Ownership Structure and the Risk: Analysis of Indian Firms

Abstract

Considering the positive relationship between ownership and firm performance in the corporate finance literature, the paper aims to investigate the effect of ownership structure on the risk associated with the firm. Portfolio theories state that an investment with a high return is expected to be associated with high risk; so, it can be argued that ownership should have a positive relation with risk too. However, another explanation is that since large shareholders, such as promoters and financial institutions, have a significant stake in firms, in developing countries like India they will avoid excess risk taking, and so there should be a negative relationship between ownership and risk associated with firms. Analysing Nifty-500 companies for the period of 2006/07–2015/16, the study has found that Indian blockholders are in general risk-averse. Results also suggest that profitability and growth opportunities have negative effects on risk, which again establishes the positive association between ownership structure and profitability.

The Impacts of Multi-blockholder Contestability and Coalition on the Risk of Korean Companies

“…This means that the higher (lower) contestability among major blockholders, the lower (higher) corporate risk (hypothesis 1: accept). These results are similar to previous studies that showed a negative relationship between the ownership structure of blockholder and corporate risk (Admati et al, 1994;Kumari & Kumar, 2020;Rossetto & Staglianò, 2016). This result is similar to the work of Newton and Paeglis (2019) who analysed the relationship between individual blockholder shareholders and systematic risk.…”

“…Rossetto and Stagliano (2016) find a negative relationship between a firm's total risk and ownership of the largest blockholder. Kumari and Kumar (2020) show that there is a negative relationship between ownership and firm-related risk. However, to the best of our knowledge, no empirical analysis has been conducted on the direct impact of blockholder contestability on corporate risk.…”

“…Ownership and financial variables are included in the empirical estimation to capture firm characteristics and behaviour, especially those related to the blockholder structure (Rossetto & Staglianò, 2016;Jankensgård & Vilhelmsson, 2015;Newton & Paeglis, 2019;Kim et al, 2020;Kim & Cho, 2021b;Kumari & Kumar, 2020;Cho et al, 2018;Cho & Lee, 2020;Ra, 2021). To measure the size of the investor base, we use the number of small shareholders (NSS) on the TS-2000 (Korea company information) ownership list which includes shareholders who own at least 0.1% of the company.…”

“…Previous studies have analysed the factors that determine corporate risk. Prior studies have been conducted to analyse the relationship between ownership structure and corporate risk (Wang, 2007;Rubin & Smith, 2009;Li et al, 2011;Jankensgård & Vilhelmsson, 2015;Rajverma et al, 2019;Kumari & Kumar, 2020). They report that ownership structure has a negative effect on corporate risk.…”