The Relationship between Corporate Governance, Ownership Concentration and Firm Performance: Empirical Evidence from India

The paper seeks to examine the relationship between the corporate governance mechanisms (board size, board composition, board independence and CEO duality), ownership concentration (proxied by percentage of promoter's shareholding) and firm performance. The empirical analysis performed on the panel data of 178 non-financial National Stock Exchange-listed companies for 8 years, that is from 2008 to 2015. Firm performance has been measured using market-based measure Tobin's Q and accounting-based measure return on equity (ROE). Multiple regression analysis is performed using pooled ordinary least square regression and panel data regression models-fixed effect model and random effect model. The results of the study found that the impact of board size and board composition on the firm performance measures Tobin's Q and ROE is negative. Board independence is positively and significantly related to firm performance measures-Tobin's Q and ROE. The results revealed that ownership concentration has a positive and significant impact on firm performance. The positive influence of ownership concentration on firm performance implies that more substantial promoter stakes provide greater access to funds for initial investment and thereby lead to a larger scale of operation resulting in higher firm value. The study findings have significant implications for companies, researchers, academicians and policymakers engaged in corporate governance in emerging economies. The results of the study revealed that companies that comply with good corporate governance practices could expect to achieve higher financial performance and reduced agency costs. The results suggest that the policymakers should focus on increasing board independence, reducing board size to an extent and increasing the ownership concentration to the maximum level as stipulated by law to improve corporate governance standards.