The impact of ownership structure on the cost of equity in emerging markets

Abstract

Purpose

The purpose of this study is to cover the ownership structure as (institutional ownership and managerial ownership) influencing the cost of equity in emerging markets.

Design/methodology/approach

The authors applied the regression model with the fixed-effect model in the data. Data collected from listed companies in the Iraq-Iran Stock Exchange during 2012-2017.

Findings

The authors found a significant positive associated between institutional ownership and the cost of equity in the Iranian and Iraqi contexts. The results also reveal a significant negative associated between managerial ownership with the cost of equity in the Iranian and Iraqi contexts. This means that when managerial ownership is increased, the cost of equity will be reduced. These results support the role of inside ownership to enhance fixed performance by reducing the cost of equity. So, managerial ownership can be a substitute for all shareholders. Moreover, the results indicate a similarity in the impact of the ownership structure on the cost of equity in the Iraqi and Iranian context, this means the similar elements among west Asian countries.

Research limitations/implications

Financial companies such as banks and investment companies were not listed due to the difference in the nature of their work with the other sectors in the Iranian and Iraqi stock exchanges. Moreover, the authors are heavily constrained as listed companies must continue during the study period to calculate the cost of equity. Therefore, the results are difficult to generalize widely.

Practical implications

This international study will enable investors in, as well as local and international investors to take the appropriate investment decision-making in the capital markets in these countries (Iraq and Iran). Moreover, it contributes significantly to helping corporate governance bloggers in Iraq and Iran understand the role of the ownership structure in corporate governance.

Originality/value

This is the first study of the interaction between institutional ownership, managerial ownership with the cost of equity in Iraq, the study will help complete the knowledge gap with developed markets. The results are important in future research because the authors believe that it is very important for the future to look at better for percentage levels of institutional and managerial ownership in the company ownership. Although the contribution is limited, it will provide a useful guide for more papers in other west Asian countries.

Citation

Faysal, S., Salehi, M. and Moradi, M. (2020), "The impact of ownership structure on the cost of equity in emerging markets", Management Research Review, Vol. 43 No. 10, pp. 1221-1239. https://doi.org/10.1108/MRR-11-2019-0475