Dynamic relationship between ownership structure and financial performance: a Saudi experience

This research examines the dynamic association between ownership structure and financial performance of Saudi non-financial listed firms covering 2010 to 2019. The paper employed the GMM framework and analysed the balanced panel data of 100 companies operating in the Saudi non-financial sector. The dynamic model specification signifies that Saudi firms gradually adjust to their optimum performance level due to changes in their ownership structure. Further, the analysis from the present investigation strongly suggests that managerial shareholding is negatively related to financial performance. However, family and government ownership positively impact the firms' financial performance. Our findings appear robust using different measures of financial performance such as ROA, ROE, ROCE, and ROS. The findings lend credence to the arguments of agency theory, stewardship, and stakeholder perspectives that ownership structure is an important governance mechanism capable of influencing organisational outcomes. Consequently, Saudi regulatory authorities should formulate policies that may incentivise firms to embrace more family and government shareholdings to strengthen corporate governance practices for better financial performance.