M Thenmozhi

This study examines the impact of concentrated founder ownership on related party transactions (RPTs) for Indian firms. We find that concentrated founder ownership is positively related to RPTs and is more likely to encourage RPTs that are beneficial for the minority shareholders. We also observe that RPTs are associated with higher firm value. This relationship is more pronounced for business group firms and firms with more highly concentrated founder ownership. We show that the reputation incentive plays a very important role in founders’ decisions, and they use RPTs as an efficient transaction mechanism.

We examine the impact of increasing levels of concentrated founder ownership on board independence and extend the knowledge by exploring whether the impact of concentrated founder ownership on board independence varies with firm's life cycle stages, ownership identity, level of external monitoring and type of firms. Using the Indian sample of 13,636 firm-year observations for the period 2001–2015, we find that controlling shareholders influence the board structure and exhibit a non-monotonic relationship. The relationship moves from entrenchment to alignment and again to entrenchment as their shareholding increases. We find that Indian controlling shareholders influence board independence more than their foreign counterparts. We show that business group firms are associated with greater board independence than standalone firms. We also show that controlling shareholders influence board independence of the firm in the growth stage. Our findings support the notion that the effect of concentrated ownership changes with its level of ownership, identity, firm life cycle stages, level of external monitoring and type of firms.

This study examines the resource dependency and signalling role of independent directors from the perspective of institutional investor’s and also investigates if the presence of large blockholder moderates the signalling effect. This study uses the quasi-natural experiment to examine this relationship. The difference-in-difference (DiD) analysis of 5,298 firm observations covering 618 National Stock Exchange (NSE) listed Indian firms for the period 2001–2011 provides empirical evidence that board composition does matter to institutional investors. We find that non-compliant firms who adopted the board independence requirement experience a significant increase in institutional ownership relative to previously compliant firms. We also find that institutional investors have invested more in family-owned firms during post-mandate period compared to government-, private- and foreign-owned firms. Overall, this study contributes to the existing literature on resource dependency theory and signalling theory and shows that the board independence acts as a signal to institutional investors and decreases the agency cost and cost of monitoring. JEL Codes: G3, G11, G34, G38, G23.