Changing ownership and its impact on Firm performance: A detailed pre and post crisis study on Indian firms
Several studies are available establishing relationship between firm performance and ownership structure and the results are mixed. Several authors have found significant relationship while others have not found any significant relationships. In Indian context also, there are several studies which propagates to have both kind of results.
The way literature is linking the owner ship with performance has always been via addressing the agency (outsiders and insiders) problem, board structure, size, leverage etc. but, literature is sparse to identify these variables as moderating the ...view middle of the document...
Inform. Asym Problm
H2 (+/-) H4 (+/-) H4
Problem statement: Changes in ownership causes changes in agency and information related issues which have implications upon the firm performance. In this way, agency cost and information asymmetry acts as moderating factors in the relationship between ownership structure and firm performance.
Relationship between changes in agency costs due to changes in ownership
1. Ang, Cole, & Lin (2000) – Provides various measures for equity agency costs under different ownerships. This paper finds that equity agency cost is higher when manged by outsiders, is inversely related with managerial ownership, directly related with non- manager shareholders. This paper is followed by others(Anderson, Mansi, & Reeb, 2003; Fatemi & Luft, 2002; Siddiqui, Razzaq, Malik, & Gul, 2013; Songini & Gnan, 2014; Vemala & Nguyen, 2013; Zhou, Tam, & Yu, 2013)
2. Singh & Davidson III (2003) – This paper extends the work of Ang et al (2000) and gives complementary evidences. Paper says that managerial ownership alleviates principal –agent problem and thus complements. This Paper is followed by others. (Chahkhoii, Abedini, & Armin, 2011; Fleming, Heaney, & McCosker, 2005; Henry, 2010; McKnight & Weir, 2009; Mustapha & Ahmad, 2011).
3. Anderson et al. (2003)- This paper finds the impact of family ownership on agency cost of debt. The results suggest that family ownership in publicly traded firms reduces the agency cost of debt. In India the research on agency cost of debt is sparse. Several studies are available in recent following this paper (Aslan & Kumar, 2012; Sanchez-Ballesta & Garcia-Meca, 2011).
Relationship between Ownership structure and Information asymmetry issues
Brockman & Yan (2009) states that, ownership plays an important role in shaping firm’s information environment. Byun et al. (2011) studies the association of information asymmetry with ownership concentration for Korean firms and found a positive relationship. Anderson et al. (2009) argues that information varies in the presence of founder or heir ownership, thereby affecting risk taking of minority investors. This paper develop hypothesis regarding monitoring of these controlling shareholders and their potential to exploit firm opacity to accrue private benefits of control. This paper finally says that opacity is divided in two components, i.e. disclosure requirements and market scrutiny components.
Agency costs and firm performance
Several empirical studies are available which connects agency costs theory with firm performance.(Al-Malkawi & Pillai, 2012; Le & Buck, 2011; Sarkar & Sarkar, 2008; Songini & Gnan, 2014).
Information asymmetry and firm performance
Myers & Majluf (1984) first present a model of investment decision when...