Ownership Structure and the Operating Performance of Hungarian Firms

Citation

Campbell K (2002) Ownership Structure and the Operating Performance of Hungarian Firms. Centre for the Study of Economic and Social Change in Europe Economics Working Paper, 9. http://discovery.ucl.ac.uk/17570/

Abstract
This paper uses firm-level data on 162 large Hungarian enterprises to analyse the relationship between ownership structure and corporate performance in 1998 and 1999. Cross-sectional regressions are run for each of these years using the return on assets (ROA) as the measure of performance. Both after-tax profits and operating profits are used to produce the ROA variable. The signs of the regression coefficients and their significance levels are consistent across the different measures of profit, and also across the two years. The results of the regressions suggest that the presence of foreign ownership may positively affect performance while the existence of continuing State ownership has the opposite effect. Neither of these relationships, however, is statistically significant. Two variables have a significant impact on performance that is consistent across different constructions of the regression models: firm size and capital intensity. The smaller firms in the sample outperform the larger firms, which suggests that the greater monitoring and agency costs likely to be incurred by larger firms negatively impact their performance. The more capital intensive a firm (measured by the log of total assets to employees) the greater is its performance. This positive relationship suggests that high capital intensity may impose a barrier to entry and strengthen the competitive position of companies within their industries. The export intensity of a company (exports to sales revenue) is also positively and significantly related to performance, which suggests that the discipline of competing in foreign markets has a positive impact. However, the inclusion of an industry dummy variable to the regression equations results in the export intensity variable losing its significance.

Keywords
Corporate governance; corporate performance

JEL codes

• G30: Corporate Finance and Governance: General
• G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

People

Dr Kevin Campbell

Senior Lecturer in Finance, Accounting & Finance