Ownership concentration and firm performance in Indian firms: does investor protection quality matter?

Abstract

Purpose The purpose of this paper is twofold: first, to investigate the relationship between ownership concentration and firm performance and, second, to determine the moderating role of investor protection quality on the ownership concentration-performance relationship from a dynamic perspective. Design/methodology/approach The study is based on secondary financial data of 236 Indian manufacturing firms obtained from CAPITALINE database, pertaining to a period of five years. This study uses ordinary least squares, fixed effects and two-step generalized method of moments (GMM) techniques to arrive at results. Findings Results of the study confirm the inverted U-shaped relationship between ownership concentration and firm performance and a significant positive effect of investor protection quality on firm performance. With regard to moderating role of investor protection quality on ownership concentration–performance relationship, results show that investor protection quality would significantly moderate the ownership concentration–performance relationship. Originality/value The study is a pioneer in proving that an inverted U-shaped relationship exists between ownership concentration and firm performance in an emerging market in general and India in particular. This study extends the corporate governance literature by examining ownership concentration–performance relationship in a dynamic perspective and in an unexplored market.