Impact of promoters’ ownership and competition on firm’s value: a study of listed SMEs

Abstract

Purpose

The public listing of small and medium enterprises (SMEs) is a recent phenomenon in India, started in 2012. Such a paradigm shift for SMEs has altered the ownership structure of these firms. In addition, the listing has provided a notable status to SMEs, leading to a shift in exposure to market competition. Literature signifies that these changing dynamics are likely to impact the firm value. This study aims to examine the effects of promoters’ ownership and market competition on the firm value of listed SMEs in India. Ownership concentration (promoters’ ownership) is investigated as the primary proxy for internal governance mechanism, while market competition is investigated as an external form of firm regulation.

Design/methodology/approach

Three years of panel data from 2018 to 2020 of 80 listed Indian SMEs are used to conduct the analysis. The fixed effects model and cluster robust standard errors captured the detected fixed effects while adjusting for heteroskedasticity and autocorrelation. Besides, moderation analysis is conducted to test if competition regulates the relation between promoters’ ownership and firm value.

Findings

Promoters’ ownership does not impact the firm value significantly. However, market competition is significant and negatively drives the firm’s value. So, the market competition provides external regulation and coerces the firms to behave well to conserve the firm value. Finally, competition does not regulate the relationship between ownership effects and firm value. Therefore, the study contrasts the belief that the benefits of internal governance (especially promoters’ ownership) for firms in competitive economies are subject to market competition.

Originality/value

The study establishes the possibility of an integrated approach where internal and external governance mechanisms coexist to drive the firm value and endorses the same. The study is relevant to shareholders, practitioners, lawmakers and academics.

Citation

Singh, K. and Rastogi, S. (2022), "Impact of promoters’ ownership and competition on firm’s value: a study of listed SMEs", Journal of Indian Business Research, Vol. 14 No. 4, pp. 472-491. https://doi.org/10.1108/JIBR-02-2022-0030