Impact of firm characteristics and ownership structure on firm efficiency: evidence from non-financial firms of Pakistan

Figures & data

Table 1. Input and output variables for efficiency

Input Variables	Notation	Output Variable	Notation
Total Assets	TA	Net Sales	NS
Operating Cost	OC
Selling & Adm. Cost	SA

Note: Input and output variables are used following the Y. S. Chen and Chen (2011) where NA represents Net Sales which is measured as Sales revenues less sales returns and allowances, TA represents total assets measured as total current and non-current assets at the end of year, OC represents operating cost which is measured as total cost on raw material and labor, SA represents Selling & Adm. Cost which is measured as cost of employee salaries and sale promotion expenditures.

Table 2. Operational definitions of the variables

Variables	Notation	Measurement	Author
Efficiency (DV)	E	Provided in Table 1	Y. S. Chen and Chen (2011)
Market Capitalization (IV)	MC	Log of the market value of equity. Market value defined as the number of shares outstanding times the price of each share.	Krüger et al. (2015)Lins et al. (2017)
Cash Holdings (IV)	CH	Measured as cash and short-term investment divided by assets.	Lins et al. (2017) Afza and Asghar (2017)
Book to Market Ratio (IV)	BM	Book value of equity divided by market value of equity	Lins et al. (2017) Fernando et al. (2012)
Negative B/M Ratio (IV)	NBM	Dummy variable set to one when the book to market ratio is negative and zero otherwise	Lins et al. (2017)
Insider Ownership (IV)	IO	Percentage of ordinary shares owned by the directors, managers, spouse, children and chief executives.	Hussain (2022)
Institutional Ownership (IV)	Inst O	Percentage of shares held by financial institutions	Tsai and Gu (2007) Charfeddine and Elmarzougui (2010)
Concentration Ownership (IV)	CO	Percentage shares owned by ten largest shareholders.	Abbas et al. (2013) Gonzalez et al. (2017)
Firm Size (CV)	FS	Measured by the (logarithm of) total assets of the company	Shan and Xu (2011)
Firm Profitability (CV)	FP	Firm profitability is measured as return on common equity.	Abbas et al. (2013)
Firm Leverage (CV)	FL	Total debts to total assets	Shan and Xu (2011) )
Firm Age (CV)	FA	Measures the number of years since initial listing	Shan and Xu (2011)

Table 3. Sector wise firm efficiency scores

	2012	2013	2014	2015	2016	2017
Textile (All)
Efficient	6%	4%	4%	4%	8%	9%
Inefficient	94%	96%	96%	96%	92%	91%
Sugar
Efficient	29%	29%	36%	14%	29%	14%
Inefficient	71%	71%	64%	86%	71%	86%
Food
Efficient	43%	43%	43%	29%	43%	14%
Inefficient	57%	57%	57%	71%	57%	86%
Chemical & Pharmaceuticals
Efficient	6%	21%	27%	6%	15%	15%
Inefficient	94%	79%	73%	94%	85%	85%
Manufacturing
Efficient	22%	28%	11%	11%	6%	6%
Inefficient	78%	72%	89%	89%	94%	94%
Minerals
Efficient	75%	50%	75%	50%	25%	25%
Inefficient	25%	50%	25%	50%	75%	75%
Cement
Efficient	44%	25%	19%	25%	38%	31%
Inefficient	56%	75%	81%	75%	62%	69%
Motor Vehicle, Trailers & Autoparts
Efficient	25%	25%	19%	31%	25%	25%
Inefficient	75%	75%	81%	69%	75%	75%
Inform. Comm. & Transportation
Efficient	33%	17%	33%	17%	17%	33%
Inefficient	67%	83%	67%	83%	83%	67%
Coke & Refined Petroleum
Efficient	75%	50%	100%	75%	75%	75%
Inefficient	25%	50%	0%	25%	25%	25%
Paper & Paper Board
Efficient	60%	40%	80%	80%	80%	60%
Inefficient	40%	60%	20%	20%	20%	40%
Electrical Machinery
Efficient	60%	80%	60%	60%	80%	80%
Inefficient	40%	20%	40%	40%	20%	20%

Table 4. Overall firm efficiency scores

	2012	2013	2014	2015	2016	2017
Efficient	23%	23%	24%	18%	21%	20%
Inefficient	77%	77%	76%	82%	79%	80%
Firms	188	188	188	188	188	188

Table 5. Descriptive statistics

Variables	Mean	Median	Maximum	Minimum	SD	Obs.
E	0.463863	0.368500	1.000000	0.000000	0.363895	1128
MC	9.360293	9.247170	11.73940	7.125691	0.905663	1128
CH	0.069974	0.017075	0.887730	0.000205	0.118864	1128
BM	1.465720	0.925000	26.75358	−14.40940	2.359077	1128
NBM	0.039007	0.000000	1.000000	0.000000	0.193698	1128
IO	0.302388	0.259500	0.987700	0.000000	0.288820	1128
Inst. O	0.494691	0.532050	1.000000	0.000000	0.330594	1128
CO	0.793097	0.814594	7.472940	0.076568	0.380733	1128
FS	6.697252	6.658688	8.480886	5.072669	0.633911	1128
FP	0.099582	0.109750	3.984300	−14.11240	0.622985	1128
FL	0.558081	0.548464	2.387498	0.007217	0.274020	1128
FA	29.73404	26.00000	68.00000	1.000000	13.95023	1128

E represents the firm efficiency. MC represents the market capitalization measured as log of market value of all shares outstanding. CH represents the cash holdings measured as cash and marketable securities divided by total assets. BM represents book-to-market ratio measured as book value of equity divided by market value of equity. NBM represents negative book-to-market ratio which is a dummy variable which is set as 1 if book-to-market is negative and 0 otherwise. IO represents the insider ownership measured as shares owned by director, their spouse, children and chief executive divided by total number of shares outstanding. Inst. O represents the institutional ownership measured as shares owned by all institutions divided by total number of shares outstanding. CO represents concentration ownership measured as shares owned by 10 largest shareholders divided by total number of shares outstanding. FS represents the firm size which is measured as log of total assets. FP represents the firm profitability measured as return on equity. FL is the firm leverage measured as total debts divided by total assets. FA represents firm age measured as number of years since its initial listing.

Table 6. Correlation

Variable	E	MC	CH	BM	NBM	IO	Inst O	CO	FS	FP	FL	FA
E	1
MC	0.2462	1
CH	0.2296	0.3368	1
BM	−0.1440	−0.4352	−0.1497	1
NBM	−0.0854	−0.0821	−0.0928	−0.3289	1
IO	−0.2539	−0.3998	−0.2846	0.1649	−0.0796	1
Inst O	0.2192	0.4677	0.3181	−0.2179	0.0738	−0.8757	1
CO	0.0428	−0.0508	0.0071	−0.0135	0.0019	0.0481	0.0820	1
FS	0.0741	0.7887	0.1367	−0.1443	−0.0262	−0.2898	0.3395	−0.0665	1
FP	0.1225	0.2159	0.1128	−0.1336	0.0359	−0.0849	0.1207	0.0369	0.0862	1
FL	−0.1515	−0.2225	−0.3447	−0.1971	0.6251	0.0420	−0.0551	0.0162	0.0038	−0.0929	1
FA	0.0426	0.0890	0.0457	0.0387	0.0389	−0.0986	0.1116	0.1013	0.0828	−0.0079	−0.0365	1

E represents the firm efficiency. MC represents the market capitalization measured as log of market value of all shares outstanding. CH represents the cash holdings measured as cash and marketable securities divided by total assets. BM represents book-to-market ratio measured as book value of equity divided by market value of equity. NBM represents negative book-to-market ratio is a dummy variable which is set as 1 if book-to-market is negative and 0 otherwise. IO represents the insider ownership measured as shares owned by director, their spouse, children and chief executive divided by total number of shares outstanding. Inst. O represents the institutional ownership measured as shares owned by all institutions divided by total number of shares outstanding. CO represents concentration ownership measured as shares owned by 10 largest shareholders divided by total number of shares outstanding. FS represents the firm size which is measured as log of total assets. FP represents the firm profitability measured as return on equity. FL is the firm leverage measured as total debts divided by total assets. FA represents firm age measured as number of years since its initial listing.

Table 7. Variance inflation factors

S.No.	Variables	VIF
1	MC	6.2543
2	CH	1.3402
3	BM	2.0203
4	NBM	1.8642
5	IO	4.6206
6	Inst O	5.0559
7	CO	1.1037
8	FS	4.0594
9	FP	1.0842
10	FL	2.3096
11	FA	1.0449

E represents the firm efficiency. MC represents the market capitalization measured as log of market value of all shares outstanding. CH represents the cash holdings measured as cash and marketable securities divided by total assets. BM represents book-to-market ratio measured as book value of equity divided by market value of equity. NBM represents negative book-to-market ratio is a dummy variable which is set as 1 if book-to-market is negative and 0 otherwise. IO represents the insider ownership measured as shares owned by director, their spouse, children and chief executive divided by total number of shares outstanding. Inst. O represents the institutional ownership measured as shares owned by all institutions divided by total number of shares outstanding. CO represents concentration ownership measured as shares owned by 10 largest shareholders divided by total number of shares outstanding. FS represents the firm size which is measured as log of total assets. FP represents the firm profitability measured as return on equity. FL is the firm leverage measured as total debts divided by total assets. FA represents firm age measured as number of years since its initial listing.

Table 8. Regression results

Variable	Coefficient	P-value
C	0.317700	0.1106
MC	0.158711	0.0000***
CH	0.404507	0.0014***
BM	−0.003820	0.6166
NBM	−0.190190	0.0321**
IO	−0.498010	0.0000***
Inst. O	−0.250520	0.0039***
CO	0.087393	0.0242**
FS	−0.170340	0.0000***
FP	0.035418	0.0901*
FL	0.028635	0.6843
FA	0.000653	0.4810

E represents the firm efficiency. MC represents the market capitalization measured as log of market value of all shares outstanding. CH represents the cash holdings measured as cash and marketable securities divided by total assets. BM represents book-to-market ratio measured as book value of equity divided by market value of equity. NBM represents negative book-to-market ratio which is a dummy variable which is set as 1 if book-to-market is negative and 0 otherwise. IO represents the insider ownership measured as shares owned by director, their spouse, children and chief executive divided by total number of shares outstanding. Inst. O represents the institutional ownership measured as shares owned by all institutions divided by total number of shares outstanding. CO represents concentration ownership measured as shares owned by 10 largest shareholders divided by total number of shares outstanding. FS represents the firm size which is measured as log of total assets. FP represents the firm profitability measured as return on equity. FL is the firm leverage measured as total debts divided by total assets. FA represents firm age measured as number of years since its initial listing. The coefficient marked ***, ** and * are significant at the 1%, 5% and 10% level of significance respectively.

Table 9. Summary of hypothesis acceptance/rejection

S.No.	Hypothesis	Results
H1	The market capitalization affects the efficiency of Pakistani non-financial firms.	Supported
H2	The cash holdings affect the efficiency of Pakistani non-financial firms.	Supported
H3	The book-to-market ratio affects the efficiency of Pakistani non-financial firms	Not Supported
H4	The negative book-to-market ratio affects the efficiency of Pakistani non-financial firms.	Supported
H5	The insider ownership affects the efficiency of Pakistani non-financial firms	Supported
H6	The institutional ownership affects the efficiency of Pakistani non-financial firms.	Supported
H7	The concentration ownership affects the efficiency of Pakistani non-financial firms.	Supported

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