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Ownership Concentration and Firm Value: A Study from the Indian Corporate Sector

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  • EKTA SELARKA

Abstract

This paper contributes to understanding corporate governance issues in emerging economies by examining how blockholders influence firm value. Using a much disaggregated and uniform database from the Indian corporate sector for the year 2001, we examine the interaction between ownership structure and firm value in the following ways. Unlike most existing research, which studies the aggregate level of ownership, we include a wider set of mechanisms, such as identity and ownership concentration of outside blockholders controlling at least 5 percent of total equity of the firm. We analyze the role played by these shareholders with substantial voting power in situations when equity holding is less compared to the more concentrated holdings of promoters. We also attempt to see if these investors coordinate among themselves to constrain insiders from expropriating corporate resources. We find a significant curvilinear relationship between firm value and the fraction of voting rights owned by insiders. The curve slopes downward until insider ownership reaches approximately between 45 percent and 63 percent, then slopes upward. Empirical results on ownership concentration by minority blockholders do not support the monitoring hypothesis of these investors. Furthermore, the coordinated behavior of the largest two minority blockholders has an increasing (decreasing) impact on firm value when the collective control is located in the lower (higher) range. The coordination problem worsens if the largest two are private corporate bodies.

Suggested Citation

  • Ekta Selarka, 2005. "Ownership Concentration and Firm Value: A Study from the Indian Corporate Sector," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 41(6), pages 83-108, November.
    • Handle: RePEc:mes:emfitr:v:41:y:2005:i:6:p:83-108
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    Citations

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    Cited by:

    1. Kashif Rashid & Seep Nadeem, 2014. "The Role of Ownership Concentration, its Types and Firm Performance: A Quantitative Study of Financial Sector in Pakistan," Oeconomics of Knowledge, Saphira Publishing House, vol. 6(2), pages 10-61, June.
    2. Ahmed Aboud & Ahmed Diab, 2022. "Ownership Characteristics and Financial Performance: Evidence from Chinese Split-Share Structure Reform," Sustainability, MDPI, vol. 14(12), pages 1-18, June.
    3. Victor Chen & Jing Li & Daniel Shapiro, 2011. "Are OECD-prescribed “good corporate governance practices” really good in an emerging economy?," Asia Pacific Journal of Management, Springer, vol. 28(1), pages 115-138, March.
    4. Ekta Sikarwar & Roopak Gupta, 2019. "Economic exposure to exchange rate risk and financial hedging," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 46(4), pages 965-984, August.
    5. Panda, Brahmadev & Tripathy, Sasikanta & Kumar, Gaurav, 2024. "Does US financial crisis influence the relationship between ownership holdings and stock performance? The case of a developing economy," The Journal of Economic Asymmetries, Elsevier, vol. 29(C).
    6. Ming-Feng Hsu & Kehluh Wang, 2014. "The Level and Stability of Institutional Ownership and Firm Performance: Evidence from Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(2S), pages 159-173, March.
    7. Sudam Shingade & Shailesh Rastogi & Venkata Mrudula Bhimavarapu & Abhijit Chirputkar, 2022. "Shareholder Activism and Its Impact on Profitability, Return, and Valuation of the Firms in India," JRFM, MDPI, vol. 15(4), pages 1-20, March.
    8. Sheeba Kapil & Rakesh K Mishra, 2019. "Corporate Governance structure and firm performance in Indian context: A Structural Equation Modelling Approach," Working Papers 1937, Indian Institute of Foreign Trade.
    9. Krishna Dayal Pandey & Tarak Nath Sahu, 2021. "Ownership Concentration and Agency Crises in Indian Manufacturing Firms," Business Perspectives and Research, , vol. 9(1), pages 128-143, January.
    10. Pursey Heugens & Marc Essen & J. Oosterhout, 2009. "Meta-analyzing ownership concentration and firm performance in Asia: Towards a more fine-grained understanding," Asia Pacific Journal of Management, Springer, vol. 26(3), pages 481-512, September.
    11. Ujjayini Roy & Indrani Chakraborty, 2024. "Market concentration, promoter ownership and firm performance: evidence from Indian corporate firms," Indian Economic Review, Springer, vol. 59(1), pages 27-85, June.
    12. Sinha, Pankaj & Singhal, Anushree, 2012. "A note on Corporate Governance in Public Sector Undertakings in India," MPRA Paper 41038, University Library of Munich, Germany.
    13. Ekta Selarka, 2018. "Corporate Governance Practices in India," Working Papers 2018-173, Madras School of Economics,Chennai,India.
    14. Suveera Gill & Parmjit Kaur, 2015. "Family Involvement in Business and Financial Performance: A Panel Data Analysis," Vikalpa: The Journal for Decision Makers, , vol. 40(4), pages 395-420, December.
    15. Ming-Feng Hsu & Kehluh Wang, 2014. "The Level and Stability of Institutional Ownership and Firm Performance: Evidence from Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S2), pages 159-173.
    16. Krishna Dayal Pandey & Tarak Nath Sahu, 2019. "Concentrated Promoters’ Ownership and Firm Value: Re-examining the Monitoring and Expropriation Hypothesis," Paradigm, , vol. 23(1), pages 70-82, June.
    17. Sudam Shrikrushna Shingade & Shailesh Rastogi, 2019. "Shareholders’ Activism and Firm Performance: A Review of Literature," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 10(2), pages 22-30, May.
    18. Khosa,Amrinder & Ahmed,Kamran & Henry,Darren, 2019. "Ownership Structure, Related Party Transactions, and Firm Valuation," Cambridge Books, Cambridge University Press, number 9781108492195, September.

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