Does performance relate to ownership structure and information disclosure? Evidence from banking sector of Pakistan

Abstract

The study aims to test the relationship among ownership structure, information disclosure and the performance of the Banking Sector of Islamic Republic of Pakistan. Panel set of data is collected from the annual reports of 24 sample banks from the year 2005 to 2014. The study developed the disclosure index of the Pakistani banking sector which was not measured by any previous research. Ownership concentration of banks is measure by Herfindahl index (HHI), and the performance of banks is measured by Tobin’s Q. Simultaneous regression model 3SLS is used to test the mutual relation among three   ownership structure, information disclosure and firm performance. The regression result shows that the information disclosure has statistically significant positive effect on ownership structure. Increase in adequate disclosure will increase the trust of investors on the bank; they will find their investment less risky and invest a big sum of money. The result infers that the ownership structure has statistically significant negative effect on firm performance. In most of Pakistani banks the ownership is separate from control which increases the controlling cost and has negative impact on performance. Additionally the result also shows the link between the firm performance and information disclosure is statistically significant and positive which infers that the strong banks with good performance disclose more about their financial results as compare to weak banks.