Ownership Structure and Firms' Performance in the Period of Crisis. Evidence From the Listed Food and Beverage Firms in the Athens Stock Exchange

Introduction

It is commonly accepted that in the period of financial crisis firms faced more financial problems than before the beginning of the crisis. Especially firms, in countries which were strongly affected by the financial recession, could not have access to low-cost capital for their investment plans and financial needs. Lending from financial institutions became expensive, and investors were cautious about the return of their investment. Recent studies pointed the corporate governance as a relevant factor to investors confidence for firms' financial performance (Xiaolu et al., 2016). Also, prior research studies have shown that Corporate Governance quality had a significant positive effect on firm’s performance (Bhagat & Bolton, 2008). In these terms, firms with high-quality Corporate Governance could be more efficient in attracting investors’ funds.

According to Shleifer and Vishny (1997), Corporate Governance seems to be more improved in advanced economies. As he argued, the United States, German, Japan and the United Kingdom developed some of the best governance systems in the world. On the other hand, Enron and Worldcom fraud scandals showed that the legal framework for Corporate Governance must always be revised even in the countries of higher economic status.

At the beginning of the last decade, a revision to the framework for the firms reporting obliged the Greek listed firms - in the Athens Stock Exchange - to include more detailed information for their Corporate Governance in their annual reports. Thus, the investors and shareholders could be better informed, not only for the Board of Directors composition but also, for the profile of its members, the Internal Audit Committee and its activity, the proportion of executive the non-executive members of the Board. Additionally, the reporting of detailed information for the internal audit procedures and committees was included in the reporting requirements due to the revised rules. The contagion of the financial crisis in Greece caused financing problems to business firms. In the first year of the Greek Economy probation period firms faced a significant decrease in their sales and profits. The effect of the financial crisis on firms’ performance was not uniformly distributed in all industrial sectors.

Food and Beverage (F&B) industry was affected less than other sectors by the financial crisis (e.g. construction firms). We would expect that the more detailed reporting of Corporate Governance could have a positive effect on firms’ performance. Investors would be better informed for the governance of firms, and their confidence in the firms could be increased. On the other hand, if governance reporting affects the interest in investments positively and makes the firms more attractive to investors, then firms would have a specific motive to improve their corporate governance. They could decrease their funding cost and find financial resources more efficiently. Moreover, better “governance” could lead to better and more efficient decisions.

The ownership structure has been recognised as a crucial factor for Corporate Governance (Gang, 2007). Ownership structure and furthermore Corporate Governance have been associated with firms’ performance in prior and recent studies (Xu, 1997; Mollah, 2012). Also, there are studies which focus on the early period of crisis. However, the financial crisis did not have a similar impact on all affected countries. There were countries which seemed to control the consequences of the global crisis in the first half of the entire decade.