manufacturing companies listed on Amman Stock Exchange? Dividends Payout and Firm Performance Many studies have tried to address issues concerning the dividend payout policy and their proposed impact on firm?s performance.
In spite of previous empirical studies conducted to establish the relationship between dividend payout and firms? performance, yet there are still conflicts in the findings of the researchers. Studies conducted by Miller and Rock (1985) and Li and Zhao (2008) argued that dividend policy plays a leading role because it can be used to convey information to the shareholders about the firm’s value. This could be viewed as a Signaling theory; which refers to the idea that managers provide information to the principal in order to create a trustworthy relationship. Managers have more inside information about the firm that firm’s stockholders do.
So, the dividend policy can be used as a signal for the firm’s performance (Zeckhauser and Pound 1990). More so; Firm performance can be viewed as how well a firm maximizes its shareholders? wealth and the capability of a firm to generate earnings from the funds invested by them, so that; dividend payout policy can affect the value of the firm and in turn, the wealth of shareholders (Baker et al., 2001). In addition to that; Sulong and Nor (2008) on Malaysian listed firms, investigated the effect of dividends, ownership structure and board governance on firm value. The study found that dividend payout has a significant positive relationship with firm value. Uwalomwa et al. (2012), Murekefu and Ouma (2013), Ajanthan (2013), and Priya and Nimalathasan (2013) found that dividend payout has significant impact on firm?s performance, another study was conducted in Bahrain by Khamees et al, (2015), two different measurements of performance were used (Returns on Assets ROA and Tobin’s Q).
The results of the study revealed that dividends have a positive and significant effect on performance when using both measurements of performance. However; Gill and Tibrewala (2010) found the different results of dividend payout relations in each industry in the U.S.
The results showed that the dividend payout ratio is negatively related to profitability in a sample of the manufacturing sector. Also; Kapoor et al. (2010) found no significant relation between profitability and dividend payout.
Other studies like Fersio et al. (2004) revealed that dividend policy is not relevant to determine the value or measuring firm’s performance. They argued that reinvestment of retained earnings would enhance faster earnings growth in the future. They also mentioned that higher dividends might lead to a decline in funds that are to be reinvested by the firm. Firms that pay high dividends without considering investment needs may, therefore, experience lower future earnings, so that; they concluded that there is a negative relationship between dividend payout and firm’s performance. Based on the presented literature review, we could develop the following hypothesis to be tested in order to report on the Impact of Dividends Payout on Firm?s Performance, by applying the four suggested measures of Firm?s Performance (Tobin?s Q, ROA, ROE, and NPM). H02: There is no significant impact of Dividends Payout on the performance of Jordanian manufacturing companies listed on Amman Stock Exchange? Research Methodology This study selects all 67 manufacturing companies listed on Amman Stock Exchange, in order to test the hypotheses and to achieve its objectives, the annual financial reports and other related data of the above-listed companies during the period 2011 till 2015 were analyzed.
Study Models This study aims to figure out the impact of ownership structure and dividends payout on the firm?s performance Thus, Ownership structure and dividends payout are considered as independent variables, while firm?s performance is considered as the dependent variable. The study applies four different acceptable measurement tools as a proxy of firm?s performance (dependent variable). The first one is simple Tobin?s Q formula, the second one is Return on Assets (ROA) formula, and the third one is Return on Equity (ROE), and the last one is Net Profit Margin (NPM) Dependent Variables Firm Performance Firm performance is the dependent variable of this study and has been measured in other empirical studies by the use of accounting-based indicators. Many prior studies have used these indicators to measure the firm?s performance. For example, Lev et al., (2005), measured firm´s performance by using three accounting-based indicators which were; ROA, Return on Equity (ROE) and NPAT. Shu-Ching ; Wenching (2006), measured firm´s performance by using four accounting-based indicators which were; ROA, EPS, Net Profit Margin (NPM) and ROE.
Furthermore; Sher ; Yang (2005), also used three accounting based indicators which were; ROA, return on sales (ROS) and ROE to measure firm performance. Also; Tobin’s Q is used by (Morck et al., 1988, 2000), (McConnell and Servaes, 1990) and (Khamis et al., 2015) as a measure to estimate the firm?s performance. It is a International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.com Page 69 ratio of company?s total market value and its total asset value devised by James Tobin of Yale University in 1969. It hypothesized that the combined market value of all the companies on the stock market should be equal to their replacement cost.
Tobin’s Q Tobin’s Q for individual companies is thought of like the (market value of equity and liabilities) / (book value of equity and liabilities). Obtaining the book value of equity and liabilities is generally easier than getting the market valuation due to changes in daily market valuations. (Chung and Pruitt, 1994).
Demsetz and Villalonga (1999; 2001) compared between using financial ratios and Tobin’s Q. They claimed that accounting ratios are used widely due to their simplicity, but they may be affected by accounting practices. Tobin’s Q which measures the market value of the firm by using replacement cost and market value of equity may generate incorrect data regarding companies that depend on intangible capital.
But on the other hand; using Tobin’s Q captures the expected future performance of the firm in addition to the past and current performance (Wan, 1999). Results of a series of regressions comparing simple q values with those obtained by Lindenberg and Ross (L-R) (1981) more theoretically correct, the model indicates that at least 96.6% of the variability of Tobin’s q is explained by simple q. The original Tobin?s Q formula developed by Lindenberg and Ross’ (L-R) (1981) requires some figures that may not be obtainable because the data is not available. Thus researchers usually use a simplified formula for Tobin?s Q as it requires only basic financial and accounting information. The correlation between the two formulas was found to be very high (96.
6%) as calculated by Chung and Pruitt (1994), which means that it is reliable to use it instead of the original Tobin?s Q formula. The basic calculation of Tobin?s q ratio is the ratio of the market value of a firm?s equity and debt to the replacement cost of its asset. Lindenberg and Ross (1981) calculate it as: Q: (L-R) = (PS +MVE+LTD+ CL – START) / (TASST + BVCAP+ NETCAP) Where: PS is liquidating value of firm?s preferred stock, MVE is market value of equity at the end of the year, LTD is long-term debt adjusted for age structure, CL is book value of current liabilities, STASST is net short-term assets, BVCAP is book value of net capital stock, and NETCAP is inflation-adjusted net capital stock. However, as stated by Chung and Pruitt (1994) this formula could be complicated because of the unavailability of some data. Thus Chung and Pruittt (1994) simplified the original formula as follows: Q (CP) = (MVE + PS + TDEBT) / TOTASST Where; MVE is the market value of equity, PS is outstanding preferred stocks, TDEBT is book value of short-term liabilities net of short-term assets, plus book value of long-term debt, and TOTASST is book value of total assets.
More so; Sulong and Nor (2008) reproduced the calculation of the modified version of Tobin’s q ratio as a measure of firm’s performance, Tobin’s Q calculated as the ratio of the sum of market value of equity plus total debts to book value of total assets. The simplified version of Tobin’s Q ratio is portrayed as the following calculation: Simple Q Ratio = (MVE +TDEBT) / TOTASST Where; MVE is the market value of equity i.e.
the firm’s Stock Price * Outstanding Shares, TDEBT is book value of short-term liabilities net of short-term assets, plus book value of long-term debt, and TOTASST is book value of total assets. This proxy is widely used in a lot of previous studies (Mehran, 1995; Rathinasamy et al. 2000; Wolfe and Sauaia, 2003; Faizah, 2006). Firms with high Tobin?s Q ratio (or Tobin?s Q > 1) indicate that the market views the firm?s internal organization as exceptionally good or the expected agency costs are particularly small (Faizah, 2006). Return on Equity (ROE): ROE is an accounting based measure of performance in corporate governance research (Baysinger & Butler 1985; Dehaene, De Vuyst & Ooghe 2001). (ROE) is a significant indicator of the performance of a firm and it measures the return that a firm is realizing from its capital. The primary aim of an organization?s operation is to generate profits for the benefit of the investors. Further; Zeitun and Gary (2007 revealed that ROA and ROE are the most important factor used by investors rather than the market measure of performance.
Therefore, return on equity is a measure that shows investors the profit generated from the money invested by the shareholders (Epps & Cereola 2008). It measures the profitability of shareholders? investment and shows the net income as a percentage of shareholders? equity. It is calculated as: International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.com Page 70 ROE = Annual Net Income /Stockholders’ equity. Return on Assets ROA is an accounting based measure of corporate governance in the literature (Finkelstein and D? Aveni 1994; Weir and Laing 1999). ROA is used to measure firm´s earnings in relation to all other resources that have been employed in the business. It assesses the effectiveness of capital employed and provides a basis in which investors can measure the earnings generated by the firm from its investment in capital assets (Epps and Cereola 2008).
In addition to that; Zeitun and Gary (2007); revealed that ROA and ROE are the most important factor used by investors rather than the market measure of performance. Also; Wu and Cui (2002) provide that there is a positive relationship between ownership concentration and accounting profits measured in terms of ROA. The return on assets (ROA) is a measure which shows a number of earnings that have been generated from invested capital.
It is an indication of the number of kobos earned on each naira worth of assets. It allows users, stakeholders, and monitoring agencies to assess how well a firm?s corporate governance mechanism is in securing and motivating efficient management of the firm (Chagbadari 2011). The ROA is the ratio of annual net income to total assets of a business during a financial year. It is measured as: ROA = Annual Net Income / Total Assets. Net profit After-Tax Margin – NPM After-tax profit margin is a financial performance ratio, calculated by dividing net income after taxes by net sales. A company’s after-tax profit margin is important because it tells investors the percentage of money a company actually earns per dollar of sales. This ratio is interpreted in the same way as profit margin – the after-tax profit margin is simply more stringent because it takes taxes into account.
Ajnathan,(2013) mentioned in his study; that it would be of interest if future research can investigate other variables affecting the firm’s performance, such as but not limited to; financial leverage, Assets Turnover, growth, and Ownership Structure. NPM = NPAT/ NET SALES Independent Variables Ownership Structure Ownership Structure is represented by two variables which are Managerial Ownership (MO) and Concentrated Ownership (CO). Both variables are used by many researchers in their studies to represent ownership structure. In this study; we defined Concentrated Ownership as percentage shares held by top five shareholders. A reason for using a five percent threshold is likely to be the Jordan disclosure requirements, which constrain data availability. As the regulatory framework stipulates some percentage point when holdings should be disclosed this, debatably, also represents a consensus on what a major owner is. (Overlanda, et al.
2012). The reported results of (Victoria Soboleva, 2009) suggest that relative performance of the measures much depends, at the least, on control set employed in the analysis, and thus any absolute rankings would be misleading. However, qualitative analysis of the results allows making certain observations. Normal share measure seems to be more effective in terms of both its own and the overall model’s significance than the more theoretically sophisticated Herfindahl and power indices, which is consistent with Prigge (2007) and Edwards and Weichenrieder (2004). Furthermore, in each of the models, concentration ratios and Herfinahl index tend to deliver significance of approximate levels and may be considered as behaving similarly, as opposed to Banzhaf indices.
Finally, although Banzhaf is not present in the best models, it is able to contribute most of the other measures to the overall predicting power, and in the model with less informative control variables, which is consistent, e.g., with Crama et al., 2003. Because of this definition, the number of major shareholders will vary between firms, and as an alternative, we follow the procedures of Leech (2002) and use a fixed number of major shareholders. Specifically, the five largest shareholders are considered to be major shareholders irrespective of their share sizes.
Some measures were used as proxy for concentrated ownership in the previous literature such as (Agrawal and Mandelker, 1990; Agrawal and Knoeber, 1996; Duggal and Millar, 1999; Claessens et al. 2000a, 2000b; Wang, 2005; Chen et al. 2005; Selarka, 2005; Khan, 2006). Concentration ratios are often more efficient in terms of both predicting power of the model and significance level of their regression coefficient, further; Herfindahl and concentration ratios seem to behave in accordance, delivering approximate results in the same set of control variables; while Banzhaf index, which represents the category of power indices, does not perform in a similar pattern with Herfindahl index and concentration ratios. It is less frequent to take leading positions in highest quality models but is able to contribute to the model more.
The concentration ratio variables were found to have a positive and significant impact on ROA (Victoria Soboleva, 2009). The significant impact of the concentration ratios on ROA is in support of the Shleifer and Vishny (1986) argument that concentrated ownership might reduce the agency cost, and later growing the firm?s performance. Also; Wu and Cui (2002) provide that there is a positive relationship between ownership concentration and accounting profits measured in terms of ROA. While; Athula S.
Manawaduge et al. (2009) show that ownership concentration or ownership structure did not show any effect on market-based performance measures. The representation for Concentrated Ownership, this study employed concentration ratio 5 (CR5) as measured by total percentage of shares owned by largest shareholder (Top1) divided by the sum of shares in the indicators of largest five shareholders as follows (Sulong and Nor 2008); International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.com Page 71 5 CR 5 = Top1 / ? ?i i=1 Where: ?i is the total percentage of shares owned by the largest five shareholders i, and i = 1, 2…
5, Whereas Managerial Ownership is defined as percentage shares held by managers, CEOs, etc. A number of studies used managers’ shareholdings as a proxy for managerial ownership (Morck et al. 1988; Chen et al. 2003). Managerial Ownership (MO) was measured as the total percentage of shares directly held by non-independent executive directors in the company.
Subsequent Nazli and Weetman (2006) and Sulong and Nor (2008), our study is not intended to consider the ownership held by independent non-executive directors because they are expected to play a monitoring role and limit managerial creativity. Dividends Dividends were principally measured by dividends yield (dividends paid per share -to- market price per share ratio). That is, DYLD = DPS / MPS.
The dividend yield was used rather than the payout ratio (dividends per share to earnings per share) for two reasons. Firstly, the denominator in dividends yield is a market measure (share price) compared to an accounting measure (net income). Secondly, to avoid problems of negative payout ratios are resulting from negative earnings or excessively high payout ratios resulting from income being close to zero (Schooley and Barney, 1994). Several other studies also employed dividend yield as a ration of dividends policy (Chang and Rhee, 1990; Han et al. 1999; Ho et al. 2004, and Khamees, 2015). Control variables Debt Ratio and Assets Turnover Debt Ratio and Assets Turnover are taken as control variables.
Debt Ratio (Debt) is worked out as the ratio of total liabilities to total assets. Jensen (1986) stresses the importance of debt in limiting managerial discretion over the use of free cash flow, studies such as Stulz (1988) and Bhabra (2007) suggest an inverse relationship between leverage and firm?s performance. Jensen and Meckling (1976) argue that debt is a disciplining mechanism that alleviates agency problems between management and other shareholders. Therefore, leverage influences firm?s performance through monitoring activities by debt holders, thus our study measured it as total debt divided by total assets to proxy for Debt Ratio (Debt). Assets turnover (AT) is calculated as the ratio of total sales to total assets of the firm.
This control variable was used by (Sulong and Nor, 2008) (Hamid Ulla et al., 2012) and (Khamees et al. 2015). These control variables are used to reflect the impact of various unobserved factors related to the company Firm Size. Our study considered a measure of firm size because it is possible that larger firms are seeming differently by stockholders.
Furthermore, larger firms may pay higher dividends levels. Instead, Bhabra (2007) reveals that firm’ performance is inversely related to firm size. However, Short and Keasey (1999) report that firm size has a significantly positive effect on firm’s performance since larger firms have the potential to access funds with greater ease, both internally and externally. Larger firms may also have better growth opportunities and access to financing opportunities. Also; Redding (1997) detected in his study that large firms are more probable to pay dividends to their stockholders.
According to Titman and Wessels (1988), large firms are more probable to be diversified and less probable to be bankrupt. Thus, these factors can assist the firms in paying higher dividends to their concerned stockholders. In our research, the firm size is meant to be the log of total assets of the firm. Therefore, many previous studies have used total assets to represent firm size (Khamees et al., 2015) and (Hamid Ullad et al. 2012). Our study used total assets (FSIZE) as the indicator of firm size.
Earnings per Share (EPS) Earnings per share (EPS) was used as a measure of a firm?s profitability (Sulong and Nor, 2008), (Kumar and Sopariwala, 1992), (Ahmed and Khababa, 1999), (Kaufmann et al. 2000) and Al-Malkawi, 2005). EPS is also deliberated to be a well-known measure of firm performance (Kaufmann et al. 2000). Khamees et al. (2015) provided that EPS has an insignificant positive effect on performance using T?Q model and an insignificant negative effect on performance using ROA model. While Sulong and Nor (2008) provided an insignificant negative effect of EPS on Firm?s performance using T?Q. Our study used EPS in order to address the conflicting results of previous studies.
The EPS = net income less preferred dividends / weighted average number of outstanding common shares. The empirical model used in this study can be described as follows: FPit (Tobin’s Q) = ?it+ ?1 MOit+ ?2 COit+ ?3 DYLDit + ?4 Debtit + ?5 ATit + ?6 FSIZE + ?7 Prof + ?it Eq FPit (ROA) = ?it+ ?1 MOit+ ?2 COit+ ?3 DYLDit + ?4 Debtit + ?5 ATit + ?6 FSIZE + ?7 Prof + ?it Eq FPit (ROE) = ?it+ ?1 MOit+ ?2 COit+ ?3 DYLDit + ?4 Debtit + ?5 ATit + ?6 FSIZE + ?7 Prof + ?it Eq International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.com Page 72 FPit (NPM) = ?it+ ?1 MOit+ ?2 COit+ ?3 DYLDit + ?4 Debtit + ?5 ATit + ?6 FSIZE + ?7 Prof + ?it Eq Where: FP = Firm Performance represented by Tobin?s Q, ROA, ROE, and NPM. MO = Managerial Ownership CO = Concentrated Ownership DYLD = DPS / MPS (Dividends per share divided to Market Price per Share Debt = Debt Ratio = Total Debts / Total Assets.
AT = Assets Turnover FSIZE = Total assets in thousands Prof = represented by EPS. ? = the constant term ? = coefficient ? = Error term and Subscript (i,t) = the value of the panel data variable “i” in year “t”. Empirical Analysis The empirical analysis consists of regression, ANOVA, and the coefficient for each variable. A well-known statistical package „Statistical Package for Social Sciences? (SPSS) 18.0 Version was deployed in order to analyze the data.
Multicollinearity test This study tested multicollinearity between independent variables; it was found that Inflation factor (VIF) value is less than 5 and above 0.1 so that there are no indicators of multicollinearity between independent variables. The test for multicollinearity was conducted before analyzing the regression model. As mentioned by Field (2000), this test is important because multicollinearity can influence the parameters of a regression model. Also, Menard (1995) and Adeyemi and Fagbemi (2010) recommended that a tolerance value less than 0.1 indicates a serious multi-colinearity problem between the independent variables.
Empirical Analysis and Discussion Table 1: Regression Analysis Dependent Variable Independent Variable Model R R Square Adjusted R Square St. Error Tobins? Q MO 1 .448a .
200 .191 .647072605927 294 ROA MO 1 .
729a .531 .526 7.19652195479 1697 ROE MO 1 .
175a .031 .019 16.8444654144 00553 NPM MO 1 .449a .202 .191 .412325554701 202 Tobins? Q CO 1 .
507a .257 .248 .622659407837 068 ROA CO 1 .770a .592 .587 5.81139028942 5884 ROE CO 1 .
183a .034 .021 17.2690272398 41236 NPM CO 1 .470a .221 .
210 .353890452259 343 Tobins? Q DYLD 1 .442a .196 .186 .
648260089316 406 ROA DYLD 1 .733a .537 .531 7.16760838526 3260 ROE DYLD 1 .178a .
032 .020 16.8771456930 24246 NPM DYLD 1 .443a .196 .185 .414997350225 432 International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.
ijmsbr.com Page 73 Table 2: ANOVA Analysis Dependent Variable Independent variable Mean Square F Sig. Tobins? Q MO 8.544 20.405 .
000b ROA MO 4781.010 92.315 .000b ROE MO 730.056 2.573 .026b NPM MO 3.200 18.
824 .000b Tobins? Q CO 10.372 26.
751 .000b ROA CO 3785.342 112.084 .000b ROE CO 801.246 2.687 .021b NPM CO 2.
552 20.375 .000b Tobins? Q DYLD 8.275 19.
690 .000b ROA DYLD 4828.700 93.990 .000b ROE DYLD 754.025 2.
647 .023b NPM DYLD 3.104 18.021 .000b According to above tables (1 and 2); this study found high consistency between regression and ANOVA analysis, it is found that MO, CO, and DYLD have the highest correlation with the firm?s performance which measured by ROA when comparing with other among other independent variables.
What the results mean is that 53.1%, 59.2 % and 53.7% respectively; of the variance (RSquare) in the extent of dependent variable has been significantly explained by the independent variables (MO, CO, and DYLD). Furthermore; F- Test showed that MO, CO, and DYLD have the highest significant impact on firm’s performance measured by ROA (92.315 %, 112.084 %, and 93.
990%) respectively. This result could be explained of that when the ownership of outstanding shares is concentrated by management, and top shareholders will motivate and drive them to concentrate on utilizing assets as a measure of good financial performance which will positively increase their compensation, dividends, and returns as they are jointly accountable to the board and other minor investors for utilizing assets. In addition to that; concentrated ownership by management and top shareholders will lead them to feel that the firm is their own investment by which they will work together to increase the return on assets as a financial measure of firm?s performance by directing and affecting the operational and financial policies and decisions to ensure the highest level of return on invested assets in the firm.
On the other hand; DYLD plays a significant positive role on the firm’s performance measured by the return on assets of that DYLD encourages both management and top shareholder to utilize the usage of invested assets to ensure they will get more payout ratio out of achieved return, in other words; DYLD motivates management and top shareholders to manage and operate the invested assets in a productive manner to get more cash proceeds for their investments in the firm. Also; Shareholder?s wealth is maximized through effective investment strategies, financed by an optimal capital structure. Furthermore; this study found that MO, CO, and DYLD have a significant positive correlation with firm’s performance which measured by Tobin’s Q and NPM. While the MO, CO and DYLD also have an insignificant positive correlation with ROE as a proxy of firm’s performance (R Square MO =3.1 %, CO = 3.4 % and DYLD = 3.
2%) and (F-Test MO = 2.573 %, CO = 2.687 % and DYLD = 2.647 %) respectively. So, the correlation of MO, CO, and DYLD with firm’s performance measures (ROA, Tobin’s Q and NPM) is still significant positive, but explicitly more than the significant correlation with ROE.
A company’s aftertax profit margin (NPM) is important because it tells investors the percentage of money a company actually earns per dollar of sales. These results are lined with Xu and Wang (1999) study results that showed the mix and concentration of stock ownership are significant in explaining the firm’s performance, and (Ajanthan, 2013) study which concluded that dividends payout was a vital factor affecting firm performance. Also; Thomsen and Pedersen (2000) found a positive relation between ownership concentration and firm performance.
Morck et al. (2000) investigated the relationship between ownership structure and firm performance in Japanese equity markets. They found that the value of the firm regularly rises when managers’ ownership has increased.
They also found a significant positive relationship between firm value and ownership of block shareholders. On the contrast; the study results disagree with the study of Severin (2001) who indicated in his study that there is a nonlinear relation between ownership structure and performance. In addition to that; Sulong and Nor (2008) on Malaysian listed firms, investigated the effect of dividends, ownership structure and board governance on firm value, it showed that concentrated ownership and managerial Ownership have an insignificant effect on firm value. While a study conducted by vein, Krivogorsky (2006) found a positive and insignificant relationship between managerial ownership and firm performance which is not in line with our results.
While Cornett et al. (2008) address a positive and significant relationship between managerial ownership and performance, also; Reyana & Valdes (2012) in Mexico found that there is a negative relation between CEO ownership and performance. In addition to that; Chen et al. (2005) found an insignificant relationship between ownership concentration and firm performance. Furthermore; A study performed in Jordan by Jaafar & El-Shawwa (2009) is lined with our results which found that ownership concentration has a significant and positive relationship with performance. In other words; Shareholder’s wealth is mainly influenced by growth in sales, improvement in profit margin, capital investment decisions and capital structure decisions (Azhagaiah ; Priya, 2008).
Firm performance, in this case, can be viewed as how well a firm enhances its shareholders’ wealth and the capability of a firm to generate earnings from the capital invested by shareholders. Dividend policy can affect the value of the firm and in turn, the wealth of shareholders (Baker, H.K., & Powell, G.E, 2001). Also; the result of this study is lined with Khamees et al., (2015) which revealed that dividends have a positive and significant effect on performance when using ROA and International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.com Page 74 Tobin’s Q measurements of performance. Shareholder?s wealth is maximized through effective investment strategies, financed by an optimal capital structure. . Dividends policy is relevant, so managers should pay attention and give adequate time in designing a dividends policy that will enhance firm profitability and therefore shareholder value, and Dividends payout is usually emerged from the firm?s earnings, performance and cash flow (Ahmed ; Javid, 2009). The results of this study are lined with Uwalomwa et al. (2012), Murekefu and Ouma (2013), Ajanthan (2013), and Priya and Nimalathasan (2013), all of these studies revealed that dividend payout has significant impact on firm’s performance, also; when managers have a significant ownership (MO) they will influence the dividends policy in order to give a good indicator of firm’s performance especially when this policy meets the top shareholders expectations, this result is lined with (Zeckhauser and Pound 1990) argument as they mentioned that dividend policy could be used as a signal for the firm’s performance. However; Gill and Tibrewala (2010) found the different results of dividend payout relations in each industry in the U.S. The results showed that the dividend payout ratio is negatively related to profitability in a sample of the manufacturing sector. Also; Kapoor et al. (2010) found no significant relation between profitability and dividend payout. In conclusion; this study found that (MO. CO and DYLD) have the highest positive correlation with and significant positive impact on firm?s performance when measured by ROA. Wu and Cui (2002) provide that there is a positive relationship between ownership concentration and accounting profits measured in terms of ROA. The least positive correlation and impact on firm’s performance when measured by ROE. In addition to that; MO, CO, and DYLD also have a positive significant correlation and impact on firm’s performance when measured by Tobin?s Q and NPM. Table 3: Coefficient Analysis – Management Ownership (MO) Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta Tobins? Q (Constant) .948 .077 12.351 .000 MO -2.149 .809 -.118 -2.658 .008 DEBT RATIO .006 .153 .002 .037 .971 ASSETS TURNOVER -.495 .089 -.254 -5.537 .000 TOTAL ASSETS( SIZE) -2.049E-010 .000 -.051 -.824 .410 EPS( PROF) .783 .120 .430 6.537 .000 ROA (Constant) -2.196 .854 -2.573 .010 MO 21.537 8.992 .082 2.395 .017 DEBT RATIO -1.152 1.697 -.024 -.679 .497 ASSETS TURNOVER 5.440 .994 .193 5.472 .000 TOTAL ASSETS( SIZE) -2.061E-008 .000 -.355 -7.460 .000 EPS( PROF) 22.274 1.332 .843 16.725 .000 (Constant) 3.537 1.998 1.770 .077 MO 6.869 21.048 .016 .326 .744 ROE DEBT RATIO -8.484 3.972 -.111 -2.136 .033 ASSETS TURNOVER -2.692 2.327 -.059 -1.157 .248 TOTAL ASSETS( SIZE) -7.833E-009 .000 -.083 -1.211 .226 EPS( PROF) 5.819 3.117 .135 1.867 .063 NPM (Constant) -.136 .059 -2.313 .021 MO .918 .519 .082 1.769 .078 DEBT RATIO -.346 .102 -.166 -3.392 .001 ASSETS TURNOVER .279 .064 .208 4.363 .000 TOTAL ASSETS( SIZE) -2.680E-010 .000 -.110 -1.672 .095 EPS( PROF) .372 .077 .331 4.803 .000 International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.com Page 75 Table 4: Coefficient Analysis – Concentrated Ownership (CO) Model Unstandardized Coefficients Standardize d Coefficient s t Sig. B Std. Error Beta Tobins? Q (Constant) .407 .120 3.400 .001 DEBT RATIO -.108 .152 -.033 -.713 .477 ASSETS TURNOVER -.486 .090 -.245 -5.392 .000 TOTAL ASSETS( SIZE) -4.483E-010 .000 -.115 -1.836 .067 EPS( PROF) .822 .117 .459 7.055 .000 CO .008 .002 .252 5.561 .000 ROA (Constant) -1.640 1.119 -1.466 .143 DEBT RATIO -1.190 1.417 -.029 -.840 .401 ASSETS TURNOVER 4.838 .842 .194 5.747 .000 TOTAL ASSETS( SIZE) -1.860E-008 .000 -.379 -8.163 .000 EPS( PROF) 20.358 1.088 .903 18.718 .000 CO .007 .014 .015 .462 .645 (Constant) 6.121 3.324 1.841 .066 DEBT RATIO -8.717 4.209 -.111 -2.071 .039 ASSETS TURNOVER -2.681 2.502 -.056 -1.072 .285 ROE TOTAL ASSETS(SIZE) -7.056E-009 .000 -.075 -1.042 .298 EPS( PROF) 5.849 3.232 .134 1.810 .071 CO -.038 .042 -.046 -.899 .369 NPM (Constant) -.185 .074 -2.482 .014 DEBT RATIO -.430 .090 -.236 -4.781 .000 ASSETS TURNOVER .221 .056 .187 3.918 .000 TOTAL ASSETS( SIZE) -3.075E-010 .000 -.147 -2.185 .030 EPS( PROF) .330 .067 .342 4.934 .000 CO .002 .001 .121 2.497 .013 Table 5: Coefficients Analysis – Dividends Payout (DYLD) Model Unstandardized Coefficients Standardize d Coefficient s t Sig. B Std. Error Beta Tobins? Q (Constant) .975 .080 12.144 .000 DEBT RATIO -.071 .159 -.022 -.449 .654 ASSETS TURNOVER -.467 .091 -.241 -5.107 .000 TOTAL ASSETS( SIZE) -2.910E-010 .000 -.073 -1.146 .253 EPS( PROF) .867 .126 .478 6.883 .000 DYLD -2.519 1.195 -.109 -2.108 .036 ROA (Constant) -2.765 .887 -3.116 .002 DEBT RATIO .061 1.753 .001 .035 .972 ASSETS TURNOVER 4.879 1.011 .173 4.827 .000 TOTAL ASSETS( SIZE) -1.892E-008 .000 -.326 -6.739 .000 EPS( PROF) 20.750 1.393 .785 14.895 .000 DYLD 43.631 13.214 .129 3.302 .001 (Constant) 4.164 2.089 1.993 .047 DEBT RATIO -9.379 4.128 -.122 -2.272 .024 ASSETS TURNOVER -2.306 2.380 -.050 -.969 .333 ROE TOTAL ASSETS( SIZE) -8.846E-009 .000 -.094 -1.338 .182 EPS( PROF) 6.511 3.280 .151 1.985 .048 DYLD -22.581 31.114 -.041 -.726 .468 NPM (Constant) -.120 .059 -2.018 .044 DEBT RATIO -.349 .106 -.167 -3.290 .001 ASSETS TURNOVER .267 .067 .199 3.999 .000 TOTAL ASSETS( SIZE) -2.612E-010 .000 -.107 -1.590 .113 EPS( PROF) .355 .082 .315 4.325 .000 DYLD .460 .840 .030 .548 .584 International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.com Page 76 Also according to the coefficient table 3; it is found that t _values for the independent variables (MO, CO, and DYLD) (-2.658, 5.561 and -2.108 ) respectively and control variables (ASSETS TURNOVER, and EPS)( -5.537 and 6.537 ) are significant at 0.05 levels, which mean there is significant effect of each of them on the firm?s performance measured by Tobin?s Q, while it’s found that DEBT RATIO and TOTAL ASSETS have insignificant coefficient with Tobin’s Q as a proxy for firm’s performance (Sig, 0.971 and .410) which means that Management with significant ownership preferring a stable level of debt ratio and invested assets high level of debt and assets would decrease the ROA, ROE, and NPM when fixing other variables, also; this result can explain the insignificant coefficient with Tobin’s Q when Management concentrating on constant level of debt and assets. At the end; these results are referred to that Management with concentrated ownership of outstanding shares is preferring high level of assets turnover and low level of Asset (SIZE) comparing to the total debt, which reflected by insignificant coefficient of DEBT RATIO (Sig, .497 ) with Tobin?s Q, and significant coefficient of ASSETS TURNOVER with Tobin?s Q. EPS has a significant coefficient with Tobin?s Q as MO prefers high EPS which positively affects the market value of the firm (MVE). Similarly; (MO ,DYLD) and control variables (ASSETS TURNOVER, size and EPS) are significant at 0.05 levels, which mean that there is significant effect of each of them on the firm?s performance measured by ROA which means that these independent variables are good predictors of firm?s performance when measured by ROA, while CO does not have that significant coefficient (sig, .645) with ROA, since this ratio is related directly to the management financial performance as management ownership concentration would affect assets operating and financial policies, also; increased assets turnover means that management is utilizing the firm?s assets (size) in generating sales and returns as well. Consistent with correlation and ANOVA analysis in table 1 and 2 above; it’s found that (MO, CO, and DYLD) and all other control variables do not have a significant coefficient with ROE except for DEBT RATIO (.033, .039, and .024) among the three study variables (MO, CO, and DYLD) respectively; only the DEBT RATIO has a significant coefficient of firm’s performance measured by ROE, increased DEBT RATIO means that the firm is utilizing the financial leverage to increase ROE. On the other hand; it?s found that t _values for (CO) and the control variables (DEBT RATIO, ASSETS TURNOVER, TOTAL ASSETS and EPS) are significant at 0.05 levels, which mean there is a significant effect of each of them on the firm?s performance measured by NPM. (CO) and control variables (DEBT RATIO, ASSETS TURNOVER, TOTAL ASSETS and EPS) are considered good predictors of firm?s performance (NPM) which also means that increased financial leverage and EPS reflected in NPM as a proxy of firm?s performance. While the control variable (TOTAL ASSETS – Size) has an insignificant coefficient with firm?s performance measured by NPM when inserting the independent variables (MO and DYLD) (sig, .093 and 0.113) respectively, this exceptional result is referring to that MO is preferring a low size of total assets and would affect inversely the ROA, ROE and DYLD as well. Our results are lined with McConnell and Servaes (1990) in which they found a significant relationship between Q and the percentage shares held by the insiders. McConnell and Servaes (1990) also found an Important finding is that the correlation of Q and block shareholder is insignificant. In the meantime; a study by Xu and Wang (1999) showed that the mix and concentration of stock ownership are significant in explaining the firm’s performance. As mentioned by Claessens et al. (2000a) Managerial ownership can help reduce agency costs because a manager who owns a large fraction of the company?s stocks takes the implications and benefits of managerial actions that destroy and create value for the firm. When managers own a smaller portion of company shares, they have greater incentives to pursue personal benefits and less incentive to maximize firm value. In this instance, one way to reduce the associated increase in agency costs is with the increased shares hold by the managers. As for robustness of performance of the control variables, their regression coefficients are quite consistent in terms of both sign and significance level, across the four firm?s performance measures; MO has a significant positive relationship (t= 2.395, sig, =0.017) with firm?s performance measured by ROA, significant negative relationship (t= -2.658, sig, 0.008) with firm?s performance measured by Tobin?s Q, while MO shows insignificant positive relationship with ROE and NPM. While CO shows a significant positive relationship (t =5.561, sig, 0.000) and (t =2.497, sig, (0.013) with firm?s performance measured by Tobin?s Q and NPM respectively, this result is lined with Thomsen and Pedersen (2000) in which they found a positive relation between ownership concentration and firm performance. while it shows an insignificant positive relationship with ROA and insignificant negative relationship with ROE. According to Sulong and Nor (2008); their study showed that concentrated ownership and managerial Ownership have an insignificant effect on firm value.Also; A study by Xu and Wang (1999) explored the relationship between ownership structure and firm performance. It showed that the mix and concentration of stock ownership are significant in explaining the firm’s performance. Morck, et al. (1988) found no significant relationship in the linear regressions they estimate when using Tobin’s Q and accounting profit rate as alternative measures of performance. In addition to that; A study conducted by Vein, Krivogorsky (2006) found a positive and insignificant relationship between managerial ownership and firm performance. While Cornett et al. (2008) address a positive and significant relationship between managerial ownership and performance. A study performed in Jordan by Jaafar ; El-Shawwa (2009) found that ownership concentration, board size, and multiple directorships have a significant and positive relationship with performance. Reyana ; Valdes (2012) in Mexico found that there is a negative relation between CEO ownership and performance. In addition to that; Chen et al. (2005) found an insignificant relationship between ownership concentration and firm performance. On the other hand; DYLD shows a significant negative relationship (t= -2.108, sig, .036) with Tobin’s Q, a significant positive relationship (t= 3.302, sig, 0.001) with ROA, and insignificant negative and insignificant positive relationship with ROE and NPM respectively. Uwalomwa et al. (2012), Murekefu and Ouma (2013), Ajanthan (2013), Priya and Nimalathasan (2013) and Khamees, et al., (2015) found that dividend payout has a significant impact on firm’s performance. Also; a study done by Arnott ; Asness (2003) revealed that future earnings growth is associated with high rather than low dividend payout. Studies conducted by Miller and Rock (1985) and Li and Zhao (2008) argued that dividend policy plays a leading role because it can be used to convey information to the shareholders about the firm’s value. This could be viewed as a Signaling theory; which refers to the idea that managers provide information to the principal in International Journal of Management Sciences and Business Research, Oct-2017 ISSN (2226-8235) Vol-6, Issue 10 http://www.ijmsbr.com Page 77 order to create a trustworthy relationship. Also; managers have more inside information about the firm that firm’s stockholders do.So, the dividend policy can be used as a signal for the firm’s performance (Zeckhauser and Pound 1990). Conclusion This study aims to provide empirical evidence from Amman Stock Exchange (ASE) to address the impact of ownership structure and dividends payout on the performance of Jordanian Manufacturing Companies listed on Amman Stock Exchange. A sample of firms that have been listed on ASE over the recent six-year period (2010-2015) was considered. The data was derived from the annual financial reports of listed manufacturing companies on ASE. Considering the fact that a lot of studies have measured the firm’s performance in diverse ways. To diagnose and address the differences in results when using each one of the above measures and to assess the relevance of each one to justify the conflicting results found by previous studies; our study employed Tobin’s Q along with other relevant accounting measures (ROA, ROE, and NPM) as a proxy for firm performance. This study used the regression analysis, ANOVA and Coefficient Analysis to provide new empirical evidence on whether and in what way choice of measure of ownership structure (MO and CO) and Dividends (DYLD) may have an impact on the firm?s performance of Jordanian Manufacturing Companies listed on Amman Stock Exchange. Also; four control variables were added to the model (DEBT RATIO, ASSETS TURNOVER, TOTAL ASSETS and EPS). The three main variables (MO, CO, and DYLD) were added, one by one, to four different sets of control variables, and their behavior is then compared to the regression coefficient analysis. The major finding of the research is that although most of the models demonstrate a significant relationship regardless of the measure employed, the behavior of the measures in the analysis, along with the results of the analysis, depends on the measure employed. First, MO and DYLD have a significant positive impact on firm?s performance when employing ROA as a proxy of firm?s performance, and have collected a significant negative impact on firm?s performance when employing Tobin?s Q, as a dividends policy will enhance firm profitability, and therefore shareholder value and a high payout ratio indicates management?s confidence in the stability and growth of future earnings. CO reported a significant positive impact on firm?s performance when employing Tobin?s Q and NPM. The study concluded that ROA indicator is more representative and related to firm?s performance under this analysis. Second; MO and DYLD collectively have an insignificant positive impact on firm?s performance when employing NPM. Also; MO reported an insignificant positive impact on firm?s performance when employing ROE as a proxy of firm?s performance, while CO reported an insignificant impact on firm?s performance when employing ROA. Finally, CO and DYLD reported an insignificant negative impact on firm?s performance when employing ROE as a proxy of firm?s performance. which means that NPM and ROE indicators are less representative and does not relate to firm’s performance at all. In addition to the above conclusion, the study found that control variable EPS has a significant positive impact on firm’s performance when employing ROA, Tobin’s Q and NPM as proxies of firm’s performance. While the control variable Assets turnover reported a significant positive impact on firm’s performance when employing ROA and NPM, finally; the control variable Debt ratio only reported a significant positive impact on firm’s performance when employing ROA. On the other hand; the control variable Total Assets reported a significant negative impact on firm?s performance when employing ROA, ROE and NPM, while the control variable Debt ratio reported a significant negative impact on firm?s performance when employing ROE and NPM, finally, the control variable Assets turnover showed a significant negative impact on firm?s performance when employing Tobin?s Q. In conclusion; our study provided an empirical evidence about the most representative indicators of firm’s performance that could be measured strongly by ROA and Tobin’s Q, while NPM represents the firm’s performance moderately, additionally; the study variables (MO, CO, and DYLD) are significant predictors of firm’s performance, and the control variables (EPS and Total Assets) are also significant predictors of firm’s performance, while (Assets Turnover and Debt Ratio) are moderate predictors of firm’s performance. At the end; the study recommends considering another control variable to better predicting the firm’s performance such as governance mechanisms, board structure, management competence, incentive-based compensation structure, capital structure and external and internal auditing.
