Institutional Ownership and Firm Value: A Case Study of Listed Firms in Indian Stock Exchanges

Abstract

Institutional ownership is one of the internal mechanisms of corporate governance and the linkage between institutional ownership and firm value is seen in emerging economies. In India, the listed firms witnessed increase in both the investment by institutional investors as well as the market capitalisation over the last few years. The investment by institutional investors rose from 0.010 percent to 75 percent of total equity shareholdings and Market to Book value ratio (M B ratio) rose from 0 to 3263 over the period 2008–2014. In view of the same, the present study explores the relation between institutional ownership and firm value of listed firms in Indian stock exchanges, namely, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). M B ratio is the proxy for firm value. The various forms of multiple regressions are used due to the presence of autocorrelation and heteroskedasticity in the model. There were 496 firms selected for the study. The results indicate the impact of institutional ownership on firm value leading to the belief that investment by institutional investors in a firm increases its market valuation depicting higher investor confidence. Further, leverage, return on total assets, size and age of the firm also significantly impact firm value.