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Corporate Governance and Firm performance in India
[Insider Ownership and Firm value: Evidence from Indian Corporate Sector]

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Author Info
Pant, Manoj
Pattanayak, Manoranjan

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Abstract

We examine the effect of insider ownership on corporate value in India for the period of 2000-01 to 2003-04, using 1833 Bombay stock Exchange listed firms. More specifically we have investigated the nature of relationship between insider’s equity holding and firm value. While ‘convergence of interest’ or ‘monitoring’ hypothesis predicts a positive relationship, the ‘entrenchment’ hypothesis predicts a negative one between insider shareholding and firm value. In India, most of the firm’s have insiders/promoters as the dominant shareholder. The feature of family based governance system is also widely prevalent in Indian corporate sector. This paper provides evidence that the relationship between insider shareholding and firm value is not linear in nature. We document a significant non-monotonic relationship between insider shareholding and firm value. Tobin’s Q first increases, then declines and finally rises as ownership by insiders rises. Besides, we confirm that foreign promoter/collaborator shareholding has significant positive impact on firm value.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6335.

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Date of creation: 21 Apr 2007
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Handle: RePEc:pra:mprapa:6335

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Keywords: Insider ownership Corporate governance family ownership

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Find related papers by JEL classification:
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
G3 - Financial Economics - - Corporate Finance and Governance

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