Shikha M Shrivastav

The objective of the paper is to survey the theoretical basis for and empirical evidences on the impact of ownership structure on firm performance. The relationship between the various aspects of Ownership structure namely Ownership concentration, Managerial Ownership, Directors' Shareholding, Institutional Shareholding, Promoters Shareholding, Foreign Ownership and firm performance is reviewed. Ownership structure is considered as an important corporate governance mechanism to resolve the conflict arising between the managers and shareholders. Extensive theoretical and empirical work on this topic was done over the last two decades. However, there are inconsistencies in the results and the impact of ownership structure on firm performance was found positive, negative and insignificant. The probable reasons for the inconsistencies include corporate governance environment, endogeneity of ownership structure and measures of firm performance used. 1.0 INTRODUCTION The issue of Corporate Governance have received considerable attention after plethora of corporate scandals and scams of the major giants across the world. The failure of several leading companies in India and abroad emphasized the importance of corporate governance issues in last two decades. Corporate governance mechanisms include board parameters and ownership structure. Ownership structure is considered as an important corporate governance mechanism to resolve the conflict arising between the managers and shareholders. How ownership structure affects the firm performance is one of the major issue of concern for the policy makers, economists and that of a company as well. The fundamental insight into this issue was given by Berle and Means (1932) who believed the diffusion of ownership results in decrease in firm performance. They argued that the separation of ownership and control reduces management's incentives to maximise the corporate efficiency of modern corporations. Jensen and Meckling (1976) further developed their concern in the form of Agency Theory which provided the framework for ownership and firm performance studies worldwide. This theory is based on Principal-Agent relationship, according to which the agents (managers) perform their functions which are not in line with the interest of the shareholders (principals) and thereby reduces their wealth. On the other hand Klein et al. (2005) stated, " presence of dispersed ownership increases expectation of a positive relationship between measures of corporate governance and firm performance, other things being equal. " Corporate governance literature has evolved with a great deal of attention towards the ownership structure of the companies. Extensive theoretical and empirical work on this topic was done over the last two decades. However, the impact of ownership structure on firm performance was widely studied in developed countries. The impact is discussed very recently in emerging markets like India. Thus an attempt has been made here to bridge the gap by focusing on the studies on emerging economy as well. Ownership studies throughout the world have focussed on the different aspects of ownership structure and their impact on corporate performance. 2.0 OBJECTIVE The objective of the paper is to provide a comprehensive review of the findings of the studies based on the relationship between ownership structure and firm performance. Along with findings, the methodology used to derive impact of ownership structure and the various aspects of ownership structure viz. promoter shareholding, institutional shareholding, directors shareholding, foreign ownership etc. on firm performance is presented. The remainder of this paper is organized as follows: section 2 briefly provides the review of existing literature encompassing the methodological aspects and main findings. Section 3 presents the probable reasons for the inconsistency in the research findings. Section 4 gives the directions for future research and section 5 concludes. 3.0.LITERATURE SHOWING RELATIONSHIP BETWEEN OWNERSHIP STRUCTURE AND FIRM PERFORMANCE The onset of the separation of ownership and control in the modern organizations emphasized the need to study the effect of ownership parameter on the firm performance. Researchers have been trying to identify the optimal ownership structure and

Corporate India witnessed the burgeoning economic growth since the 1990s that brought to the forefront the need for Indian companies to adopt corporate governance standards and practices, which are in line with international guidelines. This paper contributes to the existing literature by providing a review of the conceptual as well as empirical researches in the area of corporate governance and firm performance by highlighting the relationship between the corporate governance mechanisms (board size, board composition, frequency of board meetings, CEO duality) and firm performance. The research findings are contradictory and inconsistent. Some studies founded a strong positive association while some reported negative relationship between corporate governance mechanisms and firm performance while others did not found any significant relationship between the two.