| Pub. Date | : October, 2021 |
|---|---|
| Product Name | : The IUP Journal of Accounting Research and Audit Practices |
| Product Type | : Article |
| Product Code | : IJARAP141021 |
| Author Name | : P Bhanu Sireesha1, Pavana Jyothi2, Hussain Yaganti3 and Richa Gupta4 |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 27 |
Existing literature shows that monitoring the effect of concentrated ownership has a positive impact on firm value. However, the economic channel of such a positive impact has not been examined. This study offers a possible economic channel and tests it empirically using a panel of Indian firms. The hypothesis of the paper is that concentrated ownership increases the competitiveness of the firms, through efficient monitoring of their activities, in their product markets, thus increasing the growth rate of firms. The results show that both institutional and promoter ownership have a positive impact on firm competitiveness. However, foreign concentration has an insignificant impact. Moreover, for business group-affiliated firms, only institutional concentration has a positive impact. The results remain robust for different specifications and endogeneity issue.
Finance theory argues that effective monitoring by owners aligns the interests of managers and shareholders in the presence of the agency problem (Jensen and Meckling, 1976). Shleifer and Vishny (1997) argue that owners' incentive to monitor firm activities increases with an increase in their percentage shareholding, and Boubakri et al. (2005) and Burns et al. (2010) provide empirical evidence for such increased monitoring of concentrated owners. It is expected that shareholders, being rational and utility maximizers, influence managers' decisions towards value maximization when they hold higher stock ownership. Several studies have tested this theoretical argument empirically and found a positive impact of good governance of ownership concentration on firm value in the market (De Miguel et al., 2004; and Pindado and De la Torre, 2006). However, firm performance and its value being