Promoter Ownership, Monitoring and Firm Value: Indian Evidence

This study investigates the complex interrelationships among promoter ownership, banking relationships, and firm value in the Indian context. Drawing on a panel dataset of publicly listed manufacturing firms spanning the period 2011 to 2022; we employ a dynamic panel estimation approach using the system GMM methodology to address potential endogeneity and firm-level heterogeneity. The analysis uncovers significant nonlinearities in the relationship between promoter ownership and firm value, as well as between banking relationships and firm value. In particular, the former is inverted U-shaped, whereas the latter exhibits a U-shaped relationship. These effects are particularly pronounced when distinguishing between domestic and foreign promoters, suggesting that the source of promoter control plays a pivotal role in shaping firm-bank dynamics and valuation outcomes. To deepen our understanding, we undertake a two-tiered disaggregation of the banking relationship. First, we differentiate firms based on whether their primary banking partner is a state-owned or private-sector institution. Second, we examine the extent of board-level and equity-based interlocks between banks and firms. The results indicate that the observed patterns are largely driven by relationships with state-owned banks, where promoter ownership tends to be higher among firms with stronger institutional ties. From a policy standpoint, these findings underscore calibrated governance reforms by reinforcing disclosure requirements and minority shareholder protections, especially in firms with concentrated promoter control.