Demystifying the nexus between ownership structure and performance: A study of the emerging market

Abstract

The main aim of this research is to study the effect of ownership structure (OS) on corporate performance after the application of the Companies Act, 2013 considering fast-moving consumer goods (FMCG) sector firms listed on the Bombay Stock Exchange. This study applies the regression technique on panel data for five years, from FY 2015–2016 to FY 2019–2020. The study has used market-based performance (market capitalization) and accounting-based performance (return on capital employed) as dependent variables to investigate the impact of OS (ownership concentration (OC) and owners’ identity (OI)) on firm performance. The findings demonstrate that OC measured by Hirschman–Herfindahl index (HHI) proposed by Demsetz and Lehn (1985) has a significant positive impact on accounting and market-based performance. The comparative analysis revealed that OI has a more significant impact on market-based performance than accounting performance. The result further reported that promoter ownership, institutional ownership, and body corporate holdings positively correlate with market-based performance. This study contributes to the existing corporate governance literature by evaluating the nexus between OS and corporate performance in the Indian context and enriches the existing literature, which will be important input for regulators, investors, and policymakers to take an informed decision. The study symbolizes the emerging market, one of the most attractive destinations for cross-country capital investment where corporate ownership structure differs from developed markets.