The document discusses a project analyzing the link between shareholding patterns, corporate governance, and financial performance. It outlines the purpose, approach, key variables - ownership structure, corporate governance, and financial performance. It then provides details on relevant regulations and theories. An analysis of specific companies in different industries like IT, BFSI, manufacturing is presented looking at variables like board composition, shareholding changes, stock performance, and debt levels. Finally, the hypotheses and results of a multivariate regression analysis finding a relationship between shareholding pattern and certain financial indicators for different industries are summarized.

1. Group 4_Section C
Anand Kumar 12P127
Bhoomi Ashwin 12P131
Chirayu Gandhi 12P135
Rakshit Sharma 12P160
Saurabh Saxena 12P167
Soumyajit Sengupta 12P171

2. • Purpose of the project is to understand the link between
• shareholding patterns and corporate governance
• shareholding pattern and financial performance
• Approach
• Qualitative: based on the theories from numerous literature
reviews
• Quantitative: based on the multivariate regression analysis for
chosen company and around 20 of its peers
Shareholding
Pattern
Corporate
Governance
Financial
Performance
Investor
Preferences
Investment

3. • Ownership Structure(Shareholding Pattern)
• Distribution of equity w.r.t votes and capital but also by the identity
of the equity owners
• Of major importance in corporate governance because they
determine the incentives of managers and thereby the economic
efficiency of the corporations
• Corporate Governance
• Refers to the way a corporation is governed
• Technique by which companies are directed and managed as per
the stakeholders’ desires
• Financial Performance
• Financial state of the firm over a particular period of time
• Key Indicators include RoE, EPS and DPR

4. • If Chairman is an Executive Director, then 50% of the Board
has to be Non-Executive Directors
• If Chairman is a Non-Executive Director, then 33% of the
Board has to be Non-Executive Directors
• Necessary for CEO & CFO to maintain tight internal controls
and implement any remedial measures to controls which are
lacking
• All companies need to submit a Quaterly Compliance Report
to Stock Exchanges
• Auditor’s Certification required with regards to Compliance and
this has to be attached to the Director’s Report
• Compulsory provision of an Audit Committee chaired by a
Director who has in-depth financial knowledge

5. • A formal Code of Conduct needs to be adopted
• Whistle-Blower Policy has to be incorporated into the
company culture
• Term served by Independent Directors on the Board has
been Restricted
• Necessary to incorporate a Shareholder’s Grievance
Committee
• Limit to the Number of Committees a Director can serve
on
• Corporate Governance Report to be included in Annual
Report
• CSR guidelines also need to be adhered to by
companies

6. • Dr. Parmjit Kaur, Dr. Suveera Gill; “The effects of
ownership structure on corporate governance and
performance”; NFCG; 2007-08
• K. S. Chalapatan Rao, Atulan Guha; “Ownership
Structure of the Indian Corporate Sector-Implications on
Corporate Governance”; ISID; 2006
• Jayesh Kumar; “Capital Structure & Corporate
Governance”; XIMB; 2004
• Pitabas Mohanty; “Institutional Investors and Corporate
Governance”; NSE; 2006

7. • Rakesh Pandey,Dennis Taylor, Mahesh Joshi; “Governance of
Large Family Companies in India: Effects on Financial
Performance”; RMIT University,Australia
• Lawrence Brown, Marcus Caylor; “Corporate Governance and
Firm Performance”; USA; 2003
• Chen, Nowland; “Family Involvement and Firm Performance in
Taiwan”; Australia & HongKong; 2007
• Bernard Black, Woocham Kim, Husang Jan; “How corporate
governance affects firm value, in South Korea”; 2010
• Maria Navarro, Silvia Anson, Laura Garcia; “Family Ownership
and Control, other large shareholders and firm performance”;
Spain; 2008
• Habbershon T, Williams M; “Understanding Competitiveness of
Family Controlled Companies”; England; 2000

8. • Impact of Ownership on Performance depends on:
• Distribution of Ownership
• Types of Large Shareholders(Promoter & Institutional)

9. HIGHER Promoter Holding
BETTER Performance
Firm Value INCREASES
Agency Problems DECREASE
BUT this can result in INCREASE of self-seeking
behavior by Promoters
Higher Promoter Holdings
Lower chances of any hostile takeovers or
other acquisition threat.
Thus INTERNAL CONTROL MECHANISM
should be highly effective and efficient.

10. • Board Independence
• Independent Directors are introduced in a Company’s Board of
Directors to monitor the effectiveness of the Board.
• Greater the independence of the independent directors = Better
Corporate Governance = Better Financial Performance
• Board Size(Lange,2000)
• Smaller board size is generally recommended to ensure higher
efficiency.
• Smaller size allows for bringing in directors of proven expertise and
extensive knowledge of the domain, thereby reducing extra cost of
maintaining a larger board size.
• We have used this theory but it has been disproved in Europe by
Bonn,2004

11. • Higher foreign funds were provided to companies with:
• Large Market Capitalization
• Higher Dividend Yield
• Higher Leverage
• FII tends to be more in companies with:
• Lower family controlled stakes
• Those which are closely tied to the local financial institutions and
corporates
• Higher P/E ratio tends to bring in more FII
• Higher FII = Lower Promoter Holding = Higher Public
Holding

12. • Better Corporate Governance=Higher Mutual Fund
Investment, but reverse is not true
• Better Corporate Governance=Higher Financial institutions
Investment, but reverse is not true
• Institutional Investors should not meddle with management
which is out of their core interest which is to follow their own
investment objectives(Wharton, Losch, Hansson-1991)
• Absence of appropriate incentives and free-rider problems
hinder institutional activism (Klein, 1994)
• Better Corporate Governance=Better Stock
Performance(Mohanty, 1998)
• Poor Corporate Governance=Firm Value Decline, due to
INFORMATION ASYMMETRY and HIGHER Agency Costs

13. • Most of the studies made are for developed economies
• Studies made in this respect in India is few which made us go
through more of the studies relevant developed economies
• Previous studies are highly generic in nature. Specific
studies for different industries have not been carried out
much
• Have carried out both Qualitative and Quantitative Analysis to try
and bridge this gap
• We found no specific marker regarding shareholding
pattern affecting any of the financial indicators among
RoE, EPS and DPR
• Have carried out Quantitative Analysis to bridge this gap

14. • Institutional Investor Share has increased by 8%
• Indicating greater confidence in governance
• FII holdings has increased by 8%
• Indicating greater information symmetry
• Cash Reserves have gone up which is in congruence (Dahlquist,
2003)
• Zero debt => Strong governance mechanism(Jayesh
Kumar,2006)

15. • Mutual Funds: Decreased in both
• Financial Institutions: Constant in Infosys; Increased in
TCS by 300%
• Stock Prices: Decreased for Infosys; Increased for TCS
• Debt Levels: Infosys=ZERO; Increased for TCS
• FII: Increased for both; Infosys(8.5%); TCS(11.5%)
• P/E Ratio: Higher for TCS v/s Infosys
• Quick Ratio: Infosys(4) v/s TCS(2)

16. Company Non-
Executive
Independent
Non-
Executive
Non-
Independent
Non-
Executive
Whole-time
Independent
Executive
Whole-time
Infosys 8 2 - 5
TCS 6 - 4 1
Analysis:
• More Independent Directors in Infosys => higher
independency => better control => better corporate
governance
• Board size of TCS (11) is smaller than Infosys (15)
• Both have had 5 board meetings in the last year

17. • Promoter shareholding has decreased by 1.12%
• Not a major impact w.r.t takeover
• Institutional Investor Share has increased by 5%
• Indicates higher confidence in governance due to better financial
performance
• FII holdings has increased by 13%
• Implies high level of information symmetry
• Non-Institutional shareholding remained nearly constant
• Not much change in confidence in retail investment space

18. • Mutual Funds: Decreased for HDFC; Constant for ICICI
• Financial Institutions: Decreased for both: HDFC (33%),
ICICI (65%)
• Stock Prices: Increase for HDFC & Decrease for ICICI
• Debt Levels: Increased for both: HDFC (21%), ICICI
(18%)
• FII: Increased for both: HDFC (13%), ICICI (6%)
• P/E Ratio: HDFC (13.5%) is higher than ICICI (6.7%)
• Quick Ratio: HDFC – 6.2, ICICI - 16

19. Company Non-
Executive
Independent
Non-
Executive
Non-
Independent
Non-
Executive
Whole-time
Independent
Executive
Whole-time
HDFC 5 1 - 4
ICICI 8 - 1 3
Analysis:
• More Independent Directors in ICICI => higher
independency => better control => better corporate
governance
• Board size of HDFC (10) is smaller than ICICI (12)
• Both have had 5 board meetings in the last year
• ICICI was setup in 1954 while HDFC in 1994
• ICICI has better financial performance due to Age

20. • Promoter shareholding has increased by 2.09%
• Not a major impact w.r.t takeover
• Institutional Investor Share has increased by 2.5%
• Indicates higher confidence in governance due to better financial
performance
• FII holdings has increased by 14.7%
• Implies high level of information symmetry
• Non-Institutional shareholding has decreased by 6%
• Indicates lower confidence in governance in retail investment
space

21. • Mutual Funds: Decreased for both
• Financial Institutions: Decrease for Tata Steel (11%);
Increase for SAIL (39%)
• Stock Prices: Decreased for both – Tata Steel (20%),
SAIL (40%)
• Debt Levels: Decreased for both – Tata Steel (16%),
SAIL (20%)
• FII: Increased for both – Tata Steel (14%), SAIL (16%)
• P/E Ratio: SAIL has higher than Tata Steel
• Quick Ratio: Tata Steel – 0.52; SAIL – 0.82
• Current Ratio: Tata Steel – 0.79; SAIL – 1.22

22. Company Non-
Executive
Independent
Non-
Executive
Non-
Independent
Non-
Executive
Whole-time
Independent
Executive
Whole-time
Tata Steel 6 5 - 1
SAIL 9 - 2 5
Analysis:
• More Independent Directors in SAIL =>
higher independency => better control =>
better corporate governance
• Board size of Tata Steel (12) is smaller than
SAIL (16)
• Both have had 5 board meetings in the last

23. • Institutional Investor Share has increased by 2.04%
• Indicates higher confidence in governance due to better financial
performance
• FII holdings increased by 19.5%
• Implies high level of information symmetry
• Non-Institutional shareholding has decreased by 8.3%
• Indicates lower confidence in governance in retail investment
space

24. • Mutual Funds: Increased for Maruti Suzuki (25%);
Decreased for M&M (45%)
• Financial Institutions: Decreased for both – Maruti Suzuki
(26%), M&M (20%)
• Stock Prices: Increased for both - Higher for Maruti
Suzuki (13.5%)
• Debt Levels: Increased for both – Maruti Suzuki (249%),
M&M (32%)
• FII: Increased for both – Maruti Suzuki (20%), M&M
(25%)
• P/E Ratio: Maruti Suzuki is higher than M&M
• Quick Ratio: Maruti Suzuki – 0.89 (22% down); M&M –
0.66 (8% up)
• Current Ratio : Maruti Suzuki – 1.02 (30% down); M&M –

25. Company Non-
Executive
Independent
Non-
Executive
Non-
Independent
Non-
Executive
Whole-time
Independent
Executive
Whole-time
Maruti Suzuki 3 4 - 4
M&M 10 - 2 2
Analysis:
• More Independent Directors in M&M =>
higher independency => better control =>
better corporate governance
• Board size of Maruti Suzuki (11) is smaller
than M&M (14)
• Both have had 5 board meetings in the last

26. • No single owner controlling the company
• Institutional Investor Share has increased by 3.5%
• Indicates higher confidence in governance due to better financial
performance
• FII holdings increased by 20.9%
• Implies high level of information symmetry
• Non-Institutional shareholding has decreased by 4.6%
• Indicates lower confidence in governance in retail investment
space

27. • Mutual Funds: Increased for L&T (5.3%); Decreased for
BHEL (82.3%)
• Financial Institutions: Decreased for L&T (9%); Increased
for BHEL (352%)
• Stock Prices: Decreased for both – L&T (10%); BHEL
(26%)
• Debt Levels: Increased for L&T (38%); Decreased for
BHEL (24.5%)
• FII: Increased for both – L&T (20.9%); BHEL (22%)
• P/E Ratio: L&T has higher than BHEL
• Quick Ratio: L&T – 1.26; BHEL – 1.11
• Current Ratio: L&T – 1.2; BHEL – 1.47

28. Company Non-Executive
Independent
Non-Executive
Non-
Independent
Executive
Whole-time
L&T 7 (including
Chairman)
- 7
BHEL 7 2 5 (including
Chairman)
Analysis:
• More Independent Directors in BHEL =>
higher independency => better control =>
better corporate governance
• Board size of both companies is same (14)
• Both have had 5 board meetings in the last
year

29. • Institutional Investor Share has decreased by 0.9%
• Unable to instill greater satisfaction among investors
• FII holdings decreased by 1.37%
• Indicates lower level of information symmetry
• Non-Institutional shareholding increased by 3.96%
• Indicates higher confidence in governance in retail investment
space

30. • Mutual Funds: Decreased for Airtel (17.6%); Increased for Tata
Comm. (30%)
• Financial Institutions: Increased for both – Airtel (40%); Tata
Comm. (654%)
• Stock Prices: Decreased for both – Airtel (6%); Tata Comm.
(5%)
• Debt Levels: Increased for Airtel (18%); Decreased for Tata
Comm. (57%)
• FII: Decreased for Airtel (1.7%); Increased for Tata Comm.
(79.8%)
• P/E Ratio: Higher for Tata Comm. than Airtel
• Quick Ratio: Airtel – 1.27 (64% up); Tata Comm. – 1.32 (34%
down)
• Current Ratio: Airtel – 1.01 (45% up); Tata Comm. – 1.34 (30%

31. Company Non-
Executive
Independent
Non-
Executive
Non-
Independent
Non-
Executive
Whole-time
Independent
Executive
Whole-time
Airtel 7 4 - 3
Tata Comm. 3 - 7 1
Analysis:
• More Independent Directors in Airtel =>
higher independency => better control =>
better corporate governance
• Board size of Airtel (14) is higher than Tata
Comm. (11)
• Both have had 5 board meetings in the last
year

32. • Input Variables:
• Market Capitalization of Firm
• Beta
• Promoters’ Stake
• Hypotheses:
• H0: There is significant relationship between Market Capitalization
of Firm, Beta, Promoters’ Stake and Return on Equity
• H1: There is significant relationship between Market Capitalization
of Firm, Beta, Promoters’ Stake and Dividend Payout Ratio
• H2: There is significant relationship between Market Capitalization
of Firm, Beta, Promoters’ Stake and Earnings per Share
• Multivariate Linear Regression was carried out on the
average of the data of past 5 years

33. • The results for H0 indicate that the alternate hypothesis
is true
• The results for H1 indicate that the null hypothesis is true
• Highest correlation is with Beta
• Shareholding pattern doesn’t impact financial performance
significantly
• The results for H2 indicate that the alternate hypothesis
is true
• Thus, in IT industry, only DPR is impacted by
shareholding pattern
• Regression Analysis
• CF_Regression_Excel FilesIT.xlsx

34. • The results for H0 indicate that the hypothesis is valid but
there is very low correlation
• The results for H1 indicate that the hypothesis is valid
and there is very high correlation
• Highest correlation is with Beta
• Shareholding pattern doesn’t impact financial performance
significantly
• The results for H2 indicate that the alternate hypothesis
is true
• Thus, in BFSI industry, ROE & DPR are impacted by
shareholding pattern
• Regression Analysis:
• CF_Regression_Excel FilesBFSI.xlsx

35. • The results for H0 indicate that the hypothesis is valid
and there is very high correlation
• The results for H1 indicate that the alternate hypothesis
is true
• The results for H2 indicate that the alternate hypothesis
is true
• Thus, in Steel industry, only ROE is impacted by
shareholding pattern
• Regression Analysis
• CF_Regression_Excel FilesSteel.xlsx

36. • The results for H0 indicate that the alternate hypothesis
is true
• The results for H1 indicate that the alternate hypothesis
is true
• The results for H2 indicate that the alternate hypothesis
is true
• Thus, in Automobile industry, none of the performance
indicators are impacted by shareholding pattern
• Regression Analysis
• CF_Regression_Excel FilesAutomobile.xlsx

37. • The results for H0 indicate that the null hypothesis is true
• The results for H1 indicate that the alternate hypothesis
is true
• The results for H2 indicate that the alternate hypothesis
is true
• Thus, in Power industry, only ROE is impacted by
shareholding pattern
• Regression Analysis
• CF_Regression_Excel FilesPower.xlsx

38. • The results for H0 indicate that the alternate hypothesis
is true
• The results for H1 indicate that the null hypothesis is true
• The results for H2 indicate that the alternate hypothesis
is true
• Thus, in Telecom industry, only DPR is impacted by
shareholding pattern
• Regression Analysis
• CF_Regression_Excel FilesTelecom.xlsx

39. • No single parameter to determine whether a corporate
governance structure is strong or weak
• Qualitatively, it may be the age or the past performance
of the stock which may induce investors
• Quantitatively, it can be any parameter from among RoE,
EPS or DPR that an investor looks at while investing
• Changes in the investment preferences can affect the
ownership structure, which in turn affects the firm’s
corporate governance and in turn, the financial
performance