Ownership, discretionary expenditure and firm performance

Purpose This study aims to examine whether the composition of foreign shareholding, rather than the mere coexistence of domestic and foreign owners, explains firm performance in Indian listed companies, and whether foreign participation alters the performance consequences of discretionary expenditure on advertising and research and development. Design/methodology/approach The study uses an unbalanced panel of non-financial firms listed on the National Stock Exchange of India, comprising 19,819 firm-year observations for 1,736 firms over 2001–2022, drawn from the Prowess IQ database. Foreign ownership is disaggregated into strategic (foreign promoter) and portfolio (foreign institutional) holdings. Estimation uses two-way fixed-effects models with standard errors clustered by industry, supplemented by threshold specifications, subsample analysis across promoter concentration regimes, formal tests of coefficient equality, net marginal effects for all interaction models and a staggered event study around the entry of foreign portfolio investors. Findings Ownership composition matters considerably more than ownership concentration. Foreign portfolio ownership is robustly and positively associated with both market and accounting performance, whereas foreign strategic ownership is not. The association is economically concentrated at low levels of foreign holding and flattens beyond roughly 10%, which is consistent with a monitoring and certification mechanism rather than a control mechanism. The performance association does not differ across promoter concentration regimes: all 12 tests of coefficient equality across regimes fail to reject at conventional levels. Discretionary expenditure on advertising and research and development is weakly or negatively associated with performance, and foreign ownership does not significantly moderate these relationships once outliers and incomplete disclosures are addressed. An event study shows that valuation rises sharply on the entry of foreign portfolio investors and then reverts to insignificance by the third year, while operating performance does not improve, suggesting that the cross-sectional accounting association reflects selection rather than a treatment effect. Originality/value The study shows that treating the coexistence of domestic and foreign owners as a governance category obscures the mechanism through which foreign ownership influences performance. By separating strategic from portfolio foreign owners and by reporting net marginal effects and pre-trends rather than interaction coefficients alone, the study provides a more precise account of foreign ownership in an emerging market characterised by concentrated promoter control.