Ownership Concentration and Corporate Disclosure in Bangladesh

Bangladesh has pursued persistent economic liberalization and reforms since 1991. The country experienced an investment-GDP ratio rising by more than 10 percent and an economic growth accelerating from less than 4 percent to 6.5 percent in this period. The country is set to become a middle-income country by 2021. This development is however seriously negated by two stock market crises in less than two decades. Both the crises accompanied large-scale redistribution of wealth from the poor to the rich. This paper documents that control-ownership wedge is substantial in Bangladesh allowing controlling shareholders to exercise nearly full control over a firm’s operating and financial policies, including disclosure policies, while maintaining low cash flow rights relative to voting rights. The findings indicate that controlling for factors such as age, size, profitability and financial leverage, ownership concentration reduces corporate disclosure. The findings validate the hypothesis of La Porta et al. (1999) that an increasing ownership concentration leads corporate management to adopt a disclosure regime which is biased against external shareholders and creditors. The findings imply an information problem whereby insiders will likely expropriate outside shareholders in an environment where legal protection of the latter is weak.