ERF 27th Annual Conference
Economic Entrenchment and Growth Impediments in Jordan
No.
ERF27_108
Publisher
ERF
Date
May, 2021
Topic
O. Economic Development, Technological Change, and Growth
The purpose of this paper is to understand the impediments of corporate growth in Jordan focusing on the role of corporate ownership structure and political connections as possible means for economic entrenchment. Using hand-collected data, I measure ownership concentration by the sum of direct and indirect ownership which takes into account the capital owned via pyramid structures and trace firm’s political connections. Based on the research that shows that deviations between corporate ownership and control can lead to inefficient allocation of capital and obstruct market development and economic growth, I formulate hypotheses that predict that concentration of firm’s capital in the hands of single or few shareholders who are politically connected will prevent firms from growing. I find weak evidence that politically connected firms invest more in assets but there is strong evidence that politically connected firms perform worse than non-connected firms. There is also a weak evidence that as the percentage of firm’s capital owned by the largest shareholder increases the firm borrows less. Finally, I find no evidence that ownership concentration and political connections are substitutes to each other. However, there is evidence that these results are sensitive to the time periods before and after the financial crisis of 2008.
Research Fellows
Adel Bino
Vice-chairman, Jordan Securities Commission