On the other hand controlling shareholders can elect their

On the other hand, controlling shareholders can elect their representative(s) to the board of directors who will appoint a manager that will act in their self-interest. Jensen and Meckling (1976) and Shleifer and Vishny (1986) demonstrate that controlling shareholders can impose greater monitoring on management, and use their influence to compel managers to make decisions that increase overall shareholder value for all, thereby benefiting all shareholders including minority shareholders, which improves firm performance and profitability. More so, the additional monitoring imposed on managers by controlling shareholders can compel managers to maximise profits for the firm; hence, managers of firms with large controlling shareholders are less likely to pursue their selfish interests because of the additional monitoring imposed on them by controlling shareholders (Thomsen & Pedersen, 2000). As a consequence, we expect a positive relationship between firm profitability and concentrated ownership. However, when controlling shareholders have incentives to maximize their own benefits at the expense of non-controlling shareholders, controlling shareholders will seek private benefits of control such as the extraction of corporate resources through perks or transfer of assets/profits, which in turn would hurt non-controlling shareholders through the resulting following website in firm profit and firm value (Jensen & Meckling, 1976). When controlling shareholders pursue such objectives that increase their personal utility rather than maximise profit for all, then having such controlling shareholders can lead to decreased profitability for the firm. When this is the case, we expect a negative relationship between firm profitability and concentrated ownership.
Literature review The influence of ownership structure on firm performance has been examined in the literature with mixed conclusions. Leech and Leahy (1991) find a negative relationship between ownership concentration and profitability for large British companies implying that high ownership concentration has negative effects for profitability. Lehmann and Weigand (2000) investigate the impact of corporate governance on the performance of 361 German firms during the 1991 to 1996 period and find that ownership concentration negatively affect firm profitability although they observe that high ownership concentration only improves the profitability of listed firms with large shareholders. Demsetz and Villalonga (2001) did not find a significant relationship between ownership structure and firm performance. Welch (2003), adopting the model of Demsetz and Villalonga (2001), examine the relationship between ownership structure and the performance of Australian listed companies and find that ownership by top management significantly influence firm performance measured as accounting rate of return, but did not find a significant result when firm performance is measured by Tobin\'s Q. Kapopoulos and Lazaretou (2007) investigate the impact of ownership structure on firm performance among 175 Greek listed firms for the year 2000. After taking into account the likely endogeneity between ownership structure and firm performance, they find that a more concentrated ownership structure improves firm profitability, and that higher firm profitability require a less dispersed ownership. In contrast, Pervan, Pervan, and Todoric (2012) examine the relationship between ownership structure and ROA for listed firms in Croatia and find that firms with dispersed ownership have higher ROA than those with concentrated ownership. Phung and Mishra (2016) examine the effect of ownership structure on the performance of listed firms over the 2007 to 2012 period and find a non-linear relationship between ownership structure and firm performance. They observe that foreign ownership improves firm performance up to a certain point beyond which higher foreign ownership leads lowers firm performance. Lepore, Paolone, Pisano, and Alvino (2017) find that higher ownership concentration with an efficient judicial system improves firm performance particularly in countries with weak investor protection. Abdallah and Ismail (2017) find that the positive relationship between corporate governance and firm performance is an increasing function of dispersed ownership and that the value addition of good corporate governance is not necessarily maintained at high levels of ownership concentration.