OWNERSHIP PATTERN AND CORPORATE GOVERNANCE OF INDIAN BUSINESS GROUPS

Abstract

The business group as an organizational type is one among st the numerous distinctive business structures that exist within the international economy. Literature geared toward understanding whether or not group-affiliated companies function differently from standalone companies, more so with reference to basic corporate finance decisions like investment, funding and reportage has remained scarce. It’s in this context that we tend to answer different empirical questions based on Indian firms, aim to know and provide answers to some unresolved queries associated with how group-affiliated companies differ from standalone companies when making finance choices during the times of an economic event. In the study we try to examine the relationship between ownership structure and performance of the firms on the basis of the level data available for an emerging market like India after the world economy is hit by an event of importance like the crisis. The focus is on previously unexplored phenomena of the types of business group and how they behave differently. An examination of about 31 Indian firms which are listed on BASE Sensex for a period of 8 years was done.These companies were chosen because they represent the Indian economy and have the largest market capitalization. We document the hypothesis that the firms with concentrated shareholding perform better after the time of crisis during the recovery period. From the findings we get that the groups with already higher promoters share hold showed negative relation with the firm’s performance, this can be attributed to the fact that public invests more in the firm with distributed holding and because of their larger returns they started investing more in concentrated group holdings and hence the overall promoters share decrease over time. On the other hand for widely held groups the promoters shareholding is positively related with firms performance, because public is reluctant to further invest in it without managements control, during the time of crisis. Therefore the hypothesis that concentrated shareholding perform better after the time of crisis during the recovery period stands only true for one kind of group. Also it can be seen that the characteristics of different type of business groups are highly different from each another, which add to the fact that we need to see these groups differently to understand them better.