Effect of board size and promoter ownership on firm value: some empirical findings from India

Abstract

Purpose: The purpose of this paper is to examine the effect of corporate board size and promoter ownership on firm value for selected Indian companies.Design/methodology/approach: The study analyses the corporate governance structure of 176 Indian firms listed on the Bombay Stock Exchange using linear regression analysis.Findings: The empirical findings show a negative relationship of board size with firm value and significant positive association of promoter ownership with corporate performance. The study suggests that only above a critical ownership level of 40 percent does promoter's interest become aligned with that of the company, resulting in positive effect on firm value.Research limitations/ implications: The research has been limited to some selected Indian companies, with focus only on board size and promoter ownership as predictor variables. The study suggests that corporate governance reforms in India and introduction of non‐executive independent directors to the board have resulted in diminishing effect of board size on the firm value.Practical implications: The study implies that for emerging economies like India, it is practical to have greater ownership control by promoters to enhance company value. Also, it is not advisable to have a board size above certain limit.Originality/value: The paper adds to existing literature on corporate governance by establishing a relationship between firm performance and board size and promoter ownership.