Ownership Concentration, Corporate Governance and Disclosure Practices: A Study of Firms Listed in Bombay Stock Exchange
The IUP Journal of Corporate Governance, Vol. 15, No. 4, pp. 7-36, 2016
33 Pages Posted: 4 Jan 2017
Date Written: 2016
Ownership concentration is a significant internal governance mechanism in which owners can control and influence the management of the firm to protect their interests. This research focuses on the relationship between ownership concentration and corporate governance and disclosure practices of firms. Accordingly, this study identifies and tests the empirical evidence for such relationship for sample firms listed in Bombay Stock Exchange (BSE) and selected from nine different sectors of the S&P BSE sectoral indices. Indian firms are predominantly of family origin and promoter controlled. This ownership effect provides promoters enough control over the management of the firm. The ownership concentration provides two offsetting effects: substitution effect and expropriation effect. From this perspective, the research explains the principal-agent agency theory as well as principal-principal theory. This research studies ownership concentration in terms of promoters’ holding and finds that promoters’ holding have a negative but insignificant correlation with corporate governance and disclosure practices of firms. As shareholding patterns in India show a high level of promoters’ concentration, it is interesting to see whether external efforts at improving corporate governance would succeed as it happened in economies of dispersed ownership.
Keywords: Ownership concentration, Corporate Governance, Disclosure Practices, Dispersed ownership
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