Does Ownership Affect Performance? Empirical Evidence from the Indian Pharmaceutical Industry

The research study empirically investigates the efficacy of ownership groups in enhancing firm performance by analyzing 103 firms in the pharmaceutical industry during the period 1995-2001. It seeks to answer three primary questions: One, are promoters because of their large stakeholdings, better suited to increase firm performance over other ownership groups and does the market reward an owner-controlled firm; two, do the other equity owners play any role in the governance process which could be reflected in firm performance; three at what percentages of equity ownership do different stockholders affect or don't affect firm performance? Firm performance is measured both in accounting terms and also using a market related measure viz., market-to-book ratio. Overall the results suggest that there exists a relationship between ownership structure and firm performance. We find mixed evidences of the impact of different ownership classes on firm performance. We find evidence that markets reward generously to firms that have higher concentrations of insider holdings and foreign shareholders. Firms, with high concentration of corporate bodies, were found to be punished by the markets Except for the market metric of performance, higher concentration of insider holdings was found to have a negative or an insignificant impact on the other performance metrics. Retail shareholders were found to defy the monitoring hypothesis by having either no or insignificant impact on firm performance. Foreign-controlled firms were found to perform better than Indian-controlled firms