A Relationship Between Insider’s Ownership and Firm Value: A Case of Pakistani Companies

Muhammad Asad Khan, Rahman Ullah and Naveed Hussain Shah

International Journal of Asian Social Science, 2012, vol. 2, issue 9, 1519-1532

Abstract: This research has examined the impact of insider’s ownership on firm value. This research has used the data of 44 nonfinancial companies of KSE-100 Index for five years 2006-2010. In this research insider’s ownership means the total shares held by directors (Executive/nonexecutives), CEO, Managers, their spouse and minor children. Insider’s ownership is classified into three categories i.e. 0% to 25%, 25.1% to 50% and 50.1% and above. Tobin’s Q ratio is used to measure the firm value. Two methods of analysis have been used, mean comparison and regression. Mean Q ratio of firms where insider’s having 25% shares in greater than mean Q ratio of firms where insider’s having 25.1% to 50% shares. And mean Q ratio of the later one is greater than mean Q ratio of firms where insider’s having 50.1% and above shareholdings. As the insider’s shareholding proportion increases the value of firm decreases, which shows negative correlation between insider’s ownership and firm value. Regression analysis also proved negative correlation, but the relationship is weak. Regarding this research ideal percentage of shareholding for insider owners is 0 to 25%.

Keywords: INS-OWN; KSE; Q-Ratio (search for similar items in EconPapers)
Date: 2012
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