Articlegreen2020

Ownership Concentration and Firm Performance in India

63 citations0/0 files storedGlobal Business Review

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Corporate Finance and Governance Family Business Performance and Succession Corporate Governance and Financial Management

Abstract

Ownership concentration is considered an important corporate governance mechanism because owners with concentrated shareholding influence the operations and management of a company. The ownership structure in developing countries is quite different from that in the developed markets, thus, we provide empirical evidence from an important emerging market like India. This study used panel data models and instrumental variables techniques using GMM on a large sample of 11,136 firm-year observations to get efficient and reliable results. The endogeneity of ownership concentration has not been examined in India before. In this paper, ownership concentration is measured by Herfindahl's index as suggested by Demsetz and Lehn (1985); and Leach and Leahy (1991). Other Indian studies in this area have used promoter shareholding as a proxy of ownership concentration. After controlling for endogeneity, we find that ownership concentration affects both market and accounting performance of a company, positively. The results suggest that concentrated ownership reduces agency costs as blockholders actively monitor the management of the company, thereby leading to better firm performance.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1997A Survey of Corporate Governance 1986Large Shareholders and Corporate Control 2000Investor protection and corporate governance 1995What Do We Know about Capital Structure? Some Evidence from International Data 1985The Structure of Corporate Ownership: Causes and Consequences 1996Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders 2001Ownership structure and corporate performance

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