Journal of Positive School Psychology http://journalppw.

com
2022, Vol. 6, No. 6, 6342-6354

The Impact Of Ownership Structure On Information Asymmetry:

Evidence From Companies Listed On The Iraq Stock Exchange

Dr. Fatima Jasim Mohammed1 , Dr. Abdulhussein Towfeeq shibli2 , Hasan Talib Hashim3

1
College Of Administration And Economics – University of Basra
[email protected]
2
College Of Administration And Economics – University of Basra
[email protected]
3
College Of Administration And Economics – University of Basra
Thi-Qar Technical College, Southern Technical University
[email protected]

ABSTRACT

A study of companies listed on the Iraqi Stock Exchange (ISX) examines the impact of ownership structure
on information asymmetry. To determine ownership structure dimensions, divide the shares of each
dimension by the total number of shares. A High-Low spread was used to measure the information
asymmetry. The data is derived from the annual financial statements and trading bulletins from 2015 to
2019. According to the results of the current study's statistical analysis, there is a significant correlation
between the dimensions of the ownership structure (Managerial Ownership, largest shareholders, State
ownership, institutional Ownership, family ownership) and information asymmetry.

Keywords: Corporate Governance, ownership structure, information asymmetry, High-Low spread.

1. INTRODUCTION countries with fair transparency and credibility

(Lang & Lundholm, 2005).
Rapid development has occurred in most of the
environmental areas in which the accounting Consequently, the ownership structure
system operates due to competition on a local serves as a mechanism of corporate governance
and international level, the bankruptcy of many that protects shareholder rights and regulates the
companies, and the integration of many to form relationship between internal and external
economic blocs that helped move goods, stakeholders. Consequently, companies with
services, and capital. Due to this, investors increasing disclosure of information can reduce
demand financial reports related to past financial information asymmetry by reducing the
transactions and events that are transparent and information gap between these parties.
fair. As a result, organizations and professional Therefore, sharing information should not
bodies have been formed to reduce information experience widening problems for companies
asymmetry and increase information disclosure with good relationships between their internal
(Ali & Abulaila, 2016). and external parties. This way, their ownership
structure works effectively, as they can disclose
It is apparent in emerging stock markets more information.
in developing countries that the asymmetry of
accounting information is one of the problems Following the preceding, the main research
that the stock markets suffer from compared to question becomes: What is the impact of
developed countries with developed economies. ownership structure on information asymmetry?
This problem can negatively affect the volume Accordingly, the study aims to reduce the risk of
of trading, liquidity, and capital costs, affecting information asymmetry through the ownership
economic development rates in developed structure (represented by managerial Ownership,
 6343 Journal of Positive School Psychology

family ownership, the largest shareholder, and

state ownership).

Figure 1: Conceptual Framework

2. Literature review providing a framework for setting goals that

serve the interests of shareholders (García-
2.1 Corporate Governance Sánchez & García-Meca, 2018). Allen et al.,
(2018) he interpreted corporate governance as
As a result, corporate governance has become a the system by which managers are evaluated.
more prominent topic of academic study and
practice (Ali Shah et al., 2009). Many companies 2.2 Ownership Structure
worldwide have collapsed as a result of this. One
of the most famous corporate failures is that of The ownership structure influences shareholder
Enron (US). Despite following most corporate wealth and the company's performance. A
governance guidelines, Enron collapsed and was company's shares are considered the exclusive
involved in scandals involving WorldCom (US), property of its shareholders. Therefore, shares of
Marconi (UK), HIH Insurance (Australia), company shareholders constitute the ownership
Parmalat (Italy), and Vodafone Mannesmann structure. A shareholder's stake in a company
(Germany). As a result of these events, corporate should encourage them to pay attention to its
governance practices have rapidly changed development or state. Shareholders expect that
internationally (Zalewska, 2014), (Hanoon et al., their contributions to the company will result in
2020b). an inevitable, expected return. In order to
maximize the company's value for the
It is however, challenging to define shareholders, shareholders should participate in
corporate governance singly across countries the activities and play an active role through a
because of differences in culture, legal systems, positive role in the company, namely through
and historical developments. The term corporate positive involvement in voting rights and
governance refers to a set of cultural, legal, and positive involvement in the Management of the
institutional procedures that determine what an company (Xu, 2007). Undoubtedly, ownership
organization may do, who controls it, how it structure plays a significant role in determining
exercises that control, and how it deals with risks a company's performance (Zheka, 2005).
and returns from the activities it performs According to Denis & Mcconnell (2003), a
(Hanoon et al., 2020a). company's ownership structure reflects its
shareholders' identities and ownership ratios.
Corporate governance was defined from another According to Foroughi & Fooladi (2011), the
point of view in terms of benefits and objectives ownership structure can explain how companies
as increasing the economic efficiency of the share Ownership among shareholders.
organization and supporting its growth, in
addition to improving investor confidence and 2.2.1 Managerial Ownership
Dr. Fatima Jasim Mohammed 6344

It refers to the percentage of shares owned by including fathers, mothers, sisters, brothers,
insiders and shareholders, where insiders are sons, daughters, and husbands (Claessens et al.,
company officials and board members. The 2000, Bertrand et al., 2008).
board is primarily responsible for defining the
organizational goals and approving policies and 2.2.3 Institutional Ownership
strategies that dominate the organization's
operations (Herdjiono & Sari, 2017). Various In developing countries, institutional Ownership
opinions exist regarding the impact of is a growing force in capital markets. Due to
administrative Ownership on the Management's institutional characteristics such as shareholding
motives when making various decisions that concentration, independence of company
may affect the company's performance, namely: management, and long-term investment
prospects, institutions monitor managers and
First opinion: Alignment effect have higher control incentives (Shleifer &
Vishny, 1986; Hartzell & Starks, 2003, Chen &
The agency theory of Ownership states that Hsu, 2009). Therefore, the role of shareholders
Management should work harder to improve in corporate governance is crucial for large
performance because shareholders' interests institutions. Moreover, in addition to accounting
coincide with those of other shareholders, so numbers, institutional investors have access to
their preferences in implementing management internal and Management information
policies change and are influenced by corporate (Prendergast, 2002).
governance. Additionally, enhancing employees'
self-efficacy, optimism, and flexibility In the money market, institutional
contributes to improving organizational Ownership is viewed from two perspectives.
efficiency (Denis & McConnell, 2003; Bożek, Developing and improving the performance of
2015). investee companies and encouraging the
development and improvement of the investment
Second opinion: Entrenchment effect environment through increasing privatization,
lowering accounting standards, losing investor
Managerial Ownership also negatively affects protection systems, and allowing institutional
performance, contrary to the convergence of investors to become owners, is the first point of
interests (Andow & David, 2016). According to view. Investors can reap the benefits of
immunization theory, companies with higher monitoring long-term investment strategies. A
managerial Ownership have poorer institutional shareholder focus increases investors' influence
performance. Due to immunization, their on managers and their monitoring through long
interests are separated from others. Therefore, investment horizons. Additionally, accredited
the company's performance should decline due investors prefer to develop long-term
to their incentives to enjoy the unique relationships with companies, which allows
advantages of controlling the company (Tanaka, them to maintain direct access to company
2016). managers (Ramalingegowda & Yu, 2012).
2.2.2 Family Ownership Theoretical probability implies that
institutional investors are short-term traders
Claessens et al., 2000, define family businesses rather than owners with short-term performance
as those where at least 5% to more than 50% of preferences, who act as passive observers and do
the voting shares are owned by family owners not intervene in the Management or trading of
(Claessens et al., 2000). Moreover, he sees it as stocks to speculate on short-term profits.
companies in which family members hold Improve corporate governance and performance
different board positions, such as CEO or instead of satisfying personal portfolio needs.
chairman of the board, or honorary president The relationship between corporate performance
(Claessens et al., 2000, Bennedsen & Nielsen, and Ownership is weak or nonexistent
2010). (Victoravich et al., 2013). In order to increase
According to Villalonga & Amit (2006), a short-term financial performance rather than
company is a "family business" if its founder or long-term financial performance, institutional
members of the founder's family hold positions investors may restrict research and development
on the board of directors or are significant activities that hinder the company's growth
shareholders. Furthermore, family relationships (Bushee, 1998).
include direct and indirect relationships,
 6345 Journal of Positive School Psychology

2.2.4 largest shareholder listed on the capital market to have been partially
privatized from state-owned enterprises. The
The largest shareholder, whose voting rights can government may invest in private companies to
influence board membership and improve the save them from bankruptcy, develop strategic
value of a company (Edmans, 2009), holds large industries, control unemployment and inflation,
amounts of company stock. Furthermore, and provide social services (Le & Buck, 2011).
significant shareholders are outside shareholders As a result, the government's investment goals
who own at least 5% of the shares (Hope et al., are expected to be less focused on maximizing
2017). profits than on social welfare (Shen & Lin,
2009).
There are two viewpoints regarding the
role that large shareholders can play, namely: Secondly, government ownership has certain
The first opinion has a positive effect in cases of disadvantages.
concentration of Ownership. As a result of the
remarkable ability to bear the expenses of Government pressure on companies to
collecting information on management behavior, implement government goals may be at the
small shareholders may have more significant expense of shareholder goals and maximizing
incentives to participate in the control process profits. Therefore, independent directors have
than large shareholders. In addition, when strong incentives to monitor Management and
control rights are concentrated in a small number provide high-quality information that leads to
of shareholders with significant cash flow, they effective control systems, thus reducing the
can easily control Management directly or agency problem between shareholders and
indirectly (Shleifer & Vishny, 1997). strong Management. However, through
government interference in the selection of
Through their role as monitors of managers, government ownership can weaken
corporate operations, significant shareholders the independence of managers (Al-Janadi et al.,
have access to private information of relative 2016).
value and have the potential to collide with
Management to expropriate small shareholders' 2.3 Concept and measurement of information
Ownership (Hanoon et al., 2021). By selling or asymmetry
buying goods between the company, a
significant shareholder may convince Stock markets are characterized by information
Management to transfer profits to himself in asymmetry due to the separation of Ownership
exchange for the right to buy back his shares at a and Management and the prevalence of conflict
premium. A significant shareholder structure of interest between dealers due to inside and
appears to reduce the need for high-quality private information (Dehlen et al., 2014). The
financial reporting and disclosure as a financial markets can be analyzed for
monitoring tool (Armstrong et al., 2010). information asymmetry. Although corporate
departments possess more knowledge about
2.2.5 State ownership securities than traders, traders have information
that corporate departments do not understand,
The government owns shareholdings without which is not readily available to every trader
directly managing the facility (Iskandar et al., simultaneously. These cases demonstrate the
2012). In order to accomplish this, the information asymmetry between dealers and
government may set up joint-stock companies in Management. Since Management and other
which it owns a controlling shareholding parties have different conflicts of interest, the
percentage, or it may change the legal form of administration is expected to take advantage of
government companies by offering a portion of the information asymmetry to gain an advantage
their capital for subscription to the public over traders. With interests between
(Juhmani, 2013a). The following are the Management and other parties, it is expected that
advantages and disadvantages of government the administration will exploit the asymmetry of
ownership that will be discussed: information to gain an advantage at the expense
of traders. and this ultimately leads to selling bad
first advantage of government ownership securities at high rates and selling efficient
Some private or partially listed companies are securities at low rates (Al-Sharqatli, ( 2015
owned and controlled by the government. It is
common for government-controlled companies
Dr. Fatima Jasim Mohammed 6346

In light of the multiplicity of studies that financial markets and the strength of law
have exposed the concept of information enforcement are critical factors. Factors
asymmetry, the researchers put forward many affecting the results of studies that discussed the
concepts, and each researcher has a different and impact of property structure determinants on
complementary point of view, some of which information asymmetry (Juhmani, 2013b).
will be addressed. According to Armstrong et al.
(2011), it is the possession of private information As managerial ownership increases,
by some investors resulting from the operation managers act more like owners, increasing their
of public information, enabling them to exploit a incentives to exploit the company's resources for
private feature to make extraordinary profits at their benefit at the expense of the shareholders.
the expense of others. According to Yuan et al. As a result, it discloses more optional
(2018), information asymmetry refers to the information, which reduces information
situation in which the party with complete asymmetry (Barros et al., 2013). Based on the
information is always in a superior position, and study's results (Wan, 2009: 22), it is logical that
the party with weak information is in the lowest shareholders as institutions request high-quality
position in the supply chain. information from their companies through
increased disclosure. Moreover, since
According to Naseer ( 2021 ), information institutional investors prefer to invest in
asymmetry refers to an imbalance in the capital companies, institutional Ownership effectively
market in which one party has more, better, and protects investor interests.
sooner information than the other. An estimate
of the highest and lowest price range will be used Studies confirm that family ownership
to measure information asymmetry. A price leads to higher disclosure, which reduces
range measure developed by Corwin & Schultz information asymmetry, as the desire to preserve
(2012) has been converted into an estimated the company's gains and enhance local capital
price range measure that is based on the highest markets is a motive for companies with family
and lowest price, which can be applied in many ownership to share more information, reducing
markets in which data is available on the highest information asymmetry (Chau & Gray, 2010).
and lowest prices (Lingmin, 2013, Altawel & Government ownership in a company reduces
Shaheen, 2017). the cost of debt by easing access to financial
resources such as loans and protecting creditors
The mathematical model for this scale is as from bankruptcy, which ultimately results in an
follows (Liu & Lee, 2020): increase in the company's value and thus reduces
information asymmetry (Beuselinck et al.,
IP high − Pt Law.I
Spread t = 2017).
Midt

IP high − PtIaw .I Studies (Alves, 2012) indicate that

Mid t = 2 significant shareholder ownership reduces
administrative opportunism opportunities.
The researcher will adopt the most appropriate Additionally, a study (Paik & Koh, 2014)
scale for the study environment, which has conducted on a group of Korean companies
characteristics that make it suitable, such as the found that companies owned by large investors
Estimate of the range, and the high low spread, practice less profit management. The pictures
to measure the level of information asymmetry and more to avoid the risks associated with
in the study sample based on past studies opportunistic behavior on the part of
(Altawel & Shaheen, 2017, Ripamonti, 2020, Management. Therefore, six particular
Maiz Jiménez et al., 2021). hypotheses can be used to analyze essential
2.4 Ownership structure and information research issues:
asymmetry The central hypothesis: There is no effect of
Depending on the ownership structure, the ownership structure and information asymmetry,
ownership structure impacts the information and the following is derived from it:
asymmetry differently. The ownership H1: There is no effect between managerial
percentage and structure are important factors Ownership and information asymmetry
that impact the level of control and disclosure,
which affect the degree of information
asymmetry. Further, the level of development of
 6347 Journal of Positive School Psychology

H2: There is no effect between the largest following sectors: communications (1), services,
shareholder and the asymmetry of information (4) agriculture (2), industry (8), hotels (5) for
five years from 2015 to 2019, where the number
H3: There is no effect between State ownership of observations reached 100, and the data were
and information asymmetry analyzed with three statistical programs, SPSS,
Eviews, Amos.
H4: There is no effect between institutional
Ownership and information asymmetry 4. Results
H5: There is no effect between family ownership correlation matrix
and information asymmetry.
Statistical analysis can only begin when the data
3. Research Methodology are validated for statistical analysis, as shown in
the following table, which shows the binary
The research community consists of all correlation matrix between the research
companies listed on the Iraq Stock Exchange, variables: -
with twenty companies represented over the
Table No. (1) The matrix of correlations between research variables

Correlations

MO MSO GO IO FO IA
MO 1
MSO .610** 1
GO -.155 .279** 1
IO .582** .526** .488** 1
FO .166 .220* .535** .482** 1
** ** ** **
IA -.528 -.512 -.315 -.682 -.516** 1
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).

As can be seen from the previous table, the In order to perform the hypothesis test analysis,
binary correlation coefficients between the the researcher ensured that the data of the
independent and dependent variables are weak, variables used in the study were not linearly
indicating that they measure different correlated through the linear interference test,
dimensions. the Test Multicollinearity, or the Diagnostics
Collinearity scale by using two indicators: the
Linear interference (duplex) test Inflation Factor (VIF) Factor Inflationary
Variance Stamina Tolerance.

Table No. (2) Linear interference test for data of research variables

Collinearity Statistics
Variable Tolerance VIEW
MO .259 3.862
MSO .449 2.226
GO .321 3.120
IO .277 3.610
FO .553 1.807
IA .435 2.298
Dr. Fatima Jasim Mohammed 2

In the table above, all variance inflation factors To test this hypothesis, the following "linear
(VIFs) are less than (5), and all tolerance factors regression" model was formulated:
are more significant than (0.1), indicating that
linear interference does not exist in the variables IAit = B0 + B1 OS it +  it
data, which is a condition of linear regression.
Using the SPSS statistical program, the results
The central hypothesis: - "There is no were as follows:
statistically significant effect of the ownership
structure in the asymmetry of information":

Table (3) Summary of the primary hypothesis test model

Model Summary
Std. The error in the
Model R R Square Adjusted R Square Estimate
1 .687a .472 .467 .599162
a. Predictors: (Constant), OS
b. Dependent Variable: IA

Using the model summary table above, the property structure variable explains 47.2% of the
correlation value (R) between the variables was change in information asymmetry. Finally, it is
0.687, and the R Square coefficient of essential to note that the error of the Estimate
determination was 0.472, representing the was 599162.0, which is a low number, and the
model's "interpretive power." In other words, the lower the number, the better it is statistically.

Table (4) Main hypothesis test variance

ANOVA

Model Sum of Squares Df Mean Square F Sig.

1 Regression 31.464 1 31.464 87.644 .000a
Residual 35.182 98 .359

Total 66.645 99

Using the variance above ANOVA, we can less than the value of the accepted error in social
calculate the F value at 87.644, which is greater sciences and predetermined by 0.05, indicating
than its tabular value (98.1), which is 3.95 at a the appropriateness of the statistical model used
significance level of 5%, and the level of to test the hypothesis.
significance of the Sig test was 0.00, which is

Table (5) The regression function coefficients for the primary hypothesis

Coefficientsa

Model Unstandardized Coefficients Standardized Coefficients t Sig.

 1 Journal of Positive School Psychology

B Std. Error Beta

1 (Constant) .392 .062 6.323 .000

OS -1.098 .117 -.687 -9.362 .000

The coefficients table shows that the constant for inverse relationship between the independent
the regression equation was 0.392, and the slope and dependent variables. With the stability of all
for the regression equation was -1.098, which other independent variables, an increase in the
demonstrates the effect of the independent variable (ownership structure) by one degree
variable on the dependent variable (by will decrease by 109.8% in the dependent
coefficient B). Negative coefficients indicate an variable (information asymmetry).

Table (6) results of the sub-hypotheses

Hypotheses NO. Direct Standard T Values P Values Hypotheses

relation beta error Result
H1 MO IA -.528 .078 -6.155 .000 Supported

H2 MSO IA -.512 .071 -5.904 .000 Supported

H3 SO IA -.315 .076 -3.285 .001 Supported

H4 IO IA -.682 .118 -9.220 .000 Supported

H5 FO IA -.516 .066 -5.959 .000 Supported

MO=Managerial Ownership, MSO =largest -5.904. Thus, its significance level was. 0.000 is
shareholder, SO=Institutional Ownership, = less than 0.05. Hence, the null hypothesis is
Family Ownership, IA= Information rejected, and the alternative hypothesis is
Asymmetry. accepted. Ownership of major contributors to
information asymmetry has a statistically
The slope of the regression equation amounted significant effect.
to -0.480, showing the influence of the
independent variable on the dependent variable Based on the third hypothesis, the slope
(by parameter B). -6.155 is the calculated T of the regression equation was -0.250, which
value, indicating an adverse effect between the indicates an inverse relationship between the
dependent and independent variables. The independent variable and the dependent variable
significance level reached 0.000, which is less (by coefficient B), resulting in a T value of -
than 0.05, so the research null hypothesis is 3.285. As a result, its significance level was. The
rejected—accepting the alternative hypothesis. value reached 0.001, which is less than 0.05. As
Information asymmetry is statistically a result, the null hypothesis has been rejected,
significant when administrative Ownership is and the alternative hypothesis has been accepted.
present. Government ownership has a statistically
significant effect on information asymmetry.
According to the second sub-hypothesis,
the slope of the regression equation is -0.419, For the fourth sub-hypothesis, the slope
which shows that the independent variable of the regression equation was -1.090, which
affects the dependent variable (by parameter B), indicates an inverse effect between the
and the negative coefficient indicates an inverse independent and dependent variables (by
relationship between the dependent and parameter B), and the negative coefficient
independent variables. The calculated T value is indicates an inverse effect. The calculated T
Dr. Fatima Jasim Mohammed 6352

value was -9.220. The level of significance controlling shareholders. It is essential for family
reached 0.000, which is less than 0.05. ownership linked to the capital market to pay
Therefore, the research null hypothesis is attention to small shareholder rights and limit the
rejected, and the alternative hypothesis is role of significant shareholders in selecting
accepted. Institutional Ownership has a accounting policies. Obtaining the necessary
statistically significant effect on the asymmetry funding to exploit profitable investment
of information. opportunities depends on the Securities Market
Authority, professional organizations, and
Concerning the fifth and last sub-hypothesis, the individuals spreading awareness about the
slope of the regression equation is -0.395, which importance of preparing high-quality financial
indicates that the independent variable affects reports. In order to provide additional
the dependent variable (by parameter B), and the information and use modern methods to present
negative coefficient indicates a negative financial reports, it is necessary to take
relationship between the dependent and advantage of modern technology and
independent variables. Therefore, since its developments so that its users can understand
significance was less than 0.05, the research null and conduct the appropriate analyses. All factors
hypothesis is rejected, and the alternative affecting the information asymmetry will lose
hypothesis is accepted—statistically significant their importance unless a team of accountants
effects of family ownership on information with a high level of professional accounting
asymmetry. skills is in place in Iraq. In addition to forcing
companies to reissue their financial statements,
5. Conclusions the Iraqi Stock Exchange should impose strict
By identifying the most relevant concepts for penalties on companies that manage their profits.
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