How does ownership of insiders and institutions affect future value? Influence of country-level governance

Abstract

This research explores the ways in which firm-level governance, specifically insider and institutional ownership, affects future value through the lens of agency theory. Then, we evaluate how country-level governance influences the value impact of insiders and institutions. Our analysis employs NIFTY-500 listed companies for 11 years, from 2010 to 2020. Findings suggest that the effect of insider ownership on future value is nonlinear, and the impact of institutional ownership is detrimental for the entire sample. Nonetheless, differential value impacts of insiders and institutions are observed between the insider and noninsider firms. We observe an inverted U-shaped and U-shaped effect of insiders on future value for insider and noninsider firms, respectively. Insider firms witness a declining value impact, while noninsider firms experience an incremental value impact from institutional investors. Further findings indicate that though country-level governance has little bearing on institutional investors, it effectively reduces insiders’ expropriation effect that enhances future value.