The Nature of the Corporate Governance Problem: Theory and Some Evidence from India (original) (raw)

Corporate governance in India: Disciplining the dominant shareholder

IIMB Management Review, 1997

The nascent debate on corporate governance in India has tended to draw heavily on the large Anglo-American literature on the subject. This paper argues however that the corporate governance problems in India are very different. The governance issue in the US or the UK is essentially that of disciplining the management who have ceased to be effectively accountable to the owners. The problem in the Indian corporate sector (be it the public sector, the multinationals or the Indian private sector) is that of disciplining the dominant shareholder and protecting the minority shareholders. Clearly, the problem of corporate governance abuses by the dominant shareholder can be solved only by forces outside the company itself. The paper discusses the role of two such forces -the regulator and the capital market.

Corporate Governance and Firm performance in India

We examine the effect of insider ownership on corporate value in India for the period of 2000-01 to 2003-04, using 1833 Bombay stock Exchange listed firms. More specifically we have investigated the nature of relationship between insider’s equity holding and firm value. While ‘convergence of interest’ or ‘monitoring’ hypothesis predicts a positive relationship, the ‘entrenchment’ hypothesis predicts a negative one between insider shareholding and firm value. In India, most of the firm’s have insiders/promoters as the dominant shareholder. The feature of family based governance system is also widely prevalent in Indian corporate sector. This paper provides evidence that the relationship between insider shareholding and firm value is not linear in nature. We document a significant non-monotonic relationship between insider shareholding and firm value. Tobin’s Q first increases, then declines and finally rises as ownership by insiders rises. Besides, we confirm that foreign promoter/co...

Anemirical study of ownership structure and its impact on corporate governance and performance in Indian context

ZENITH International Journal of Business Economics & Management Research, 2014

Inthis present study, the emphasis is on the type of ownership and how itaffects corporate governance and performance of the corporate.In this scenario, how the controller would bring the independent governance policy in their decision making is the ironic point of the study. For this empirical study, the researchers have taken sample of three listed top market capitalised (market cap) companies which are having the direct and strong impact on stock market and investor's faith. For this study, Infosys, Reliance and ITC companies have been selected from Group A, listed on BSE. The reason for selecting these companies is that the top market capitalisation companies are expected to follow professional and sound principles of not only Indian corporate governance but also of international corporate governance guidelines. This empirical study will include the rational aspects or factorssuch as type of Board, size of Board and its independence affecting the corporate governance. Present study will move around the hypothesis that there is no relation/ impact of ownership on governance and performance of the company.

Corporate Governance in Indian perspective: A case of Grasim Industries

International Journal of Management Research and Social Science (IJMRSS) - Dr. Arti Chandani, Dr. Mita Mehta, 2020

It is said, "No man is an island entire of himself". We would like to apply this to the Business Organizations. The owners of any Business organization no matter how competent cannot alone bring the organization in the arena of success. A great deal of cooperation is required on part of the various stakeholders viz. the customers, suppliers, employees, shareholders and the society at large. Corporate Governance has come in vogue after 1932. All this has taken place with the tremendous growth in the size of the corporations. It is not possible for owners to keep control over every activity of the organization. Thus, the need to have specialized managers to manage the various activities has arisen. The Board is required to oversee the working of the company by its managers.

Ownership Structure and Corporate Performance in India

Journal of Global Economy, 2016

The ownership structure of a publicly held Corporation is one of the internal mechanisms of corporate governance. Insider ownership is one of the internal controlling mechanisms that could theoretically reduce agency costs. Earlier researcher has investigated the effects of insider ownership on firm performance. But we have attempted to add few more dimensions to it. Firstly, earlier studies did not attempt to study this relationship after the implementation of revised corporate governance code in 2006 in India and after the changes in the disclosures of insider ownership as per the clause 49 of the listing agreement. Secondly, earlier studies did not take into account the time lag for the studies on Indian markets. We have attempted time lag studies using panel data on the Indian Markets using MBVR ratio as a performance measure. The result shows that corporate performance is significantly influenced by insider ownership. Hence corporate governance issues needs to be dealt with great care.Â

Corporate Governance and the Indian Private Equity Model CORPORATE GOVERNANCE AND THE INDIAN PRIVATE EQUITY MODEL

Private Equity (PE) firms have long invested in Western firms using a leveraged buyout (LBO) model, whereby they acquire a company that they can grow with the ultimate goal of either selling it to a strategic buyer or taking it public. Unable to undertake the traditional LBO model in India, PE investors in Indian firms have developed a new model. Under this Indian PE Model, PE firms typically acquire minority interests in controlled companies using a structure that is both hybridized from other Western investment models and customized for India's complex legal environment. As minority shareholders in controlled firms, PE investors in India have developed several strategies to address their governance concerns. In particular, PE investors in India have focused on solutions to address local problems through the use of agreements that govern (i) the structuring of minority investments, (ii) investor control rights, and (iii) exit strategies. Nevertheless, recent governance and regulatory difficulties highlight the continuing uncertainty surrounding the Indian PE model.

Corporate governance in India

Journal of Applied …, 2008

This study describes the Indian corporate governance system and examines how the system has both supported and held back India's ascent to the top ranks of the world's economies. While on paper the country's legal system provides some of the best investor protection in the world, enforcement is a major problem with slow, over-burdened courts and significant corruption. Ownership remains concentrated and family business groups continue to be the dominant business model. There is significant pyramiding and tunneling among Indian business groups and, notwithstanding copious reporting requirements, evidence of earnings management. However, corporate governance in India does not compare unfavorably with any of the other major emerging economies: Brazil, China and Russia. India ranks high on the ease of getting credit, and has a well-functioning banking sector with one of the lowest proportions of nonperforming assets. The two main Stock Exchanges have among the highest number of trades in the world, and the relatively young Securities and Exchanges Board of India has a rigorous regulatory regime to ensure fairness, transparency and good practice. Most importantly, the corporate governance landscape in the country has been changing fast over the past decade, particularly with the enactment of Sarbanes-Oxley type measures and legal changes to improve the enforceability of creditor's rights. If this trend is maintained, India should have the quality of corporate governance necessary to sustain its impressive current growth rates.

Thwarting the market for corporate control: takeover regulation in India

The general view, now widely accepted, that contemporary capitalism is characterized by a conflict between shareholders and management has to be drastically modified when applied to markets like India, where shareholdings remain concentrated in the hands of family business groups who control the management of 'their' companies. These controlling or 'dominant' shareholders do not face a problem of accountability in the same way that shareholders in the Anglo-American markets do because they are the management in the companies they control. On the other hand, the vast majority of these companies are public corporations, that is, listed on the local stock exchanges, so tha t here the issue of governance becomes, potentially, a conflict between two categories of shareholders-non-controlling and controlling or minority and dominant-and is played out in terms that are only partially and imperfectly reflected in Cadbury. The historical assumption behind Cadbury was a dispersal and re-concentration of shareholdings that dramatically altered the balance between family business and finance capital, transforming the nature of British and American capitalism through most of the twentieth century. This trajectory (of the evolution of 'shareholder capitalism') has not been replicated elsewhere, and certainly not in India, where the sweeping changes ushered in by international (finance) capital since the nineties have, paradoxically, produced a reconsolidation of family businesses. E.g., by 2004 the aggregate share of 'promoter' holdings in the listed company sector stood at roughly 55%, substantially higher than pre-liberalisation levels. Far from encouraging the evolution of widely held companies and, in this sense at least, of a more professionalised corporate sector, the 'economic reforms' era has led to a massive consolidation of equity in the hands of dominant shareholders and the emergence of more concentrated ownership structures.

Corporate governance and the Indian private sector

QEH Working Papers

The following study examines the issue of corporate governance in the context of large private sector companies in India against a regulatory background that is changing rapidly. Based on over 170 interviews with a very wide range of business representatives, including CEOs, non-executives, fund managers and audit firms, the two reports which make up the study highlight the ineffectiveness of boards in Indian companies, the lack of transparency surrounding transactions within business groups, the divergence of Indian accounting practices from international standards, and the changing role of, and controversy surrounding, institutional shareholders. Respondents concurred on the failure of the board as an institution of governance in Indian companies, despite the large presence of non-executives. The authors argue that regulatory intervention needs a much stronger definition of 'independence' for directors, in line with best practice definitions now adopted in the US and UK, as well as the mandatory introduction of nomination committees. In the accounting field, the most serious lacuna is the lack of consolidation of accounts, even if 51% may be too high a threshold for consolidation in the Indian context. Finally, the presence of institutional nominees is a unique feature of Indian corporate governance and there has been a powerful corporate lobby in favour of removing them from boards. While this would reduce the accountability of Indian boards even further, the reports argue that a more active approach to corporate governance on the part of institutional investors requires larger changes in the nature of the FIs' ownership and control by government, greater autonomy for institutional managers, and the active development of a market for corporate control.