CHAPTER FOUR: ANALYSIS
This chapter looks into the presentation, analysis and discussions of data gathered in this study. Secondary data was collected and thereafter analysed based on the objectives of the study. The findings are presented under the different headings.
4.1 Data and Sample
Bloomberg L.P terminal provided the secondary data that was utilised. Bloomberg is a valuable resource that gives information on accounting and trading equity for companies listed in emerging and developed economies. Bloomberg also provides historical data on stock prices, cash flows, income statements, and financial statements. The data used was from companies that were listed on the UK FTSE ALL SHARE index. The study was conducted over a ten-year period, from 2010 to 2020. Table 1 shows 300 enterprises based on the data, all of which are in distinct industrial sectors. To ensure a consistent prediction, we selected 300 companies that met the following criteria: the company must have been listed on the London Stock Exchange floor before 2010, the company must have all of the variables in the study considered, the company must not be in receivership or liquidation, and the variables of interest must be available. Banks were left out since they are heavily regulated in comparison to other industries. The variables that will be measured were chosen following a thorough review of past research.
The FTSE ALL SHARE index in the United Kingdom was chosen because it represents the top 300 companies in the country and has the ability to provide more reliable findings for the variables of interest. Internal and external corporate governance monitoring measures are used more frequently by UK FTSE ALL SHARE businesses. The shares of UK FTSE ALL SHARE firms are widely subscribed by the general public, institutions, families, and individuals. The UK FTSE ALL SHARE firms follow regulations from the Financial Conduct Authority, Financial Reporting Council, Stock Exchange, and Companies House, all of which are external governance systems. Because the ownership arrangements of companies in the UK and the US are thought to be distributed, which is one of the grounds for looking into the Agency theory issue, UK FTSE ALL SHARE companies are the most representative of the study sample to look at such a phenomenon.
The impact of ownership structure on firm performance of UK’s FTSE 300 companies during the period 2008-2018 was investigated using a panel data econometric model. When compared to time series or cross-sectional data analysis models, using panel data for study has several advantages. Because it contains more degrees of freedom, the panel data model provides for a better level of accuracy in estimates (Barrow, 2017).
Yit = αi + βit µit + µit
where; αi represents an undefined intercept, βit represents the vector of the parameter of interest and µit represents the unobserved error term. That explains why the model for this study was constructed as follows
BPSit = α0 + β1MGROWNit + β2INSTOWNit + β3OWNCONCit + β4SIZEit + β5GROWTHit + β6AGEit + μit
Also, a data analysis software called IBM SPSS 22 was used to perform this data’s quantitative analysis. SPSS software simplifies data handling and is perfect for social science data analysis. The following analysis was done to properly address the research questions and accomplish the study objectives. A summary of the descriptive statistical analysis involved central tendency, dispersion, and relationship measurement, as well as correlation and regression of independent and dependent variables in the Common Effect Model (CEM).
Variables Description
The research of FTSE 300 companies done earlier looks at how ownership structure affects corporate performance over the course of 2010 to 2020. A detailed description of the variables that influence ownership structure and company performance can be found below.
Ownership Structure (Independent Variable)
While other academics have looked at various metrics of ownership structure, this study looks at the factors of ownership concentration, institutional ownership, and ownership concentration. Shares should be distributed to managers as a way of reducing agency expenses by incentivizing them to regard the company as their own (managerial ownership). Where there is a dispersed ownership structure, managerial ownership is a powerful incentive for managers because common stockholders who have adequately scattered their uncertainties through diversifying and hold small stakes in companies usually lack the motivation to force management to take responsibly and reduce agency costs. The influence of block shareholders is another technique to influence the behaviour of managers and get them to act in the best interests of the shareholders (ownership concentration).
Large shareholders, according to Harryono (2020), have more motive to monitor management’s conduct because it is obvious that the fall of the firm as a result of managers’ self-interested actions would be experienced more by greater shareholders than by small owners. Also, because they invest on behalf of other investors, institutional investors (institutional ownership) are said to keep an eye on managers’ behaviour.
Firm Performance (Dependent Variable)
Many scholars look at the relationship between the structure of ownership and business performance by using different measures of success.
Managers can learn about their company’s performance in the past by looking into accounting profits. A CPA must follow certain rules and regulations and also must use his or her own judgement. These factors are extremely important for financial decision-making. Using this information, the performance metric utilised in this research is Book Value Per Share.
4.2 Demographic Information
This section will show the demographic characteristics and background information of the variables used in the study. Table 1 shows distribution of the respondents in terms of the above-mentioned characteristics.
Table 1: Industry Sector of the Companies
INDUSTRY_SECTOR | |||||
| Frequency | Percent | Valid Percent | Cumulative Percent | |
Valid | Basic Materials | 23 | 7.7 | 7.7 | 7.7 |
Communications | 24 | 8.0 | 8.0 | 15.7 | |
Consumer, Cyclical | 70 | 23.4 | 23.4 | 39.1 | |
Consumer, Non-cyclical | 75 | 25.1 | 25.1 | 64.2 | |
Energy | 17 | 5.7 | 5.7 | 69.9 | |
Industrial | 63 | 21.1 | 21.1 | 91.0 | |
Technology | 18 | 6.0 | 6.0 | 97.0 | |
Utilities | 9 | 3.0 | 3.0 | 100.0 | |
Total | 299 | 100.0 | 100.0 |
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From the table 1 above, the study used data from companies of different industrial backgrounds. Majority of the companies 75 (25.1%) were in the consumer, non-cyclical sector, followed by 70 23.4%) from the consumer, cyclical sector.
Companies from the consumer sector were 63 (21.1%). The industry sector with the lowest number of companies was utilities with an overall 3%. Analysis was done to know the year of corporation for the companies listed in the UK FTSE ALL SHARE. Graph 1 shows the distribution.
From the graph above, majority of the companies in the study were incorporated into the UK Financial Times Stock Exchange (FTSE) between 2000 and 2030. The lowest number of companies were incorporated between 1910 to 1939. Descriptive statistics were done for the 298 shareholders companies listed on UK FTSE. Results are as shown in the table 2 below.
| MGROWN | INSTOWN | OWNCONC | SIZE | GROWTH | AGE | BPS |
Mean | 0.9989 | 0.3082 | 0.6212 | 0.4239 | 0.6832 | 0.82 | 105.0817 |
Median | 16.659 | 14.782 | 8.982 | 8.549 | 7.443 | 4.294 | 18.831 |
Std. Dev | 101.5729 | 121.9632 | 110.7829 | 83.782 | 79.8234 | 110.89 | 593.8079 |
Skewness | 5.275 | 7.428 | 9.537 | 5.934 | 6.9023 | 8.3564 | 8.7209 |
Probability | 0.00000 | 0.00000 | 0.00000 | 0.0000 | 0.00000 | 0.0000 | 0.00000 |
The descriptive statistics utilised in the table above are mean, median, standard deviation, skewness, and probability. The dependent variable, company performance as assessed by Book Value per Share, is 105.08, with a standard deviation of 593.80, according to the findings. In addition, the data shows that management ownership has a mean of 0.9989 and a standard deviation of 101.5729. The mean and standard deviation for institutional ownership and ownership concentration are (0.3082,121.121.96) and (0.6212, 110.78), respectively. The mean of managerial ownership is greater than the average of institutional ownership and ownership concentration, indicating that managerial ownership is more common.
4.3 Results analysis
The study’s main goal is to determine the impact of ownership structure on firm performance by evaluating data from companies listed on the FTSE in the United Kingdom from 2010 to 2020. Managerial ownership, institutional ownership, and ownership concentration describe ownership structure, whereas Book Value Per Share represents company performance. Furthermore, the company’s size, age, and asset turnover are all included as controlled variables.
The relevance of the association between business performance as measured by Book Value per Share (dependent variable) and Ownership Structure as measured by Managerial Ownership, Institutional Ownership, and Organizational Concentration was investigated using the Common Effect Model (Independent Variable). Constant Coefficients, or a constant intercept and slope, are assumed in the Common Effect Model. The model’s results are displayed below.
Description | Coefficient | T-Statistic |
Intercept | 2.98 | 3.1335 |
Managerial Ownership | 0.347 | 2.6489 |
Institutional Ownership | 0.271 | 3.4304 |
Ownership Concentration | 0.099 | 2.8286 |
Size | 0.697 | 18.342 |
Growth | 0.857 | 2.0356 |
Age | 0.372 | 6.3918 |
R-square Adjusted R-Square Significance F | 0.70365 | |
0.71739 | ||
25.712 |
The value of F (25.712) with a p-value of 0.000 showing its highly significant at level 5%. This shows that Managerial Ownership has a positively significant relationship with firm performance. Same case applies to Institutional Ownership and Ownership Concentration. The control variables, that is, size, growth and age have significant effect as well on firm performance. The t-values of the control variables are all above 0.05 thus show significant relationship.
A Pearson Correlation Coefficient was done to assess the relationship between ownership structure and firm performance. Table 2 below shows the findings.
| Firm Performance | Managerial Ownership | Institutional Ownership | Ownership Concentration | Size of the Company
| Growth of the Company | Age | Asset Turnover | |
Firm Performance | Correlation Coefficient | 1.000 | .517 | .683 | .582 | .427 | .491 | .824 | .413 |
Sig. (1-tailed) | . | .000 | .011 | .002 | .000 | .02 | .00 | .000 | |
N | 303 | 303 | 303 | 303 | 303 | 303 | 303 | 303 | |
Managerial Ownership | Correlation Coefficient | .517 | 1.000 | .464 | .644 | .529 | .648 | .729 | .492 |
Sig. (1-tailed) | .000 | . | .001 | .02 | .193 | .000 | .001 | .001 | |
N | 303 | 303 | 303 | 303 | 303 | 303 | 303 | 303 | |
Institutional Ownership | Correlation Coefficient | .683 | .464 | 1.000 | .494 | .410 | .432 | .501 | .628 |
Sig. (1-tailed) | .011 | .001 | . | .001 | .000 | .007 | .002 | .00 | |
N | 303 | 303 | 303 | 303 | 303 | 303 | 303 | 303 | |
Ownership Concentration | Correlation Coefficient | .582 | .644 | .494 | 1.000 | .325 | .389 | .401 | .613 |
Sig. (1-tailed) | .002 | .02 | .001 | . | .000 | .001 | .002 | .001 | |
N | 303 | 303 | 303 | 303 | 303 | 303 | 303 | 303 | |
Size of the Company | Correlation Coefficient | .427 | .529 | .410 | .325 | 1.000 | .270 | .229 | .542 |
Sig. (1-tailed) | .003 | .000 | .000 | .000 | . | .001 | .008 | .000 | |
N | 303 | 303 | 303 | 303 | 303 | 303 | 303 | 303 | |
Growth of the Company | Correlation Coefficient | .491 | .648 | .432 | .389 | .270 | 1.000 | .616 | .500 |
Sig. (1-tailed) | .000 | .000 | .000 | .000 | .000 | . | .000 | .000 | |
N | 303 | 303 | 303 | 303 | 303 | 303 | 303 | 303 | |
Age | Correlation Coefficient | .824 | .729 | .501 | .401 | .229 | .616 | 1.000 | .230 |
Sig. (1-tailed) | .000 | .000 | .000 | .000 | .000 | .000 | . | .001 | |
N | 303 | 303 | 303 | 303 | 303 | 303 | 303 | 303 | |
Asset Turnover | Correlation Coefficient | .413 | .429 | .628 | .613 | .542 | .500 | .230 | 1.000 |
Sig. (1-tailed) | .000 | .000 | .000 | .000 | .000 | .002 | .002 | . | |
N | 303 | 303 | 303 | 303 | 303 | 303 | 303 | 303 |
The results demonstrate a positive average association between company performance and managerial ownership, with r = -0.517, p=0.000, and N=303. The association between company performance, institutional ownership, and ownership concentration is the same in this situation. Their correlations are (r =.683, p=0.000, and N=303, respectively) and (r =.582, p=0.002, and N=303). They have average positive correlations, which suggests that there is a positive relationship between the two variables, meaning that if one increases, the other does as well. That is, if a firm’s performance is good, it has a lot of managerial, institutional, and ownership concentration. Furthermore, the p-value (sig 2-tailed) is less than 0.05. (p=0.000>0.05). This means that there is a statistically significant link between company performance and managerial, institutional, and ownership concentration ownership. In addition, the Pearson correlation revealed a positive association between the dependent and control variables. r = -0.427, p = 0.000, n = 303 and r = -0.491, p = 0.02, n = 303 were found to be significant. This indicates that there is a statistically significant association between firm performance, company size, and company growth. The positive correlation suggests that as the size and expansion of the company increases, so does the increase in firm performance. The p-value was 0.000 and 0.02, which is less than 0.05, according to the results. This demonstrates that firm performance, company size, and company growth all have a substantial link.
To analyse the relationship between firm performance, company age, and asset turnover, a Pearson Correlation Coefficient was calculated. The above table indicates a positive connection between firm performance, company age, and asset turnover, with r = 0.824, p=0.000, and N=303 for r = 0.413, p=0.000, and N=303 for r = 0.413, p=0.000, and N=303 for r = 0.413, p=0.000, and N=303 for r = 0.413, p=0.000, and N=303 for r = 0.413, A high positive association was found between firm performance and the company’s age, as well as an average positive correlation between firm performance and asset turnover.
Furthermore, the sig 2-tailed p-value (p=0.000>0.05) is less than 0.05. This means that there is a statistically significant association between firm performance, company age, and asset turnover. Firm performance was used as the dependent variable, whereas managerial ownership, institutional ownership, and ownership concentration were used as the independent factors. The coefficient table was utilised to determine the relationship between the independent and dependent variables in the study. Table 2 shows the findings of the investigation.
Table 2: Coefficients
Model | Unstandardized Coefficients | Standardized Coefficients | t | Sig. | ||
B | Std. Error | Beta | ||||
1 | (Constant) | 2.98 | 0.951 |
| 3.1335 | 1.90E-03 |
Managerial Ownership | 0.347 | 0.131 | 0.030 | 2.6489 | 8.50E-03 | |
Institutional Ownership | 0.271 | 0.079 | 0.0289 | 3.4304 | 6.86E-04 | |
Ownership Concentration | 0.099 | 0.035 | 0.018 | 2.8286 | 4.99E-03 | |
| Size | 0.697 | 0.038 | 0.022 | 18.342 | 4.57E-51 |
| Growth | 0.857 | 0.421 | 0.38 | 2.0356 | 4.27E-02 |
| Age | 0.372 | 0.0582 | 0.063 | 6.3918 | 6.18E-10 |
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The generated output as per the SPSS is as presented in Table 2 above, thus the equation is as shown below:
BPSit = α0 + β1MGROWNit + β2INSTOWNit + β3OWNCONCit + β4SIZEit + β5GROWTHit + β6AGEit + μit
BPSit = 2.98 + 0.347MGROWNit + 0.271iNSTOWNit + 0.099OWNCONCit + 0.697SIZEit + 0.857GROWTHit + 0.372AGEit + μit
According to the data, increasing managerial ownership by one unit while keeping all other factors constant will result in a 0.347 rise in company performance (Book Value per Share).
This indicates that increasing managerial ownership by one unit will improve firm performance (Book Value per Share) in London (1=0.347, p=8.50E-030.05). These findings support Bolton’s (2012) assertion that allowing managers to share ownership has a favourable impact on overall firm performance. According to the data, institutional ownership had a beneficial impact on business performance (Book Value per Share), as demonstrated by 2=-0.271, p=6.86E-04 0.05. This demonstrates that increasing institutional ownership in London would improve firm performance (Book Value per Share). By 3=0.099, p=4.99E-03 0.05, ownership concentration was found to have a favourable impact on business performance (Book Value per Share). This implies that a rise in ownership concentration in London would result in a rise in company performance (Book Value per Share). The regression study includes control variables to determine their causal effect on company performance. The size of the company, its growth, and its age all had a favourable impact on its performance. 4=0.697, p=4.57E-51 0.05, 5=0.857, p=4.27E-02 0.05, and 6=0.372, p=6.18E-10 0.05, respectively, show this. Despite the inclusion of control factors in the equation, the dependent and independent variables still have a relationship. A summary table was also created by the researcher to assess the association between the dependent and independent variables. The model is shown in table 3 as a summary.
Table 3: Model Summary
Model | R | R Square | Adjusted R Square | Std. Error of the Estimate | Durbin-Watson |
1 | 0.8388 | 0.70365 | 0.71739 | 0.7392 | 1.67 |
The model’s R value is 0.8388, indicating a high level of prediction. The R square is the proportion of variance in the dependent variable that the independent variables can explain.
The average adjusted coefficient of determination (R2) was 0. 70365, implying that the independent variables studied in this study, managerial ownership, institutional ownership, and ownership concentration, and the control variables, size, growth, and age, account for 70.3 percent of variations in firm performance (Book Value per Share). The regression analysis also included the Durbin-Watson test. The Durbin-Watson test is used to see if the regression analysis has any autocorrelation. A Durbin-Watson test has a range of results from 0 to 4. The Durbin=Watson test had a value of 1.67 in this investigation. This was smaller than 2, indicating that the variables have a positive autocorrelation. The ANOVA technique was used to further test the model’s relevance. Table 4 summarises the findings of the investigation.
Table 4: ANOVA Results
Model | Sum of Squares | df | Mean Square | F | Sig. | ||
1 | Regression | 140.73 | 6 | 23.455 | 25.712 | 1.1E-24 | |
Residual | 276.4 | 303 | 0.9122 |
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Total | 417.13 | 309 |
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As shown in the ANOVA statistics, the regression model from the study findings was established to be valid at (F = 25.712, P < 0.05) since P=1.1E-24 < 0.05. This shows that the independent variables are able to show or are good predictors of the dependent variable.
4.4 Summary of Findings
H1: Managerial ownership has a significant effect on firm performance.
The influence of management ownership on business performance was explored in this study. There was a positive significant association between Managerial Ownership and company performance, according to the results of the Common Effect Model. According to the regression table, a unit increase in managerial ownership would result in a factor of 0.347 improvement in firm performance assessed by book value per share. Investors use the metric of Book Value Per Share to determine whether a stock is undervalued. This is accomplished by comparing it to the company’s current market value per share. Only when there are minimal levels of management ownership may book value be favourably associated.
H2: Institutional ownership has a significant effect on firm performance
The study looked into the impact of institutional ownership on firm performance. The Common Effect Mode reveals that Institutional Ownership and company performance have a positive and significant association. The regression model predicts that a unit increase in institutional ownership will improve company performance by a factor of 0.0.271 when measured by Book Value per Share.
H3: Ownership Concentration has a significant effect on firm performance
The study looked into the impact of ownership concentration on company performance. According to the results of the Common Effect Mode, there is a considerable positive association between ownership concentration and business performance. According to the regression model, a unit increase in Ownership Concentration improves firm performance by a factor of 0.099 when measured by Book Value per Share.
4.5: Conclusion
According to the findings, increasing managerial ownership leads to a positive improvement in business performance, and so the study finds that managerial ownership has a beneficial impact on firm performance among UK FTSE companies. The regression model found a considerable positive relationship between institutional ownership and firm performance. As a result, the study comes to the conclusion that institutional ownership has a favourable impact on business performance. Furthermore, the study discovered a robust link between ownership concentration and company performance.