Page 1 of 8
Journal for Studies in Management and Planning
Available at https://pen2print.org/index.php/jsmap/
ISSN: 2395-0463
Volume 05 Issue 01
January-2019
Available online: https://pen2print.org/index.php/jsmap/ P a g e | 1
Managerial Ownership and Financial Performance of Quoted
Building Materials Firms in Nigeria
Yakubu Abubakar, Saleh A. Moriki, Monday, Emmanuel
Department of Accounting,
Ahmadu Bello University, Zaria, Nigeria.
email:yaksonabu@gmail.com
Abstract
Managerial ownership and firm performance have been conducted in different parts of
the globe with different findings; this study tends to fill the gap by examining the impact of
managerial ownership on performance of quoted building materials firms in Nigeria. The
population of the study consists of six (6) firms quoted on the Nigerian stock exchange as at
31st December 2016 out of which four (4) firms were selected using two criteria which are
company that made available their annual report of thirteen (13) years and company quoted
on the Nigerian stock exchange before 2004. The study uses multiple regressions as a tool for
analysis and secondary source of data analysis. The result of the study revealed that
managerial ownership impacts positively significantly on performance of quoted building
materials firms in Nigeria. The study concludes that managerial ownership affects firm
performance of building materials firms in Nigeria and recommended that Security and
exchange commission should encourage potential managers in the building material industry
to invest in long term investment.
Keywords: Managerial ownership, leverage, firm size and financial performance.
1.0 Introduction
Conflict of interest problem that arises between shareholders and managers is as a
result of the separation of ownership and control. The objective of a corporation's
shareholders is return on their investment. Managers have other goals, such as the power and
prestige of running a large and powerful organization, or entertainment and other perquisites
of their position. In this situation, managers' superior access to inside information therefore,
makes them have more influence in the performance of the firm than other shareholders.
Beni and Alexander (1999) found out that owner-managers firms are more efficient
than non-owner managers firms because owner-managers have stakes in the firm while non- owner managed firms are less efficient because the non-owner managers seek after their
own personal interests at the expense of other shareholders. There are two opposing effects
when studying managerial ownership these are: incentive and entrenchment effect (Beyer,
Czarnitzki & Kraft, 2011). From the point of view of incentive effect, managerial ownership
is supposed to have a positive relationship with firm performance because of the
remuneration attached to their performance. On the other hand, entrenchment effect is a
situation where other shareholders like the institutional owners and concentration owners
have less power over the manager’s decisions because the managers have a substantial
amount of shares and is more involved in the company (Beyer et al 2011).
Page 2 of 8
Journal for Studies in Management and Planning
Available at https://pen2print.org/index.php/jsmap/
ISSN: 2395-0463
Volume 05 Issue 01
January-2019
Available online: https://pen2print.org/index.php/jsmap/ P a g e | 2
There are three determinants of firms’ performance. The first is associated with
external factors that are beyond the control of the firms. The second one are factors that are
internal and under the direct purview of the firms. These constitute managerial efficiency,
governance structure; ownership structure among others that affect the ability of the firms to
cope with external factors. Lastly, the other factors that affect firms’ performance are firm
size, leverage, and the type of industry (Kechi 2011).
Studies that have been conducted on the managerial ownership and firm performance
include studies of Hu and Zhou (2006), Din and Javid (2011), Arifur, Balasingham and Paul
(2008), Yarram and Balachandran (2015), Li and Sun (2014) and Nguyen (2017) are largely
foreign base, therefore they are not conclusive and could not provide adequate evidence on
the impact of managerial ownership on firm’s financial performance in Nigeria. Also the firm
characteristics are not similar to those of developing economy like Nigeria, thereby, the need
to conduct studies based on the nature of a developing economy like Nigeria.
The study on Managerial ownership and Firms’ Financial performance of quoted
building materials firms seem to have received very little attention in Nigeria. At the moment,
to the best of our knowledge, we are not aware of any study on managerial ownership and
performance of quoted building materials firms in Nigeria which is the gap the study want to
fill. Therefore, this study attempts to study the impact of managerial ownership on firms’
financial performance of quoted building materials firms in Nigeria. The main and only
objective of the study is to examine the impact of managerial ownership on performance of
quoted building materials firms in Nigeria. In line with the only objective, One Null
Hypotheses is formulated which is HO1 Managerial ownership has no significant impact on
firm performance of quoted building materials firms in Nigeria.
2.0 Literature Review
Various studies have attempted to examine the impact of managerial ownership and
firms’ financial performance. Kim, Pattanaporn and John (2002) explored the relationship
between managerial ownership and the change in firm performance. They investigated
operating performance of 133 Post - (Initial public Offer) IPO that go public in Thailand.
Their findings showed that firms with ‘low’ and ‘high’ levels of managerial ownership
experience positive relationships between managerial ownership and the change in
performance and firms with ‘intermediate’ levels of managerial ownership exhibit a negative
relationship between managerial ownership and the change in performance.
Hu and Zhou (2006) examined the relationship between managerial ownership and
performance of a sample of non-listed Chinese firms. The ownership structure was essentially
exogenously determined subject to government policies irrelevant to incentive contracting. In
matching-sample comparisons, they found out that firms of significant managerial ownership
performed superiorly relative to those whose managers do not own equity shares. Our results
indicate a strong and robust positive effect of managerial ownership on company
performance.
Arifur et. al., (2008) investigated the relationship between managerial share
ownership and operating performance of Australian companies during the period 2000 to
2006. They first used earnings to examine the relationship. As earnings may be affected by
earnings management, they removed discretionary accruals and also use adjusted earnings as
an alternative measure of performance. They documented a negative relationship between
managerial share ownership and performance followed by a positive relationship after
Page 3 of 8
Journal for Studies in Management and Planning
Available at https://pen2print.org/index.php/jsmap/
ISSN: 2395-0463
Volume 05 Issue 01
January-2019
Available online: https://pen2print.org/index.php/jsmap/ P a g e | 3
controlling for endogeneity and reverse-causality. They also documented that managerial
ownership affects performance but only when they use adjusted earnings. They also posited
that executive directors and independent directors have different ownership-performance
incentives and examine these relationships separately. Their analyses revealed a similar
relationship between ownership and performance for executive directors as for managerial
ownership as a whole. However, they found no significant relationship between share
ownership by independent directors and either earnings or adjusted earnings.
Cheung, Fung and Tsai (2008) examined the impacts of Managerial and Institutional
Ownerships on Firm Performance in USA. Their study provided new perspective on
relationship between managerial and institutional ownerships and firm performance. Their
study used sample of 49,907 US firms from NYSE, AMEX, and NASDAQ from 1989 to
2006. The findings of their study showed that managerial ownership and firm performance
are non-linearly related; the positive relationship was stronger for firms with less informative
prices or more agency problems, institutional ownership had a significant positive impact on
firm performance with larger impact for firms with less informative prices or good
governance. Managerial ownership which controlled for internal governance had strong
positive effect compared to institutional ownership which reflected external monitoring, had a
weaker positive effect and finally, the interaction between managerial ownership and
institutional ownership had a significant positive impact on firm performance and synergistic
effects of internal and external corporate governance mechanisms in improving firm value.
Their study recommended that poor governance and uninformative price increased the
importance of managerial value creation for their firms by improving internal governance.
Din and Javid (2011) examined the impact of managerial ownership on the firm’s
performance and financial policies in the context of Pakistani market for sixty non-financial
firms for the period of 2000 to 2007. Their analysis supported that the concentration of
managerial ownership affects firm financial policies, mainly the leverage and dividend
policies. Their empirical analysis found out that leverage policy variable influenced
managerial ownership negatively, supporting that the lower leverage level leads to high
profitability firms engage in low managers’ ownership. The result also determined a negative
and significant association among the managerial ownership concentration and dividend
policy of the firms. This result is supported by the agency theory prediction suggested that as
firms have high managerial ownership, the asymmetric information will decrease and directly
decrease the effectiveness of the dividend policy. Beside this, the firms with higher
managerial ownership decrease their perquisites, so the conflict between manager’s
shareholders can be settled. It was also observed that the managers’ ownership concentration
in general had a positive relationship with the performance in the corporate culture of
Pakistan, where major firms were the family oriented. When the managerial ownership was
divided in three levels, low level (0 -5%), moderate level (5%-25% and high concentrated
(above 25%), the performance positively affected only low and moderate level managerial
owners. The ownership beyond 25% had a negative association with performance.
Li and Sun (2014) studied the causal effects of managerial ownership on firm performance
exploiting the 2003 Tax Cut as a quasi-natural experiment. Their difference-indifference
empirical design uncovered a significant and hump-shaped improvement in firm performance
measured by Tobin’s Q with respect to the level of managerial ownership due to the tax cut.
The increase in performance is more pronounced for firms where agency problems are
relatively more severe as well as firms under weak alternative governance mechanisms,
