Ownership structure and firm performance: Evidence from South African firms on the Johannesburg Stock Exchange

Abstract

Orientation: This study investigates the impact of ownership structure on the performance of South African firms listed on the Johannesburg Stock Exchange (JSE), focusing on ownership categories such as institutional, foreign, managerial, government and family ownership.
Research purpose: The aim of this research is to explore how different types of ownership influence firm performance, particularly return on assets, return on equity (ROE) and Tobin’s q.
Motivation for the study: Despite the extensive literature on ownership structure and firm performance, there is no consensus in the South African market. This study seeks to address this gap by examining how ownership structure affects firm performance within the context of South African firms.
Research design, approach and method: A quantitative research design is employed, using panel data from 267 non-financial JSE-listed firms from 2004 to 2021. The study applies the system Generalised Method of Moments (GMM) and Sasabuchi-Lind-Mehlum tests to address potential endogeneity and non-linearity in ownership-performance relationships.
Main findings: The findings reveal a non-linear inverse U-shaped relationship between foreign ownership and ROE, with an optimal threshold of 39.6%. Managerial ownership positively affects ROE, but negatively impacts Tobin’s q. Family ownership is associated with poorer firm performance, particularly in terms of market value.
Practical/managerial implications: The study recommends encouraging foreign ownership up to the optimal threshold and managing entrenchment effects from managerial and family ownership to enhance performance.
Contribution/value-add: This research offers new insights into ownership-performance dynamics in South Africa, with practical implications for firms and policymakers.