Ownership concentration and operational efficiency in emerging markets: the moderating role of market volatility

This study examines the relationship between ownership concentration, stock price volatility, and firm-level operational efficiency in an emerging market using a sample of 86 Saudi-listed firms from 2016 to 2023. To address potential endogeneity, the analysis employs instrumental variable two-stage least squares (2SLS) as the primary estimation strategy, complemented by ordinary least squares (OLS) and two-step System Generalized Method of Moments (System GMM) estimations for benchmark comparison and robustness assessment. Operational efficiency is evaluated using two complementary dimensions: operating cost and return generation efficiencies. The findings consistently indicate that ownership concentration and stock price volatility are associated with lower operational efficiencies. However, the interaction between ownership concentration and stock price volatility is positive and statistically significant across alternative estimation approaches, indicating that market volatility moderates the governance-efficiency relationship. Marginal effects analysis further demonstrates that the adverse effect of ownership concentration progressively weakens as market volatility increases and becomes statistically indistinguishable from zero under relatively high volatility. These findings suggest that heightened market uncertainty encourages stronger monitoring and operational discipline by dominant shareholders, thereby offsetting rather than reversing the governance costs associated with concentrated ownership. The results support the contingency perspective of corporate governance, demonstrating that the effectiveness of ownership structures depends on prevailing market conditions. By focusing on operational efficiency rather than conventional profitability measures, this study contributes to the corporate governance literature and provides practical implications for investors, regulators, and policymakers seeking governance frameworks that are responsive to changing market environments in emerging economies.