Disentangling the Concentration-Performance Nexus: An Empirical Study of Indian-Listed Firms Across Diverse Industries

Abstract

This study examines the relationship between industry concentration and financial performance among Indian-listed firms across various industries. Using a sample of over 2,078 firms from 29 distinct sectors, Herfindahl-Hirschman Index for each company and industry was calculated and categorized into high, medium and low-concentration industry categories. To ensure representativeness and data reliability, 1,583 small companies with HHI scores below 0.6 were excluded from the analysis at the stage of comparative analysis after calculating the industry-wise concentration. The remaining 495 firms were classified and compared using the Student and Welch t-test across three industry concentration groups: high versus medium, medium versus low and high versus low. The findings revealed heterogeneous relationships between industry concentration and financial performance across various ratios. For instance, return on equity (ROE) and return on assets (ROA) demonstrated a positive relationship with concentration levels, whereas liquidity and solvency ratios showed mixed results. Operating performance, dividend and valuation ratios displayed an inconclusive pattern. These results provide valuable insights into the complex concentration-performance nexus and offer valuable theoretical and managerial implications. This study contributes to the existing literature by addressing research gaps and inconsistencies concerning the concentration-performance relationship in the context of emerging markets. Additionally, the study offers valuable information to policymakers, investors and managers seeking to better understand the impact of industry concentration on firm performance.

Keywords

• industry concentration
• financial performance
• herfindahl-hirschman index
• emerging markets
• concentration-performance nexus