The IUP Journal of Corporate Governance
The Impact of Ownership Structure on the Financial Performance of Indian Corporate Sector

Article Details
Pub. Date : April, 2021
Product Name : The IUP Journal of Corporate Governance
Product Type : Article
Product Code : IJCG10421
Author Name Ruchita Verma, Dhanraj Sharma and Priyanka
Availability : YES
Subject/Domain : Management
Download Format : PDF Format
No. of Pages : 14



The aim of the study is to investigate the effect of ownership structure on the accounting-based performance of the Indian corporate sector. The study employs panel data regression for establishing an association between ownership and firm's performance on a sample of 40 companies listed on the National Stock Exchange (NSE) for the period of seven years, i.e., 2013-14 to 2019-20. By using cross-sectional time-series Feasible Generalized Least Squares (FGLS) regression, it is observed that foreign ownership and government ownership have a positive impact on the financial performance (ROA and ROCE), while directors' ownership exerts a negative effect on ROA and ROCE. The study found a positive impact of liquidity ratio and a negative effect of the leverage ratio and firm size. The study did not find an association between institutional ownership and corporate ownership with financial performance. This study contributes to the existing financial literature and will benefit the shareholders and other stakeholders in better understanding the ownership structure and its implication on accounting-based financial performance. This study employs a range of ownership structure measures, instead of focusing on a single measure. Furthermore, different types of panel data regression techniques are used in the study.


The separation of ownership and control in the modern corporation creates various agency problems. As per Agency theory, the managers (agent) may take the decision which may not be in the best interests of the shareholders (principal), resulting in principal-agent conflicts (Jensen and Meckling, 1976). Not only principal-agent conflicts, but there can also be principalprincipal conflicts (exploitation of minority shareholders by the majority shareholders) due to blockholding of ownership in a few hands (Myers and Majluf, 1984). This conflict of interest may hinder the firm performance and ultimately minimize shareholder wealth. Based on Agency theory, Jensen and Meckling (1976) tried to establish a relationship between ownership structure and performance and observed that managerial ownership plays an important role in reducing conflict of interest which ultimately improves the firm performance.