Insider Ownership and Firm Value: Evidence from Indian Corporate Sector

30 Pages Posted: 5 Sep 2007 Last revised: 29 Sep 2008

Date Written: April 1, 2008


We examine the effect of insider ownership on corporate value in India for the period of 2000-01 to 2003-04, using 1833 Bombay stock Exchange listed firms. In particular we have looked into the nature of relationship between insider's equity holding and firm value. While 'CONVERGENCE OF INTEREST' or 'MONITORING' HYPOTHESIS predicts a positive relationship, the 'ENTRENCHMENT' hypothesis predicts a negative one between insider shareholding and firm value. In India, most of the firm's have insiders/promoters as the dominant shareholder. The feature of family based governance system is so widely prevalent in Indian corporate sector that it closely matches to East Asian model. Nevertheless, this paper provides scientific evidence that the link between insider shareholding and firm value is non-linear in nature. We document a significant non-monotonic relationship. Tobin's Q first increases, then declines and finally moves up as ownership by insiders rises. The other finding of significance is that foreign promoter/collaborator shareholding is having a positive impact on firm value.

Keywords: Insider ownership, Tobin's Q ,Corporate Governance, Emerging market finance,India

JEL Classification: G32.G34

Suggested Citation

Pattanayak, Manoranjan, Insider Ownership and Firm Value: Evidence from Indian Corporate Sector (April 1, 2008). Available at SSRN: or

Manoranjan Pattanayak (Contact Author)

Jawaharlal Nehru University (JNU) ( email )

New Delhi, Delhi 110067

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