Market concentration, promoter ownership and firm performance: evidence from Indian corporate firms

This paper explores the relationship between market concentration, promoter’s ownership and firm performance using an unbalanced panel of 1911 publicly listed manufacturing firms in India for the period 2001–2020. The study evaluates performance using Tobin’s Q and RoA and captures ownership concentration by equity shareholding of promoters. It investigates how promoter’s ownership, product market competition, and their interaction affect performance while also attempting to investigate the endogeneity of ownership and examine how performance, product market competition, and their interaction influence promoter ownership of firms for the entire period and for sub periods as well. Using a 2SLS technique to estimate two simultaneous equation models, the study finds that even after controlling for endogeneity, not only firm value is a determinant of the promoter’s ownership, but the promoter’s ownership is also a predictor of firm value. Additionally, it reveals that market competition: (a) negatively affects firm performance and positively impacts promoter ownership; (b) complements promoter ownership to improve performance and (c) reduces promoter ownership if firm value increases. The study also finds cross-section dependence in the panel units and applies the EC2SLS estimation technique in response to that. The study has several policy implications.