Equity Ownership and Financial Performance

Aman Srivastava

doi:10.22610/jebs.v2i4.231

Abstract

This paper attempts to examine the relationship of equity ownership and financial performance of firms in India. The study explored the possibility that whether equity ownership type affects the financial performance of listed Indian firms. The study examined the relationship of equity ownership with accounting as well as market measures of financial performance of the firms. The study sampled the 500 listed companies constituting BSE 500 indices of Bombay Stock Exchange of India. The 397 most actively listed companies on BSE 500 indices of Bombay Stock Exchange of India, which constitute the bulk of trading, were chosen to constitute the sample of the study as of end of 2009-10. The study used Ordinary least square (OLS) to examine the relationship between the equity ownership and financial performance of the Indian listed firms. The findings of the study depict the presence of highly concentrated ownership structure in the Indian market. The results of the regression analyses interestingly indicate that the dispersed equity ownership influences certain dimensions of accounting financial performance measures (i.e. ROA and ROE) but not market performance measures (i.e. Tobinâ€™s Q, P/E and P/BV ratios), which indicate that there might be other factors (Behavioral, macro economic, political, contextual) affecting firms performance other than ownership structure. The findings of the study might be relevant for practitioners and investors for taking their financing and investment decisions.

Highlights

Capital structure, equity ownership structure and its impact on financial performance of firms has always been a serious agenda for researches across the globe
What is the composition of debt and equity in capital structure of the firm and who owns the firm’s equity and how does that affect financial performance of a firm has been a topic investigated by researchers for decades? The modern organization emphasizes the separation of management and ownership; in practice, the interests of group managing the company can vary from the interests of those that supply the capital to the firm
Inspection of ownership data reveals that the concentration of equity ownership in sampled 98 listed Indian firms of Bombay stock exchange of India Two measures of the structure of corporate ownership are used: the fraction of shares owned by a firm’s promoters, (Indian and Foreign promoters’ holding) and the fraction of shares owned by a non promoters

Summary

Introduction

Equity ownership structure and its impact on financial performance of firms has always been a serious agenda for researches across the globe. The share holders having controlling interest in a public limited company is able to influence the decisions of top management but the same luxury is not available with the smaller shareholders having non controlling interest in the company This distribution of shareholders between shareholders having controlling and noncontrolling interest varies from company to company. The rest of the paper is organized as follows: Section 2 discusses the literature review, where both theoretical and empirical studies on previous works are looked into. It incorporates the corporate governance mechanism in India.

Literature Review

Data and Methodology

Analysis and Results

Conclusion