This paper examines the relationship between the performance and ownership structure of a sample of 98 mid-cap companies listed on the National Stock Exchange (NSE) of India, as mid-cap sector is considered a high growth sector of the economy. In India, the shareholders are broadly divided into two categories—promoter shareholders and non-promoter shareholders. The study results suggest that promoters' shareholding (measure of concentration) is statistically significant in explaining performance. When concentration is treated as endogenous, the same is found to be dependent on performance. The study highlights that the ownership of high growth mid-cap companies of India continues to remain concentrated, even in the post-1992 economic liberalization, impacting the performance amid the general perception that substantial diffuseness has occurred.

In the finance literature, the relationship between ownership structure and firm performance has received considerable attention. Berle and Means (1932) are the pioneers to draw attention to the notion that with the enhanced diffuseness of the ownership structure the firm performance deteriorates. In other words, there exists an inverse correlation between the diffuseness of ownership and firm performance. The argument is—professional managers, acting on behalf of scattered ownership, do not act in the best interests of the shareholders by optimally utilizing the corporate resources to enhance profit and, thereby, shareholders' wealth. The observations of the study have triggered a debate.

Demsetz (1983) puts a counter argument by observing that it is unreasonable to suppose that the diffused ownership structure dilutes profit maximization objective as a guide for resource allocation and utilization. He argues that the ownership structure is an `endogenous' element for maximizing the profit and value of a corporate entity. When the requirement of capital is large for achieving scale rapidly, there is a need to meet the requirement (of capital) by making offer to the public at large to contribute to the equity share capital of a firm. Subscription by the members of public to the equity share capital of a firm leads to diffusion of ownership structure. Thus, the value enhancement of a corporate entity by achieving scale requires a diffused ownership structure, as single ownership is not enough to maximize the value of a firm.

Applied Finance Journal, Ownership Structure, National Stock Exchange, NSE, Ordinary Least Squares, OLS, Securities and Exchange Board of India, SEBI, Initial Public Offering, IPO, Capital Structure, Decision Making, Foreign Direct Investment, FDI, Employees Stock Option Plan, ESOP, Centre for Monitoring Indian Economy, CMIE.