| Pub. Date | : October, 2021 |
|---|---|
| Product Name | : The IUP Journal of Accounting Research and Audit Practices |
| Product Type | : Article |
| Product Code | : IJARAP171021 |
| Author Name | : Pranati Mohapatra |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 15 |
The paper studies the impact of Domestic Institutional Ownership (DIO) upon firm performance in India using panel data for NSE 500 companies from 2010 to 2016. The study finds DIO to have a positive impact on Tobin's Q in panel regressions-fixed effects after using controls such as firm age, size, leverage, marketing intensity, foreign institutional ownership and promoter ownership. The study also tests the impact of Mutual Fund Ownership (MFO) and the impact of Banks, Development Financial Institutions (DFI), Insurance companies' (BFII) ownership separately and found MF has a positive impact on Tobin's Q. The study observed that all variables DIO, MF and BFII had no impact on Return on Assets (ROA) but BFII is found to have a negative impact on Return on Equity (ROE). The study found a positive impact of Mutual Funds (MFs) and a negative impact of 'Banks, FIs and Insurance companies' on firm performance in India. The paper contributes to the empirical literature on institutional ownership and firm performance in emerging economies. It has important implications for firms, investors, corporate policy makers and researchers particularly, in India.
The connection between ownership structure and performance has been the subject of an important and ongoing debate in corporate finance literature (Demsetz and Villalonga, 2001). Ownership structure is considered as an important internal mechanism to control the agency costs (Jensen and Meckling, 1976; and Shleifer and Vishny, 1986). Large investors and financial institutions can afford to invest in information and effectively monitor managers and reduce conflict of interests between owners and managers (Shleifer and Vishny, 1986). Institutional investors can also influence corporate behavior by actively participating in the corporate control and decision-making processes such as proxy contests (Pound, 1988; and Smith, 1996) and CEO turnover. Thus institutional ownership is considered to have important implications for firm performance and value. They can make a positive contribution by costeffectively monitoring management behavior.