OWNERSHIP CONCENTRATION AND MARKET PERFORMANCE

M.PHIL. DISSERTATION

SUBMITTED BY:

Amlan Mahapatra

(Roll -VU/MPHIL/MCM-IS No. 00001)

Research Scholar, Department of Commerce

Vidyasagar University, Midnapore, West Bengal – 7211102

2020

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 DECLARATION OF RESEARCH SCHOLAR

I hereby, declare that the project report ‘OWNERSHIP CONCENTRATION AND MARKET
PERFORMANCE’ is based on my own work carried out during the course of our study. I assert
the statements made and conclusions drawn are an outcome of my research work. I further
certify that:
• The work contained in the report is original and has been done by me. No portion of the
report has been plagiarized.
• The work has not been submitted to any other Institution for any other
degree/diploma/certificate in this university or any other University of India or abroad.
• I have followed the guidelines provided by the university in writing the report.
• Whenever I have used materials (data, theoretical analysis, and text) from other sources, I
have given due credit in the text of the report giving their details in the references.

Research Scholar

II
III
 CONTENTS

CHAPTER 1 INTRODUCTION page no

1.1 Introduction 1-2

1.2 Identity of Ownership 2

1.2.1 Institutional Ownership 2-3

1.2.2 Ownership to the Family 3

1.2.3Managerial Ownership 3-4

1.3 Ownership Concentration Benefits 4

1.3.1 Interest Alignment 4

1.3.2 Ownership as a Replacement for Weak Institutional 4

and Legal Structures
1.3.3 Ownership Signaling or Not to Expropriate 4
Contribution to Bailout

1.4 Ownership Concentration Detriments 4-5

1.4.1 Regulating Shareholder Agency Issues 4-5
1.4.2Hypothesis of the Cost of Capital 5
1.4.3Negative Effect on Other Processes of Corporate 5
Governance

CHAPTER 2 LITERATURE REVIEW 6-12

2.1The Objective of the Study 12

CHAPTER 3 RESEARCH DESIGN 13-17

3.1 Description of Variables 13-16

3.2 Research Method Applied 17

3.2.1 One-way ANOVA 17

CHAPTER 4 ANALYSIS AND FINDINGS 18-26

4.1 Analysis and Findings 18

4.2 Descriptive Statistics 18

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4.3 Homogeneity of Variances 19

CHAPTER 5 CONCLUSION AND 27-28

RECOMMENDATION

5.1 Conclusion 27

5.2 Recommendation 27-28

REFERENCES 29-32

ii
 LIST OF TABLES
Sl. No. Table No. Page no.

1 3.1 15-16

2 4.1 19-20

3 4.2 21-24

4 4.3 25-26

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 CHAPTER 1
INTRODUCTION

1.1 INTRODUCTION

A distinct and dominant field of study is part of corporate governance in finance. Corporate
governance provides a set of rules and methods during which a company's management is guided
and managed to enhance the returns to the shareholders thereby maintaining all the other
stakeholders' interests in mind. [1] In academic as well as business literature, one of its most
frequently debated subjects is the exploration of corporate governance structures that facilitate
the decision-making process and effectively improve a firm's value. A significant corporate
management function that affects the overall performance, as well as the efficiency of an
enterprise, is the ownership model. The arrangement of a firm’s ownership discusses the division
of its shares between its shareholders. [2] This involves the type name of the shareholder
(institutions, individuals, or government) and the concentration of ownership (CO) (the
percentage of stocks which are possessed by each category of a shareholder). A significant and
discussed theme in the corporate governance practices paradigm is the important ownership
system as a governance practice and its impact on company performance.[3]

As ownership with a concentrated shareholding regulate the management and operation of the
business, ownership concentration (OC) is considered a significant corporate governance
process. India's ownership system varies from that in Anglo-American nations in which most of
the research analyses have been carried out. The ownership model in India is highly focused at
the top of family owners, and then through pyramid structures, cross-holding between companies
is normal. [4] The ownership concentration (OC) of Indian firms allows these consolidated
shareholders more leverage over privileges to cash-flow. Thus, it is essential to evaluate the
position of concentrated owners in corporate governance, particularly in developing economies,
whereby external corporate governance structures, such as the inadequate investor protection for
controlling framework.[5]

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Our analysis leads in different directions. First, scientific data from India is presented in this
report. As the ownership system in India is very distinct from those in the established markets, it
is necessary to research the Indian market. The framework of corporate control is more
centralized in India than in advanced countries. The division of ownership as well as cash-flow
rights is uncommon once ownership is concentrated. In such an environment, empirical evidence
may have significant consequences for market regulatory authorities, decision-makers,
shareholders as well as researchers.[6]

1.2 IDENTITY OF OWNERSHIP

The identification of large shareholders is important to understand, as described by McConnell

and Denis (2003). There has been evidence, due to all these researchers, that identifies who
are the shareholders which depict the correlation between concentration of ownership and the
company's output.[7]

1.2.1 INSTITUTIONAL OWNERSHIP

As stated earlier, India is a fairly market-based economy in which institutional investors have a
key monitoring function. The effect of institutional shareholders like insurance firms, banks,
mutual funds as well as pension funds, should therefore be analyzed. Banks are regarded as
'delegated managers' who are experts in collecting data from company 3. Business monitoring,
though, increases the monitoring costs of the banks, which can inevitably lead to increased loan
costs for the borrower. In financial statements, surveillance organizations require conservatism,
as institutional shareholders perceive the importance of the benefits related to governance.
Conservatism in finance has been expected to enhance investment performance as it promotes a
company's connection to debt levels funding so businesses do not overestimate their income.
Increased stages of institutional concentrated ownership are linked to higher transparency of
ownership attributable to investors demanding it, which would contribute to the reduced
asymmetry of knowledge that has been at the center of agency issues. Furthermore, Takada
and Shuto (2010) found that accounting conservatism reduces the complications of the agency
among management and shareholders, as managers are not going to overestimate income to

2
obtain a personal benefit. This will contribute to a much more open business and greater control
possibilities, ultimately creating a positive impact on the valuation of the firm.[8]

1.2.2 OWNERSHIP TO THE FAMILY

This has been found that increased family involvement is correlated with higher efficiency in
comparison to non-family businesses in Western Europe (Maury, 2006). Family members are
often long-time shareholders, as per Reeb and Anderson (2003), as the possession is retained
over several generations. Family shareholders with leading shareholder levels, though, often
appear as they invest for the longer period, to be risk-averse, that, if they seem to forego risky
investment options, may suppress the performance of the company. [9] Furthermore, Jensen and
Fama (1983) have indicated that family members, that is termed as expropriation, can seize
personal benefit through minority shareholders. Family ownership has been shown to a positive
impact on the company outcome, but research notes that such an implementation may collapse
due to families preferring to obtain private gain after some degree of shareholdings. Therefore, it
is also suggested in the hypothesis below. [10-11]

1.2.3 MANAGERIAL OWNERSHIP

The correlation among efficiency and managerial ownership has been analyzed by the utilization
of various data including different indicators of the efficiency as well as the ownership model.
Among the first research on this relationship showed that by aligning preferences among both in
and out of shareholders, lower levels, as well as the very high stage of managerial ownership,
have a positive influence on company performance, whereas middle stages of managerial
ownership provide a negative effect on outcome related to the entrenchment influence (Morck et
al., 1988).[12] Empirical results suggest that Dutch businesses with a high level of management
shareholdings have a greater risk of experiencing less financial hardship, also as-considered
preferences would increase the personal wealth of managers (Donker et al.,
2009).[13] Fortunately, owing to relational shareholders serving as a counterweight with
management decisions, Krivogorsky (2006) [14] found no clear link between profitability and
ownership concentration. Through the lower level of management shareholding, according to the
incentive effect, it is suggested that managers want an incentive to behave in compliance with the

3
desires of shareholders, but still, the entrenchment impact will be established after some degree
of managerial ownership.

1.3 OWNERSHIP CONCENTRATION BENEFITS

1.3.1 INTEREST ALIGNMENT

The conventional agency problem among managers and shareholders can be alleviated by
centralized ownership and therefore enhances firm efficiency. In two major ways, this can be
done. Firstly, individual investors have very little incentive and ability to control executives in
companies with dispersed ownership, whereas OC (ownership concentration) offers to big
investors with both ample power and incentive to regulate managers, thus minimizing executive
shirking and malfeasance. Second, regulating investors, their relatives or representatives that act
as officers and directors, enabling themselves to directly advise or directly influence managerial
decisions that are meant to balance the interests of executives with that of shareholders.[15]

1.3.2 OWNERSHIP AS A REPLACEMENT FOR WEAK INSTITUTIONAL AND

LEGAL STRUCTURES

The literature on finance and law argues that concentration of ownership can substitute for legal
security, with a positive impact on market results. OC (Ownership concentration) will better
serve the interests of shareholders whenever, as seems to be the scenario in certain developing
markets, the legal structure of a country is comparatively low.

1.3.3 OWNERSHIP SIGNALING OR NOT TO EXPROPRIATE CONTRIBUTION TO

BAILOUT

The concentration of ownership raises the expense of private profit usage, thereby strengthening
the regulation of the interest of shareholders in distributions.

1.4 OWNERSHIP CONCENTRATION DETRIMENTS

1.4.1 REGULATING SHAREHOLDER AGENCY ISSUES

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OC (Ownership concentration) can enhance disputes of significance among
regulating shareholders as well as minority shareholders (MS), although minority shareholders
(MS) are not expropriated due to problems in obtaining their ownership. At the cost of MS
(minority shareholders) and potentially unsustainable practices like optimizing share of the
market or technological leadership, the concentration of the ownership can accelerate controlling
the extraction of a personal benefit by shareholders.[16]

1.4.2 HYPOTHESIS OF THE COST OF CAPITAL

The concentration of ownership could have a detrimental effect on the ability of a company to
make profits and control risks. Companies with OC (concentrated ownership) may experience
funding constraints as they depend more on managing the resources of shareholders or internally
produced cash flow to finance new ventures, or due to the perceived increased risk of
expropriation by regulating shareholders, they may have to fundraise under less favorable
conditions.

1.4.3 NEGATIVE EFFECT ON OTHER PROCESSES OF CORPORATE

GOVERNANCE

Any external and internal structures of corporate governance may be weakened under OC
(ownership concentration). Instead of hiring better performing outsiders, controlling owners tend
to perpetuate them, their relatives, or representatives in leadership roles. This also weakens the
disciplines of the external environment as there is a decreased dependency on the managerial
employment market which decreases the corporate control market.[17]

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 CHAPTER 2
LITERATURE SURVEY

Some of the previous researches have been studied to know the OC (ownership concentration)
and exploring the correlation among firm performance and ownership structure. Broad empirical
research exploring the connection between company performance and concentration of
ownership that has been generated by this thesis.

Tripti Nashier and Amitabh Gupta [2020] In a broad sample of 11,136 company-year
findings, this research utilized panel data models including IV (instrumental variables)
methodology by using GMM (generalized method of moments) to obtain effective and accurate
outcomes. In India, the OC endogeneity has not been studied previously. Throughout this study,
OC, as proposed by Lehn and Demsetz (1985) as well as the Leahy and Leech (1991), is
calculated by Herfindahl's index. Researchers notice that OC has a positive effect on both the
business and accounting findings of an organization after correcting for endogeneity. The
findings indicate that concentrated ownership decreases monitoring costs as block holders
effectively monitor the company's management, thus contributing to improved performance of
the company.[18]

Genc Alimehmeti and Angelo Paletta [2019] This study discusses the OC as a system of
governance, as well as its consequences for the firm's worth. In four years (2006-2009), we
conducted an experimental study of all Italian listed companies. Unless in 2008, whenever the
findings demonstrate a non-linear relationship, the output depicts a positive correlation among
OC and firm value, indicating that the financial meltdown has strengthened the impact of
expropriation.[19]

Kim, J. [2019] examines the correlation among OC and institutional efficiency as well as their
correlation with company risk of bankruptcy by using Globally Governance Metrics including
business research data in 41 different nations from the World Bank. An inverse correlation is
illustrated by the empirical findings, revealing that OC is greater in countries with a
poor standard of governance. Such work also demonstrates that OC as well as the institution's

6
quality that minimizes the risk of bankruptcy and also that OC has a weaker impact on the risk of
bankruptcy in countries with a higher quality of institutions. This means that, as a corporate
governance tool, OC can perform a substituted function for the poor quality of governance, and
therefore this role is much more important in countries with lower quality of institutions. [20]

Abdullah M.I., etal. [2019] The goal of this research is to find the effect of the concentration of
ownership on the output of the company’s working in Pakistan's logistics and financial market.
The result indicates that concentrated ownership can have a positive or negative effect on the
performance of the company. Throughout the context of Pakistan, the study indicates that the
organization theory can be applied. Main shareholders in the centralized ownership system retain
the control of decision-making. Shareholders will enable certain decisions that are helpful for
themselves but not to the company. [21]

Danjuma Ohiani Lawal etal. [2018] This study revealed that the ownership model, with
exception of OC (concentrated ownership) with detrimental consequences, seemed to have a
substantial positive influence on the financial outcome of the insurance listed companies.
Fortunately, there was mixed documentation of their impact on financial results concerning the
size and development of the companies that made up the study's control variables.[22]

Supriya Katti and Mehul Raithatha [2018] examine the assumptions of surveillance or
certification affiliated with VC (venture capital) investors associated with listed Indian
companies with the potential to affect the success of the company. The empirical findings of our
analysis do not support the hypothesis of surveillance as well as certification for VC investors
interested in publicly listed companies in India. From the other side, owing to the involvement of
VC investors, we find proof of quality erosion. Throughout the event of the company's
anticipated underperformance, the negative impact is explained by the opportunistic actions of
the investor having a very simple route to extract the investment via the secondary market. The
research also shows that the roots of VC investors affect the success of the business. Because of
the regulatory structure describing the portfolio of VC investors, the findings have an important
effect. [23]

Akshita Arora and ShernazBodhanwala [2018] use essential governance criteria like board
composition, management structure, corporate control market as well as market rivalry to
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construct CGI. Our panel data set consists of listed companies as well as the estimation study
was carried out by using the process of random effects. The study shows that firm
and CGI success measures have a major strong relationship. In explaining firm results, CGI is a
significant and causal factor.[24]

Anisa Abdulrahman Amin1 and Allam Mohammed Hamdan [2018] The research attempts to
analyze the relationship between company performance and ownership structure; for two years,
2013-2014, the survey comprised of 171 companies across all businesses in the Kingdom of
Saudi Arabia (KSA). To evaluate firm performance, one significant financial instrument has
been used: ROA (return on assets). These were found that institutional investment had a positive
outcome on the success of the business. Managerial ownership had no major influence on the
performance of the business; furthermore, management ownership had a positive effect on the
output.[25]

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 The objectives of this research are to
provide the listed companies in Romania with the first experimental findings on the impact of
OC on the valuation of the company. Empirical research analysis was used for a variety of
organizations classified on the BSE (Bucharest Stock Exchange), where MVR (multivariate
regression) structure for panel information, unstable, with fixed effect model, were calculated
over the duration 2007-2011. The valuation of the companies was estimated through
the instrumentality of Tobin's Q ratio, although modified to take into consideration the
composition of the sample chosen for industry membership. The findings maintain a lack of
control on the company value displayed by the first major shareholder, whereas the second
biggest investors have a true influence on the company’s valuation.[25]

O. E. Oluwagbemiga et al. [2014] The objectives of this research is to observe the relationship
among both the market value and the concentration of ownership of the companies listed,
utilizing a database from the 21 selected banks which were listed on the NSE (Nigerian Stock
Exchange) between 2008 and 2012. Descriptive statistical analysis was used to evaluate the
results, whereas the technique of LSR (least square regression) was used to make generalizations
about the correlation among firm value and OC. The outcome suggests that a positive substantial
connection was found among the concentration of company value and ownership.[26]

Zorica [2014] The findings support the hypothesis that a high concentration of
ownership allows investors to easily control their interests to be safeguarded; i.e. within specific
conditions of change, the ownership model may (temporarily) have been used as a viable
replacement for the still undernourished corporate governance structure. [27]

Dr. Pankaj Madan and Jyotsna Ghildiyal Bijalwan [2013] The primary goal of this research
is to evaluate the correlation among corporate governance as well as company results. The
structure of the Board and the arrangement of ownership are mainly taken as corporate
governance parameters, where the company's financial output is calculated with the financial
ratio analysis viz. Ret urn on employing money, return on capital, after-tax benefit as well as
asset returns. The researcher has categorized the board composition into two elements: a) Panel
size b) Board configuration for thorough research purposes. The quantitative data analysis shows
that there is a beneficial and significant correlation among both the composition of the company

9
as well as the size of the board and also the financial outcome of the firm in India. We also
noticed that there is no connection between the company's efficiency and structure of ownership.
[28]

Wang, K., & Shailer, G. [2013] Conflicting predicted theoretical and inaccurate empirical
findings are described in the literature concerning the relationship between OC and corporate
performance in developing markets. The use of meta-analytical approaches to incorporate the
different empirical results and also to study variables leads to contradictions in the empirical
proof. Thus, meta-regression demonstrates how a substantial portion of the actual heterogeneity
is described by population variations, computational desires of researchers, as well as insufficient
evaluation of endogeneity. We noticed that OC has a negative correlation with firm output
around countries after correcting for such consequences. Our findings demonstrate the
importance of model specification with the strategy of resolving endogeneity and also
to encourage additional comparative analysis of the relationship among countries with apparently
similar corporate governance frameworks through OC and corporate efficiency. [29]

Chandrapala Pathirawasam and Guneratne Wickremasinghe [2012] this research work goal
to examine the effect of OC as well as other endogenous factors on the corporate financial
outcomes listed on the CSE (Colombo Stock Exchange). For evaluating the information, either
pooled or ordinary least regression analysis has been used. The ROA (return on assets) is
utilized as an indicator of performance. Another research finding is that among such listed firms,
the concentration of ownership does not have a positive and statistically relevant ROA
partnership. The study shows, however, that the size of the company, the rapid ratio as well as
the proportion of stock expenditure to net assets have beneficial effects on the ROA. But the debt
growth is negatively linked to the listed corporate financial performance.[27]

Bhaumik and Selarka[2012] add to the restricted studies on the effect of OC on the efficiency
of post-M&A. They describe OC as higher than 25% of insider shareholding. They consider that
OC enhances post-M&A output in the possession of managers as well as international promoters.
Concentrated ownership in the control of local investors, however, does not affect the result of
M&A. This implies that OC can transfer agency conflicts among shareholders and managers to
agency issues among large and small investors in a nation with control of companies is poor.[28]

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This relationship is analyzed by Haldar and Rao [2011] utilizing data from the company
mentioned from 2001 to 2008 on the BSE. As output factors, they use Tobin's Q, ROA (return on
assets), and ROCE (return on capital employed). They often use the possession of promoters as
an OC proxy. They also notice that almost all of the output variables are positively linked to OC.
[29]

Masood Fooladi and Meysam Foroughi1 [2011] As a mechanism, corporate governance aims
to align the interests of management with that of stakeholders to improve firm efficiency. The
related findings show that one of the key corporate governance practices affecting the extent of a
company's performance is the ownership model. Consequently, this research aims to address this
question: "Is there any correlation between OC and company performance? Depending on a
stratified random sampling of listed companies on the TSE (Tehran Stock Exchange) and using
the least squared panel with cross-sectional masses as the underlying numerical measure, this is
observed that the company's outcome is adversely linked to the Iranian listed companies' OC.
Furthermore, the influence of the ownership model on company performance depends on the
business. [30]

To test [2007] carried out an empirical analysis using

cross-sectional regression. Utilizing information from 669 companies from different European
nations, like Slovenia, Hungary, Czech, and the Poland Republic, researchers concluded that
weak company success is attributed to shareholder coalition issues rather than managerial
control. When numerous block holders emerge, the disputes and conflicts among them make the
entire costs outweigh their advantages. they noticed, furthermore, that the marginal attribution
to the block holders is negative in US firms unless the shareholding of the biggest block holder is
much more than 10%. Conversely, if the biggest block holder is not powerful, the investors
would prosper from the alliance and boost the company’s performance. [30]

Talat Afza and Salah U-Din [2007] The current study is an effort to identify the influence of
concentration of ownership on firm performance in Pakistan's emerging market. The analysis is
based on a sample of 100 companies quoted on the KSE (Karachi Stock Exchange) (Pakistan)
with data available on the concentration of finance as well as ownership. To investigate the
relationship between firm output and OC, a cross-sectional regression method has been used.

11
Throughout the context of Pakistan, the results indicated a positive or linear relationship among
OC and firm efficiency. [31]

Ekta Selarka [2005]By exploring how to block holders affect the value of the firm, this paper
provides an understanding of corporate governance challenges in developing economies. We are
also attempting to see whether these investors are working with one another to prohibit insiders
from expropriating business resources. We considered an important curvilinear relationship
between organizational value as well as insiders' owned fraction of right to vote. The curve slides
downwards before insider ownership touches around 45% to 63%, then slopes upwards. The
monitoring assumption of such investors is not confirmed by empirical evidence on ownership
allocation by minority block holders. Besides, when grouped power is positioned in the lower
(higher) scale, the coordinated behavior of the largest two marginal block holders that has a
growing (declining) effect on firm performance. [32]

2.1 THE OBJECTIVE OF THE STUDY

In the Indian context, this research focuses on the investigation of the relationship among market
performance and OC as well as accounting performance by balancing endogeneity and
heterogeneity bias which are not identified. The current literature indicates which has a positive
correlation between firm outcome and OC.

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 CHAPTER 3
RESEARCH DESIGN

As it lays the framework, research design is a very significant part of any research. The
robustness, adequacy, and validity of the findings, in line with the objectives, will depend on the
overall approach adopted by the researcher. The research design for this research is listed below.

Type of research: In nature, the research is analytical and exploratory. This deals with
Quantitative data and attempts to analyze the effects on the capital structure of multinational
companies of various corporate governance variables and firm-specific variables. The framework
of corporate control is more centralized in India than in advanced countries. The division of
ownership as well as cash-flow rights is uncommon once ownership is concentrated.

Type of data: The entire analysis is based on secondary data gathered from the company’s
Website. Our analysis leads in different directions. First, scientific data from India is presented in
this report.

Data period: The analysis takes into account data for the period from 2015 to 2019, which is in
2013, the Companies Act, which required the presence of female directors on the board, was
intentionally adopted.

Variables used in the study: It is well known that this is for exploratory analysis of

There is a need for dependent variables and independent variables and control variables to be
available. For this reason, the researcher considered the debt-equity ratio as the dependent
variable, and as the main independent variables, some corporate governance variables. Also,
some firm-specific explanatory variables are used as control variables.

3.1 DESCRIPTION OF VARIABLES

Name of Company (Denoted by COMPANY)

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It includes the number of companies that have twenty companies and organizations. It is an
independent variable. The sample used includes 20 companies in India with highest operating
sales. The choice of a sample depends upon the availability of financial data of corresponding
firms over years 2015 - 2019.

Panel ID (Denoted by PANEL ID)

We also have data where variables for the same subjects (or countries, companies at all) have
been calculated at various times. This is generally called panel data or cross-sectional time-series
data. This often includes a restructuring of data from big to long. Our data set contains up to 20
panel IDS.

Year of a Firm (Denoted by YEAR)

Just like post-period dummy variable controls for factors varying over time that are common to
both treatment & control groups, year fixed effects (such that year dummy variables) control for
factors varying every year that are common to all cities for a given year. Variable year initiate
from 2015 to 2019.

Year ID (Denoted by YEAR ID)

A Year ID variable is a variable that identifies a year entity in a dataset (particular year) with a
distinct value.

Sales of Firm (Denoted by SALES)

It means sale of Firm to Independent 3rd Party or affiliated group of Independent 3rd Parties
pursuant to which such party or parties obtain (i) capital stock of Company possessing voting
power to choose majority of Company's board of directors.

TA of Firm (Denoted by TA)

Trading As (similar to DBA, doing business as) TA. Travel Allowance (various
organizations) TA of a particular firm.

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DE of Firm (Denoted by DE)

The debt-to-equity ratio (D/E) is determined by the division by the shareholder of the total
liabilities. These figures are available on the financial statements of a company.

Size of BD (BDSIZE)

D / E ratio measures the total liabilities of a company to the shareholder equity and is used to
calculate how much a company leverages. The necessary detail is on its balance sheet for the D /
E ratio. In the balance sheet, total equity includes equity on equal assets and lower liabilities, a
rearranged version of the equity balance sheet.

Debt/Equity=Total Shareholders’ /Equity Total Liabilities

BDGen (Denoted by BDGEN)

It is the type of variable that contains the General value of a firm.

Business Management (Denoted by BM)

It is the variable that defines the value in terms of business management.

Commerce (Denoted by BCOMM)

The value associated with Business commerce activity in firm analysis.

Number of IDS (Denoted by NO OF ID)

It presents the total number of ids in the firm analysis

Table 3.1: The Sample Dataset of Firm Analysis

COMP PAN YE YE SAL TA D BDSI BDG B BCO N E NE
ANY EL AR AR ES E ZE EN M MM O D D
ID ID O
F
I
D

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ASAIN 1 201 1 7273. 0 12 2 7 6 7 0 3
PAINT 5 1148 2
S 5.67
ASAIN 1 201 2 8364. 0 12 2 8 6 7 0 4
PAINT 6 1183 15
S 0.33
ASAIN 1 201 3 1264 1035 0 12 2 4 5 8 0 4
PAINT 7 7.11 8.03
S
ASAIN 1 201 4 1416 1158 0 11 2 4 6 6 0 3
PAINT 8 7.86 7.93
S
ASAIN 1 201 5 1368 0 14 3 5 6 7 0 6
PAINT 9 1639 2.89
S 1.78
BHART 2 201 1 5549 1264 0. 12 2 4 6 6 0 4
I 5- 6.4 23.7 26
AIRTE 201
L 9
HCL 3 201 2 6030 1850 0 12 2 4 6 6 0 4
TECH 5 0.3 28
HCL 3 201 3 4960 1916 1 12 2 4 8 6 0 3
TECH 6 6 37
HCL 3 201 4 1715 2049 1 12 2 4 10 6 3 3
TECH 7 3.44 37
3 201 5 1931 2229 1 11 2 5 9 6 3 6
8- 8.31 07
HCL 201
TECH 9
4 201 1 2207 2491 0 9 2 4 6 6 3 9
HUL 5 3 5.06
4 201 2 2601 2658 0 10 2 4 6 7 3 9
HUL 6 2 8.04
4 201 3 3017 0.06 0 10 2 7 8 8 3 10
HUL 7 0.5
- - - - - - - - - - - - - -

Source: Conceptualized by the researcher

Executive Directors (Denoted by ED)

It is the variable that defines the actual Executive Directors of a particular firm.

Non-Executive Directors (Denoted by NED)

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It is the variable that defines the actual Non-Executive Directors of a particular firm.

3.2 RESEARCH METHOD APPLIED

For the research, in line to identify the crucial determining factors, the one-way ANOVA method
is applied. Since the study considers data on 20 companies for the five years, the panel is a
balanced one, and accordingly, panel regression is applied. To arrive at the result, the following
steps are followed:

Step 1: Make Statics between the Companies and their variables in which their mean, standard
error of the mean, mode, median, variances, standard deviation, range & sum are calculated.

Step 2: Compare the frequency of companies to their variables (PANELID, YEAR, YEARID,
etc.).

Step 3: To make a final choice between the Companies the descriptive analysis is followed in
terms of one-way analysis and test of homogeneity of variance and ANOVA results are also
calculated in this scenario.

3.2.1 ONE-WAY ANOVA

The one-way variance analysis (ANOVA) is used to assess whether there are statistically
meaningful differences between means of two or more independent (non-related) categories
(although it is only used if there are a minimum of three instead of two groups). For example, a
one-way ANOVA may be used to explain whether exam performance was different depending
on student test anxiety levels which were divided into three different separate groups (for
example, low, medium & high-stressed students). It is also important to remember that one-way
ANOVA is an omnibus test statistic that cannot tell you which particular groups are statistically
considerably different from each other; this only tells you that minimum of 2 groups was
different. Although you could have three, four, five, or more sample groups, it is necessary to
distinguish which groups vary from each other. One-way ANOVA is a method to evaluate the
hypothesis that K means population equal since K > 2 is equal. To assess population means, the
One-way ANOVA compares the approaches used with specimens and groups. The One-way

17
ANOVA is also known as a single factor variance analysis because only one independent
variable or factor is present. The independent variable has nominal or a few ordered levels.

18
 CHAPTER 4
ANALYSIS AND FINDINGS

4.1 ANALYSIS AND FINDINGS

This is the most important section of the report as it gives the readers to know what the
researcher has come up with after the application of appropriate statistical tools and techniques.
The detail of the results is given below.

4.2 DESCRIPTIVE STATISTICS

Table 4.1: Summary Statistics of variables

Variable Mean St. St. Lower Upper Minimum Maximum
Deviation Error Bound Bound

SALES 55621.99 62135.553 6213.555 43292.95 67951.03 7254.09 371616.00

20 34 33 02 38

TA 107358.4 133410.89 13341.08 80886.83 133830.0 0.06 775745.00

551 22 922 97 705

DE 0.3124 0.54958 0.05496 0.2034 0.4214 0.00 2.39

BDSIZE 11.98 2.940 0.294 11.40 12.56 7 22

BDGEN 1.73 0.839 0.084 1.56 1.90 0 4

BM 6.54 2.272 0.227 6.09 6.99 4 14

BCOMM 6.83 2.693 0.269 6.30 7.36 3 16

NO OF 6.18 2.076 0.208 5.77 6.59 1 12

ID

19
 ED 2.07 3.462 0.346 1.38 2.76 0 30

NED 3.41 3.309 331 2.75 4.07 0 12

Source: Computed by a researcher

The above table gives an idea about the data that is analyzed for the present empirical study.
About the company, it can be seen that the wide variation has come down as the natural
logarithm of the total asset is considered as a proxy for companies. In respect of panel id, it can
be seen that in general, the average mean on asset is 10.50 with a wide range as there is a
minimum value of loss of 1 on the one hand and a maximum value of 20. In respect of the year
of firm ratio that is used as a proxy for growth opportunity, there is a mean value of 2017.00. But
there is a wide variation here as well, with a minimum value of 2015 and a maximum value of
2019. The sales detail shows that there are companies that do not have any debt capital as evident
from the minimum value of zero. The maximum value is 371616.00. Thus, in the sensitive index,
there are not such companies that are highly levered. In the case of a few companies, the number
is quite high with the maximum being 30 directors on the firm. On average, there are around
seven committees in the case of the sample companies. Likewise, the above parameter value
shows the descriptive analysis results.

4.3 HOMOGENEITY OF VARIANCES

In the case of one-way ANOVA, before the estimation of models, it is necessary to see whether
variances are homogeneous. By this, we mean that a researcher has to see whether there are two
or more independent variables that hold a high correlation. For the purpose, we compute the
values of variance homogeneous factors.

Table 4.2: Test of Homogeneity of Variances

Levene Statics df1 Df2 Sig.
SALES Based on 3.850 19 80 0.000
Mean
Based on 1.404 19 80 0.149

20
 Median
Based on 1.404 19 9.730 .300
Median and
adjusted df
Based on 1.404 19 80 .000
trimmed
Means
TA Based on 3.087 19 80 .000
Mean
Based on 3.846 19 80 .009
Median
Based on 2.172 19 10.184 .103
Median and
adjusted df
Based on 3.533 19 80 .000
trimmed
Means
DE Based on 5.590 19 80 .000
Mean
Based on 1.043 19 `80 .424
Median
Based on 1.043 19 14.685 .475
Median and
adjusted df
Based on 4.189 19 80
trimmed
Means
BDSIZE Based on 2.426 19 80 .000
Mean
Based on 1.012 19 80 .003
Median
Based on 1.012 19 26.393 .457
Median and

21
 adjusted df
Based on 2.238 19 80 .479
trimmed
Means
BDGEN Based on 3.559 19 80 .007
Mean
Based on 1.246 19 80 .000
Median
Based on 1.246 19 41.818 .244
Median and
adjusted df
Based on 3.109 19 80 .270
trimmed
Means
BM Based on 2.887 19 80 .001
Mean
Based on 0.963 19 80 .000
Median
Based on 0.963 19 39.069 .149
Median and
adjusted df
Based on 2.643 19 80 .248
trimmed
Means
BCOMM Based on 6.210 19 80 .000
Mean
Based on 1.405 19 80 .001
Median
Based on 1.405 19 16.035 .270
Median &
adjusted df
Based on 5.102 19 80 .305
trimmed

22
 Means
NO OF ID Based on 2.835 19 80 .002
Mean
Based on 1.212 19 80 .000
Median
Based on 1.212 19 33.203
Median &
adjusted df
Based on 2.601 19 80 .264
trimmed
Means
ED Based on 6.059 19 80 .000
Mean
Based on 1.219 19 80 .264
Median
Based on 1.219 19 5.391 .442
Median and
adjusted df
Based on 4.495 19 80 .000
trimmed
Means
NED Based on 3.019 19 80 .000
Mean
Based on 0.793 19 80 .708
Median
Based on 0.793 19 38.013 .700
Median &
adjusted df
Based on 2.469 19 80 .003
trimmed
Means

Source: Computed by a researcher

23
The above result shows that the data is homogeneous and hence the variance assumption is
violated. Thus, to handle the issue, we need to use the ‘robust’ option which will give us a
homogeneous result.

Table 4.3: Test of ANOVA

Sum of Df Mean F Sig.
Squares Square
SALES Between 2.112E+11 19 1.111E+1 5.199 .000
Groups
Within 1.710E+11 80 2138013792
Groups
Total 3.822E+11 99
TA Between 1.314E+12 19 1.011 7.556 .000
Groups

Within 4.485E+11 80 .134

Groups
Total 1.762E+12 99
DE Between 19.202 19 1.011 7.556 .000
Groups

Within 10.700 80 .134

Groups
Total 29.902 99
BDGEN Between 19.202 19 1.011 7.556 .000
Groups

Within 10.700
Groups
Total 29.902
BDSIZE Between 571.727 19 30.091 8.469 .000
Groups

Within 284.233 80 3.553

Groups
Total 855.960 99
NO OF ID Between 203.977 19 10.736 3.855 .000
Groups

Within 222.783 80 2.785

Groups
Total 426.760 99

24
 ED Between 348.16 19 18.324 1.749 .045
Groups

Within 838.350 80 10.479

Groups
Total 1186.510 99
NED Between 670.190 19 35.273 6.816 .000
Groups

Within 414.000 80 5.174

Groups
Total 1084.190 99

Source: Calculated by the researcher

* Significant at 1 percent level

Note: Under the robust condition, though the coefficients remain unchanged, there is a change in
the value of the test statistic due to which the significance might change. An explanation of the
above table is given below.

ANOVA and t-statistical analyses were presented in Table 4.4 and extended to categories of
companies based on the concentration of ownership. The concentration of ownership is a vital
mechanism of internal governance where owners may regulate and manipulate the company's
management to protect their interests. The concentration of ownership has two offsetting effects:
the effect of substitution and expropriation effect. One-Way ANOVA is used to decide whether
there are any statistically major differences b/w means of two or more independent (unrelated)
groups that are firm (although we tend to only see it utilized when there is a minimum of 3,
instead of 2 groups). The above table defines the sum of square, mean, df, significance level of a
variable in the firm analysis. As per the results of the random effect model firm size and
tangibility are positively and significantly associated at a 1 percent level of significance.
Whereas growth opportunity, no. of committee and profitability is positively significant at 5
percent level. It is revealed that larger firm size, high tangibility, more growth opportunity, large
no of the committee, and high profitability of the firm played a significant role to increase the
debt-equity ratio of the firm. Whereas if growth Opportunity increases by one unit, the incidence
of the debt-equity ratio of the firm expected to increase by 0.001. Homogeneity of variances (i.e.

25
around equal variances between the various groups) where this principle is broken and the
sample sizes are different between the different groups, the p-value is not reliable for the total F
test. These terms warrant that alternate figures, such as Browne-Forsythe or Welch statistical
results, cannot be used to ensure equivalent population variations. A one-way ANOVA test
statistic is referred to as F. The F statistic tests if the Group Means are substantially different for
an independent variable of k groups. Since the measurement of F statistics is a little more critical
than the calculation of the paired or separate samples of t-test statistics.

26
 CHAPTER 5
CONCLUSION AND RECOMMENDATION

5.1 CONCLUSION

Some researchers concluded that concentration of ownership can enhance company performance
by making owners more likely or more able to monitor agents. Connection b/w ownership
structure & company productivity has involved considerable attention particularly in emerging
markets; however, empirical data remains inconsistent. In comparison, some argue that market
monitoring would discipline managers in presence of efficient markets. Our findings show that
relation b/w ownership structure & both market-based performance measures and also economic
profit is significantly positive. In this work, the proportion of institutional shareholders and
international shareholdings are also linked to corporate success in a positive way. ANOVA alone
doesn't tell us precisely what means differed. To conclude, we would require to follow up
with several comparisons (or post-hoc) tests in the ANOVA test because in this test we have
specific frequency statics, one way and ANOVA table for firm analysis to verify its significance
level. In our work, ANOVA assesses the statistical variance of the groups formed by the
independent variable by assessing if the means of treatment levels vary from the total mean of
the dependent variable. If one of the group means varies considerably from the general average,
the null hypothesis is rejected. ANOVA utilizes predictive importance F-test. It makes this
possible for measuring several means at once since the error has been measured for a whole set
of comparisons before for each particular two-way comparison (which would arise in t-test). F-
test contrasts variance in every group means from total group variance. Where variance between
classes is lower than variance b/w company performance, F-test would find greater F-value also
a thus greater probability that it is valid and not due to chance in the concentration of ownership
and firm performance.

5.2 RECOMMENDATION

In this dissertation, experimental research identifies a need and direction for future research. The
robustness of observational studies when additional data becomes available is often proposed for
more empirical study. Furthermore, since there are variations between different sectors in the
27
various countries it seems possible that particular characteristics of business determine
ownership concentration, thus allowing for majority shareholders in the principle of rent the
chance of obtaining private benefits rather than industry properties. This result validated the
analysis by which regulated block holders are distinguished by type. Higher levels of private
advantages are specifically linked to the probability that either a corporation or a family entity
may be a majority shareholder. In a more general context, it offers an argument for relying on
rules for disclosing or preventing the relationship between a related party and independent
management to investigate the relationship between the firms and (large) shareholders. Finally,
measures to improve a dispersed ownership structure may be claimed that rely on particular
business parameters. Also, analysis has shown that foreign investment enterprises and/or foreign
proprietary companies outperform their domestic equivalents, also endorse this view. These steps
must be implemented into an environment of structural impediments to accelerated financial
developments for domestic owners. Therefore, the analysis of the effects on the financial
performance of Indian companies of foreign direct investment (FDI) will illuminate the
correlation of ownership performance in developed countries more effectively. The influence of
qualitative variables such as management styles and employee attitudes along with variables will
also be examined by future researchers.

28
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