Ownership Concentration and Firm Performance in Transition Economies: Evidence from Montenegro

The relationship between ownership concentration and firm performance has been the focal point of corporate governance literature and the subject of a rich empirical literature. However, the current literature is characterised by a lack of uniformity and consensus regarding the nature and direction of this relationship. This thesis aims to contribute to this literature by reviewing the diverse literature on this subject related to developed market economies and by investigating the relationship for small open transition economy, Montenegro.
The profound heterogeneity and inconclusiveness of the empirical research on this topic motivated us to undertake a Meta Regression Analysis (MRA) of the wide-ranging econometric studies on the subject in the first part of the thesis. To the best of our knowledge, this MRA is the first study to measure publication selection bias in the empirical literature and to correct for it in deriving quantitative insights into the nature of the relationship of interest. The primary finding of the MRA suggests that both the functional form used in the primary studies to specify the relationship between ownership concentration and firm performance (i.e. linear or non-linear) and the identity of the largest owner matter in assessing the presence of publication bias, authentic empirical effects and the heterogeneity of the findings in this empirical literature. We find that concentrated insider ownership has a positive effect and concentrated outsider ownership a negative effect on firm performance. Furthermore, the pattern of publication bias suggests that researchers have a strong incentive to conform to current prevailing theories.
In the second part of the thesis, we use primary data collected and organised by the author to analyse for the first time the impact of ownership concentration on firm performance in Montenegro. The results support the hypothesis that high ownership concentration enables effective monitoring by investors to protect their interests; i.e., in the specific circumstances of transition, ownership structure may be (temporarily) used as a viable substitute for the still-underdeveloped corporate governance framework.