A key insight in the corporate governance literature concerns the relationship between insider ownership and firm value: "too little" insider ownership hurts the alignment of interests and "too much" insider ownership generates a lack of threat of takeover. In thinking about the Indian setting, I have generally worried that there is too little threat of takeover in India, so the complacence might set in pretty early in the game.
On this subject, I came across Insider Ownership and Firm Value by Manoj Pant and Manoranjan Pattanayak [pdf]. The abstract reads: This paper examines the effect of insider ownership on corporate value in India for the period of 2000-01 to 2003-04, using 1,833 Bombay Stock Exchange listed firms by investigating the relationship between insider’s equity holding and firm value. While the “convergence of interest” or “monitoring” hypothesis predicts a positive relationship, the “entrenchment” hypothesis predicts a negative one. This paper also provides evidence that the relationship between insider shareholding and firm value is not linear in nature and documents a significant non-monotonic relationship between the two. Tobin’s Q first increases, then declines and finally rises as ownership by insiders rises. It also confirms that foreign promoter / collaborator shareholding has a significant positive impact on firm value.
They don't seem to have been aware of a good paper on the same subject by Ekta Selarka in 2005; if someone can post a comment with a URL for this PDF, that'll help.