Abstract
Firm ownership structure has a strong influence on its long-term performance and financial literature documents that high concentration of promoter ownership has a positive bearing on firm performance. This study is an attempt to analyze relationship between promoter’s holding and firm performance in an emerging market setting of India. The study specifically examines the endogeneity problem through use of simultaneous equations. To ensure robustness in addition to accounting-based measures (ROA and ROE), a market-based performance measure (Tobin’s Q) has been employed. Panel data of 2148 firm-year observations are analyzed from 2003 to 2015 for 179 companies listed on India’s broad-based market Index, the S&P BSE 500. The results indicate presence of non-linear relationship between the firm performance and promoter’s holdings. Specifically, the study documents the relationship to be of U curve nature and clearly finds evidence of endogenous relationship between promoter’s holding and firm performance.
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