Direct Ownership Structure and Profitability in Azerbaijan Commercial Banks Listed in Baku Stock Exchange (BSE)

ABSTRACT: This thesis investigates the direct ownership structure and ownership type in 33 Azerbaijan commercial banks listed in Baku Stock Exchange (BSE). As a direct ownership structure we analyze the highest percentage of ownership of the largest shareholder (S1) and the total of top five highest ownership percentages (S5) in Azerbaijan banks. Moreover, we ran a regression analysis to establish relationship between ownership structure and profitability measures, return on assets (ROA) and return on equity (ROE) of 31 banks, for 2009. In addition, we use some control variables and dummy variable (foreign ownership) in our regression analysis, to observe their effect on profitability measures. Direct ownership structure analyzes show that banks in Azerbaijan have highly concentrated ownership structure. Additionally, the thesis conclude that banks in Azerbaijan had “majority ownership”, according to the highest percentage of ownership of the largest shareholder (S1) and “supermajority ownership” according to the total of top five highest ownership percentages (S5). Direct ownership type investigations reveal that "Families" had dominant position in acquiring the highest percentage of stakes in direct ownership of the banks in Azerbaijan. However, regression analysis prove that only square of S5 variable (SQS5) for direct ownership structure variables turned out to be statistically significant independent variable for ROA, with negative sign of coefficient. Thus, there is a non-linear quadratic relationship between square of S5 variable (SQS5) and profitability measure ROA in our regression model. In conclusion the thesis suggests to build strong financial markets with effective regulations and supervision where it is possible to protect the rights of both minority and majority shareholders. Keywords: Direct ownership structure analysis, ownership type analysis, profitability. ……………………………………………………………………………………………………………………………………………………………………………………………………………………