The notion of corporate performance is vague since different tests are needed to measure performance. But, in this section we shall adopt the narrow conception of the profitability of business. Corporate governance structures encompass the ownership structure, the composition of the board of directors, the size of the board and the independence of the board among others.[1]

A firm’s ownership structure can be defined along two main dimensions. First, the degree of ownership concentration; firms may differ because their ownership is more or less dispersed. Secondly, the nature of the owners; that is firms may be private, government-owned (state owned) and mutual (mixed owned)[2]. Literature on corporate governance recognizes the board structure to encompass the board size,[3] board composition,[4] and board independence.[5]
The central focus in most literature around, discussion analysis in research all over the world on matters to do with corporate governance has been the role of ownership structure as a corporate governance mechanism.[6]
Lorino states that performance is what contributes to the improvement of the couple cost-value, and not only what contributes to the diminution of cost or increase of value. This approach concerns three directions of action for the public sector entities; implementation of strategies allotted to the entities by political authorities, value infusion for the public, users whom the entity addresses to and control of resources that were allotted in order to accomplish their mission. From managerial perspective, performance, the attribute of managerial control is defined upon the effectiveness and efficiency relationship. Effectiveness focuses on achieving outputs within clear stated objectives, and efficiency shows the best management of means and capacities in relation with the output.[7]  Accordingly, performance is the competitive state of the entity, achieved on the basis of its two components, effectiveness and efficiency, elements ensuring for the entity a sustainable presence on the market.[8]
A lot of attention has focused on the relationship between ownership structure and corporation performance for instance a rich research agenda on the implications of ownership structure on corporate governance by La Porta et al[9] affirm that when the legal structure does not offer sufficient protection for outside investors and entrepreneurs, original owners are forced to maintain large  positions in their companies which result in a concentrated form of ownership thus having implications on ownership structure. On the other hand, bulk of the evidence according to Shirley and Walsh[10] (2001) indicates that privately held firms are more efficient and more profitable than publicly held ones although the evidence differs on the relative merit of the identity of each private owner. In 1976, Jensen and Meckling[11] provided results of their researches on ownership structure and firm performance by dividing shareholders into internal investors with management right and external shareholders who are investors without ballot right. The conclusion of their research was that value of the firm depends on the internal shareholder’s share, which is called ownership structure.
Blair goes on to state that ‘ownership of private property is the central mechanism by which incentives are created for the efficient use of resources in a free market economy’[12]. Although numerous individuals from suppliers to employees have a stake in the success of companies, the strategic decisions are made by the Corporate Executives. Thus, the main puzzle in corporate governance is how do you make these executives accountable to the shareholders whose investment is at risk, while still giving them the freedom, the incentives and the control over the resources they need to create and seize investment opportunities and to be tough competitors.[13]
Zhuang (1999) argue that ownership structure is one of the most important factors in shaping the corporate governance system of any country. This is because it determines the nature of the agency problem. That is, whether the dominant conflict is between managers and shareholders, or between controlling and minority shareholders. Zhuang identified two important aspects of corporate ownership structure as concentration and composition. According to him, the degree of ownership concentration in a firm determines how power is distributed between its shareholders and managers. When ownership is dispersed, shareholding control tends to be weak because of poor shareholder monitoring the author affirms. If all small shareholders behave this way, then no monitoring of managerial efforts would take place. Zhuang further argues that when ownership of a company is concentrated, large shareholders would play an important role to monitor the management. However, he says that the only problem with this form of ownership is how minority shareholders would be protected from exploitation by controlling shareholders who may act in their own interests at their expense. Secondly, ownership composition tries to define who the shareholders are and who among them belongs to the controlling groups.[14]
According to Tandelilin et al., managers and owners of banks showing efforts and intention to implement good corporate governance increase market credibility and subsequently collect funds at lower cost and risk. It can be argued that better corporate governance will lead to high performance.[15] This is supported by an empirical study done by La Porta et al on firms’ performance from 27 developed countries Evidence from their findings showed that there is higher valuation of firms in countries with better protection of minority shareholders.[16]
In an attempt to shed more light on the link between corporate governance and firm performance, Coleman (2007) did a study in Africa targeting 103 listed firms on Ghanaian, Nigerian, Kenyan and South African stock exchanges. The findings of the study indicate that large and independent boards enhance firm value and that when a CEO serves as board chair, it has negative effect on performance and such firms employ less debt. He also found that a CEO’s tenure in office enhances firms’ profitability while board activity intensity has a negative effect on firm profitability. The study also revealed that while larger boards employ more debts, the independence of a board has a significant negative relationship with short-term debt.[17]
Kamau affirm that foreign banks are more efficient than local banks. She attributes this to the fact that foreign banks concentrate mainly in major towns and target corporate customers, whereas large local banks spread their activities more widely across the country. Foreign banks therefore refrain from retail banking to specialize in corporate products, while large domestic banks are less discriminatory in their business strategy. These different operational modalities affect efficiency and profitability she affirms.[18]
In Kenya, irrespective of type of ownership, each institution tries very hard to outperform its competitor in the industry hence recording good results. There was also no significant difference between banks ownership structure and financial performance[19]
The positive relationship between dispersed ownership and liquid stock market is undisputed. Though stock exchanges do not play a capital formation function, there is a growing body of research suggesting that an active securities market is an engine for economic growth.[20] Some scholars suggest that diffuse ownership induces better corporate performance since dispersed small shareholders who have a small percentage of their personal wealth tied up in the company will let managers undertake projects that are worth exploiting. Such a hypothesis is maintained by contrasting this possibility to risk-averse block-holders who will tend to discourage risk-taking and avoid potentially lucrative business opportunities. To borrow the expression of Berle and Means, the rise in separation of ownership and control is giving rise to the “ownership of wealth without appreciable control and control of wealth without appreciable ownership.”[21]
Bank risk increases with ownership concentration at low levels of concentration, due to effective monitoring by shareholders, decreases at intermediate levels of concentration, due to expropriation of minority shareholders or less managerial discretion, and increases at high levels of concentration, due to  the high costs to expropriate.[22]
According to Shleifer and Vishny,[23] “large investors represent their own interests, which need not coincide with the interests of other investors in the firm, or with the interests of employees and managers. In the process of using his control rights to maximize his own welfare, the large investor can therefore redistribute wealth in both efficient and inefficient ways from others.” Consistent with this view, recent studies on the value of voting rights of large block trades and dual-class firms report significant control premiums, indicating high private benefits of control. Other empirical research finds that the extraction of private benefits, mainly shaped by the legal environment, can be costly to controlling shareholders and firms in terms of raising equity finance and firm value[24] (Durnev and Kim, 2005
Consistent with Shleifer and Vishny’s conjecture above, Boubakri, Cosset, and Guedhami (2005), who examine the relationships among ownership concentration, legal protection, and firm performance after privatization provide evidence that strong investor protection is associated with lower ownership concentration.[25] In another contemporaneous study by Atanasov,[26] it was found that in the absence of legal institutions that protect minority shareholders and constrain majority owners, privatization in Bulgaria leads to concentrated ownership and significant control premiums being paid by controlling shareholders who extract more than 85 percent of firm value as private benefits. Importantly, the large private benefits of control that accompany high ownership concentration are an artefact of poor external corporate governance according to this and prior research.[27]

[1] Ehikioya IB (2007). Corporate governance structure and firm performance in developing economies: evidence from Nigeria. 9(3): 231-243
[2] Lannotta et al., 2006)
[3] Dalton DR, Johnson JL, Ellstrand AE (1999). Number of Directors and Financial Performance: A meta- analysis. Acad. Manage. J., 42 (6): 674-686
[4] Baysinger et al., (1991 ). Corporate governance and the board of directors: Performance effects of changes in board composition. J. Law, Econ. Organ., 1: 101-24
[5] Fama EF, Jensen MC (1983). Separation of Ownership and Control. J. Law and Econ., 26p.
[6] Tandelilin et al., (2007) Corporate governance, risk management and bank performance: Does Type of Ownership matter? EADN Working Paper No. 34.
[7] Immaculate Tusiime, Stephen K. Nkundabanyanga* and Isaac N. Nkote  (2 Journal of Public Administration and Policy Research Vol. 3(9), pp. 250-260, November 2011. Available online DOI: 10.5897/JPAPR10.00011) Corporate governance: Ownership structure, board structure and performance of public sector entities.
[8]  Immaculate Tusiime (2011), supra.
[9] La Porta et al. (2000). “Investor Protection and Corporate Valuation”, Journal of Finance, Vol. 57, pp. 1147-1170. doi:10.1111/1540-6261.00457,
[10] Shirley, M. and Walsh, P. (2001). Public vs. Private Ownership. World Bank Policy Research Working Paper No. 2420. Washington, D.C.: USA.
[11] Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, pp.305-360. doi:10.1016/0304-405X(76)90026-X,
[12] Blair, M. (1995). Ownership and Control: Rethinking Corporate Governance for the twenty-first century. The Brookings Institution.
[13] Nambiro, C. A. (2007). Relationship between level of implementation of CMA guidelines on corporate governance and profitability of companies listed at the Nairobi Stock Exchange. University of Nairobi Press – Nairobi.
[14] Zhuang, J. (1999). Some conceptual issues of corporate governance. EDRC Briefing Notes Number 13 [Online] Available:
[15] Tandelilin et al. (2007) Supra.
[16] La Porta, R., Lopez-de-Silanes F., Shleifer A., and Vishny R., (2002). “Investor Protection and Corporate Governance”, Journal of Financial Economics, Vol. 58, pp. 3-27. doi:10.1016/S0304-405X(00)00065-9
[17] Coleman, A. K. (2007). Relationship between corporate governance and firm performance: an African perspective. [Online] University of Stellenbosch-South Africa. Available:
[18] Kamau, A. (2009). Efficiency and Productivity of the Banking Sector in Kenya: An Empirical Investigation. University of Nairobi.
[19] Eric Ernest Mang’unyi (2011) Ownership Structure and Corporate Governance and Its Effects on Performance: A Case of Selected Banks in Kenya.  International Journal of Business Administration Vol. 2, No. 3; August 2011. Available at:
[20] John D. Coffee (2001), “The Rise of Dispersed Ownership: The Role of law and State in the Separation of Ownership and Control,” The Yale Law Journal, 111 # 1, p.3.
[21] Adolf Berle and Gardner Means (1933), The Modern Corporation and Private Property (New York: The Macmillan Company).
[22]  Eric Ernest Mang’unyi (2011) Supra
[23] Shleifer, A., and R. Vishny. 1997. “A survey of corporate governance.” Journal of Finance 52: 737-783.
[24]  Claessens et al., (2002) “Disentangling the incentive and entrenchment effects of large shareholdings.” Journal of Finance 57: 2741-2771.
[25] Boubakri, N., O. Guedhami, and O. Sy. 2005. “The legal and extra-legal determinants of expropriation.” Working paper.
[26] Atanasov, V. 2005. “How much value can blockholders tunnel? Evidence from the Bulgarian
mass privatization auctions.” Journal of Financial Economics 76: 191-234.
[27] Bebchuk, L. 1999. “A rent-protection theory of corporate ownership and control.” Working Paper: Harvard Law School
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