GOVERNMENT OWNERSHIP, BUSINESS RISK, FINANCIAL LEVERAGE AND CORPORATE PERFORMANCE: EVIDENCE FROM GCC COUNTRIES

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Abstract

This study investigates the effect of government ownership structure, business risk and financial leverage among other variables (size, age and growth) on a company’s performance in a panel data, using 191 companies from five GCC countries (Qatar, Saudi Arabia, Oman, Bahrain and Kuwait), during the period 1999- 2006. Our results indicate that government ownership affects the performance and value of GCC firms. Government ownership positively and significantly affects firm’s performance ROA. The insignificance of a firm’s leverage (LEV) indicates that the firm’s performance is irrelevant to its capital structure, and that supports Modigliani and Miller (M&M) (1958) argument. Our finding is that business risk (BETA) significantly and positively affects firm’s performance ROE and supports the classic risk trade-off arguments. Furthermore, age was found to have a positive and significant impact on firm’s performance ROA and ROE.

Keywords: Firm Performance, Agency Theory, Ownership Structure, Government Ownership, Business Risk, Financial Leverage, GCC Countries

How to cite this paper: Zeitun, R., & Al-Kuwari, D. (2012). Government ownership, business risk, financial leverage and corporate performance: Evidence from GCC countries. Corporate Ownership & Control, 9(3), 123-131. https://doi.org/10.22495/cocv9i3art10