GOVERNMENT OWNERSHIP IN STOCK EXCHANGE LISTED CORPORATE FIRMS: AN EMPIRICAL STUDY OF THE UNITED ARAB EMIRATES

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Abstract

Government ownership in stock exchange listed corporate firms can be found in many countries, but it is widespread in some countries such as Singapore, Malaysia, China, Turkey, India, Jordan, and United Arab Emirates (UAE), as documented by different researchers. It is found that the government ownership generally has a negative effect on the corporate performance of all countries but the UAE. In this country, the corporate firms that have a government shareholding record superior financial results comparing to that of other firms. In this regard, researchers assumed that a causal relationship between the government shareholding and corporate performance may exist due to the agency problems or government supports of firms. However, they did not examine the underlying reasons why government wants to retain a corporate ownership, and factors affecting the government shareholding. This study fills this gap by investigating these issues in the context of UAE, where the government holds ownership in 48% of all exchange listed firms. The study finds that government shareholding in firms evolves through economic transition of a country, and the probability of government share retention in firms depends on their strategic importance, ability to earn profit, and valuations in financial market. Additionally, it is found that the strategic importance and market valuation of firms play main role in determining the probability of government taking control of firms by holding a majority ownership, whilst the firms’ ability to earn profit affects the decision of government to relinquish control of firms to the private management by retaining a minority ownership.

Keywords: Government Ownership, Corporate Firms

How to cite this paper: Uddin, M. H. (2015). Government ownership in stock exchange listed corporate firms: An empirical study of the United Arab Emirates. Corporate Ownership & Control, 12(4), 38-57. https://doi.org/10.22495/cocv12i4p3