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• W3125150589 abstract "IntroductionIn the finance literature, the relationship between ownership structure and firm performance has received considerable attention. Berle and Means (1932) are the pioneers to draw attention to the notion that with the enhanced diffuseness of the ownership structure the firm performance deteriorates. In other words, there exists an inverse correlation between the diffuseness of ownership and firm performance. The argument is-professional managers, acting on behalf of scattered ownership, do not act in the best interests of the shareholders by optimally utilizing the corporate resources to enhance profit and, thereby, shareholders' wealth. The observations of the study have triggered a debate.Demsetz (1983) puts a counter argument by observing that it is unreasonable to suppose that the diffused ownership structure dilutes profit maximization objective as a guide for resource allocation and utilization. He argues that the ownership structure is an 'endogenous' element for maximizing the profit and value of a corporate entity. When the requirement of capital is large for achieving scale rapidly, there is a need to meet the requirement (of capital) by making offer to the public at large to contribute to the equity share capital of a firm. Subscription by the members of public to the equity share capital of a firm leads to diffusion of ownership structure. Thus, the value enhancement of a corporate entity by achieving scale requires a diffused ownership structure, as single ownership is not enough to maximize the value of a firm.Based on the above-stated arguments and counter arguments, a number of empirical studies have been undertaken in different countries; but no consensus has been arrived at. The findings of some of the significant studies are incorporated under the subhead 'Literature Review'.Literature ReviewMorck et al. (1988), taking percentage of shares held by the board of directors of the company as a measure of ownership concentration and holding both Tobin's Q and accounting profit as performance measure of 500 Fortune companies and using piece-wise linear regression, found a positive relation between Tobin's Q and board ownership ranging from 0% to 5%, a negative relation for board ownership ranging from 5% to 25%, and again a positive relation for the said ownership above 25%. The interpretation of such a non-monotonic relationship is-firms having a lower level of ownership concentration are easier targets of takeover and hence managers of such firms act and take decisions to maximize the shareholders' value as anti-takeover measure, because takeover may result in loss of jobs for them. At moderate level of concentration of holding, they are less concerned about takeovers, as they believe that takeover attempts would be less likely to succeed, but again at a higher level, incentive effect of better performance leads to positive relation.Loderer and Martin (1997) took shareholding by the insiders (i.e., director's ownership) as a measure of ownership. Taking the said measure as endogenous variable and Tobin's Q as performance measure, they found (through simultaneous equation model) that ownership does not predict performance, but performance is a negative predictor of ownership. Cho (1998) found that firm performance affects ownership structure (signifying percentage of shares held by directors), but not vice versa.Demsetz and Villalonga (2001) investigated the relation between the ownership structure and the performance (average Tobin's Q for five years-1976-80) of the corporations if ownership is made multidimensional and also treated it as an endogenous variable. By using Ordinary Least Squares (OLS) and Two-stage Least Squares (2 SLS) regression model, they found no significant systematic relation between the ownership structure and firm performance. According to them, [T]he market responds to forces that create suitable ownership structures for firms, and this removes any predictable relation between empirically observed ownership structures and firm rates of return. …" @default.
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• W3125150589 title "Ownership Structure and Firm Performance: An Empirical Study on Listed Mid-Cap Indian Companies" @default.
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