Introduction

The objective of this paper is to investigate the pattern and variation of ownership structure of Bangladeshi listed companies and to document empirically the relationship between firm performance and corporate governance through ownership structure. The need for corporate governance arises from the potential conflicts of interest among participants (stakeholders) in the corporate structure. These conflicts of interest often arise from two main reasons. First, different participants have different goals and preferences. Second, the participants have imperfect information as to each others actions, knowledge, and preferences. Of the all corporate governance mechanism that have been studied in US and UK, ownership structure is the one that has probably been studied extensively in the rest of the world. Bangladesh fits neatly into this situation. Hence, this study investigates whether ownership structure has any significant effects on the performance of the listed companies in Dhaka Stock Exchange and firm payout policy. The listed companies allow us to quantify the ownership mix and concentration and thus provide a unique opportunity for studying the above issue.

Objectives: To examines the current state of CG practices in Bangladesh To identifies the forces that act as barrier for CG To assess briefly the contemporary CG issues to provide an overview of the weaknesses and regulatory efforts at implementing and enforcing good CG structure in Bangladesh To know what is all about corporate governance. To recommend regarding implication of good governance in corporate sector in Bangladesh

What is All about Corporate Governance? According to the Oxford English Dictionary states governance to be the act or manner of governing, the office or function of governing, sway, control. In this definition it is not to government and such but rather to management as handle, administer, run, supervise, look after, watch over, direct, head, oversee, superintend, preside over, be in charge of . . . Corporate governance refers to the structures and processes for the direction and control of companies. Corporate governance concerns the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital. History of corporate governance in Bangladesh Since the early 1990s, Corporate Governance (CG) in Bangladesh has been receiving increasing attention from regulatory bodies and practitioners worldwide. Corporate sectors are still in its initial stage; nevertheless awareness of the importance of CG is growing. Bangladesh's small size and lack of natural resources have necessitated an open trade policy. Bangladesh also has a liberal policy towards foreign direct investment (FDI). However, when compared to those of the India, Sri Lanka, Pakistan, Thailand and Malaysia, CG in practice and philosophy have up till now remained relatively under-developed in Bangladesh. To govern the corporate environment in Bangladesh, following legal measures are in practice: Securities and Exchange Ordinance 1969 Bangladesh Bank Order 1972 Bank Companies Act 1991 Financial Institutions Act 1993 Securities and Exchange Commission Act 1993 Companies Act 1994 Bankruptcy Act 1997

WHY IS CORPORATE GOVERNANCE IMPORTANT?

For emerging market countries, improving corporate governance can serve a number of important public policy objectives. Good corporate governance reduces emerging market vulnerability to financial crises, reinforces property rights, reduces transaction costs and the cost of capital, and leads to capital market development. Weak corporate governance frameworks reduce investor confidence, and can discourage outside investment. Also, as pension funds continue to invest more in equity markets, good corporate governance is crucial for preserving retirement savings. Over the past several years, the importance of corporate governance has been highlighted by an increasing body of academic research. Studies have shown that good corporate governance practices have led to significant increases in economic value added (EVA) of firms, higher productivity, and lower risk of systemic financial failures for countries.

Scope of Corporate Governance Corporate governance is the system by which companies are directed and controlled.10 The basic objectives of corporate governance is to ensure that the directors of a company are subject to their duties, obligations and responsibilities, to act in the best interest of the company, to give direction and to remain accountable to the shareholders and other beneficiaries for their actions. Though these definitions aims to identify all business organizations to which corporate governance should apply, in practice its coverage has been very limited. At least the enforcement has been restricted only to specific types of corporations in Bangladesh. While those left out who realize the long term benefits accrued by adopting corporate governance practices take them up voluntarily, there are a few, who move Scot free and pose a threat to fair competition. Principles of corporate governance: Rights and equitable treatment of shareholders: Organizations should respect the rights of
shareholders and help shareholders to exercise those rights. Interests of other stakeholders: Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers. Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment. Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management.

Corporate Governance and Ownership Structure Corporate governance is an important effort to ensure accountability and responsibility and a set of principles, which should be incorporated into every part of the organization. All corporate governance systems revolve around four core principles: Fairness, accountability, responsibility and transparency. The specific challenges of upholding these principles depend on the ownership structure of the corporate sector. However, in Bangladesh, general practice is that the corporate structure is dominated by family members. Such practice hinders the level of fairness, accountability and transparency. It is revealed that in Bangladesh 52.5% of the outstanding shares are owned by households/ sponsors and individuals. Insignificant concentration is observed by bank and financial institutions 8.1% and foreigners held 21% and Government / financial institutions held only 26% of the outstanding shares in 2000 to 2013 Corporate Responsibility issue bears significance for Bangladesh on the following considerations1: Corporate Social Responsibility has been increasingly becoming a part of the business practice It has generally been considered as a pragmatic response to consumer and civil society pressures To a great extent Corporate Responsibility supports the Small and Medium Enterprise Development in developing countries and is considered crucial to meeting its goal of improving the impact of business on societies. It is thought that corporate standard would be enhanced if corporate responsibility is under pinned by an infallible business case that links social and environmental responsibility with financial success. Supporting enterprise development through long-term trading relationships and community investment is considered as one of the most practical ways by which the corporatist can help the poverty stricken countries such as Bangladesh in fighting poverty. Shareholders should have the right to participate in, and to be sufficiently informed on, decisions concerning fundamental corporate changes such as: Amendments to the statutes, or articles of incorporation or similar governing documents of the company; The authorization of additional shares; and Extraordinary transactions, including the transfer of all or substantially all assets that in effect result in the sale of the company.

Corporate Governance Landscape

Dhaka stock Exchange- key indicators 2009 2008 2007 2006 DSE All-Share Price Index 2441 2309 2535 1321 .32 .35 .96 .39 Market Capitalization (Tk, 959 79 62 278 mn) .1 7.0 1.6 .4 Market Capitalization (US$, 13. 11. 10. 4. bn) 56 82 56 Market Cap/GDP (%) * 89 14. 13. 6 8% 6% % Number of Listed Companies 28 2 2 25 3 7 6 5 6 6

2005 1294 .81 219 .93. 5 % 24 7

2004 * 223 .4 3. 81 6 % 23 7

2003 * 97 .6 1. 67 3 % 2 4 8

Bangladesh and other Emerging Markets: Selected Market Data (2008) Market Mark Turnover Cap et Turnov (GDP) ratio % Cap Country Listed Market cap Market % Ratio ($) of OECD of % of Name compani (%) Avg. OECD OEC es 8.4 7.0 D 0.3 50.2 Banglade 290 6.6 92 Avg. % Cap 8 Avg. 44. 38.3 45.9 sh India 492 GDP 53. (Billion 654 84 7 7 8 41. $US) 5 34. 0.2 3.8 1159 Nepal 7 6 7 9 13. 11. 1.3 95.0 Pakistan 653 23 174 6 10 48.3 4 0.2 6.5 Sri Lanka 234 4 12 38.1 Regional 1251. 25. 138. 73. 21. 40.3 Average 4 5 5 8 2 OECD 938. 120 1703. 183. 100. 100. 100.0 Average 3 8 0 0 0

Conclusion This study analyses the link between ownership structure with financial performance through public disclosures, managerial decisions, dividend payout policy etc for firms in Bangladesh, based on ownership being viewed as exogenous and endogenous. While the evidence on the ownership-performance relationship is mixed, it clarifies the role of corporate governance in improving corporate performance. This mono-directional relationship indicates that the incentives for monitoring change significantly as ownership stakes rise beyond a particular threshold. This means that initially the board lacks incentives to increase firm performance and eventually they become entrenched and perform poorly thereby negatively affecting performance. Other governance and control variables are in the expected direction in their relation with firm performance. Institutional shareholdings have a significantly negative effect on performance at lower levels of ownership due to lack of incentives, but later become positive only for the middle range of board ownership (23 per cent60 per cent). Under concentrated ownership, conflicts of interest arise between controlling and minority shareholders and the controlling shareholders decisions may result in the expropriation of the minority shareholders. The empirical evidence regarding the relationship between ownership structure and firm value is mixed, providing very little in the way of consistent results. In summary, the comparison of ultimate ownership structure reveals that family controlled firms in Bangladesh on average have higher voting rights, lower cash flow rights, and greater separation of cash flow rights from voting rights than non-family controlled firms.