Corporate Governance in India

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis 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.

Multiple directorships of corporate boards and firm performance in India

“…Promoters include individuals, families, firms, and government bodies. A significant feature of promoter-dominated corporate ownership structure is that it strives to maximise their control over a firm for a given level of ownership (Aguilera and Crespi-Cladera, 2016; Chakrabarti et al, 2008;Sarkar and Sarkar, 2000). Promoters can enhance their control disproportionately of their ownership by the following two ways (Basu and Sen, 2015).…”

“…First, the ability of outside directors to effectively monitor managerial actions of the firm reduces as the busyness of outside directors increases (Jackling and Johl, 2009;Tanyi and Smith, 2015); second, outside directors can experience a conflict of interests and trigger the distrust of other firms, especially when these directors are also serving on the boards of competitors, and this can result in firms experiencing undue delays in decision making (Fich and Shivdasani, 2006); third, outside directors can be perceived to be following perquisite consumption behavior (seeking financial and non-financial benefits) and not performing genuine monitoring of managerial actions (Dutta, 1997;Mathew, 2007); fourth, busy outside directors may find it difficult to understand the nature of operations, managerial actions, vision and mission, control mechanisms, and various board dynamics and related challenges of their affiliated firms (Kisgen et al, 2009); and fifth not only similar to inside directors but also very common in Indian corporate system, outside directors may accept multiple directorships in order to enhance control of promoters over firms within a group (Chakrabarti et al, 2008;Chen et al, 2014). Fich and Shivdasani (2006) advocate regulatory limits on multiple directorships in order to check the erosion of a firm's value, and they find that multiple outside board directorships start affecting firm performance adversely, however, only when the majority of directors hold three or more board positions, therefore, the phenomenon of busyness and its effects on firm performance should be understood in reference to busyness of overall board and not in the context of an individual director.…”

“…Second, by appointing those directors in the firm X, who although are not belonging to the same business group, however, belonging to firms having strong business linkages with the firm X. The high level of ownership concentration and promoters dominance pave the way for the phenomena of pyramiding and tunnelling 19 as well as earnings management (Mathew, 2007;Chakrabarti et al, 2008;Hundal, 2016).…”

Concentrated ownership and firm performance: does family control matter?

“…First, India is a large and growing emerging economy that attracts signifi cant foreign direct and portfolio investment from corporations, individuals, and institutional investors. Like many emerging economies, India has its own fl avor of legal and regulatory frameworks in terms of governance, shareholder rights, and disclosure rules (for details, see Chakrabarti, Megginson, and Yadav, 2008). In the last two decades, however, the Securities and Exchange Board of India (SEBI, a regulatory body established in 1991 and patterned along the Securities and Exchange Commission in the U.S.) has instituted several corporate governance reforms for investor protection and convergence toward Western governance systems.…”

Insurance and ownership structure in India’s corporate sector

“…Today, more than 30 major insurance companies operate in India offering a wide range of commercial insurance products. 5 Chakrabarti, Megginson, and Yadav (2008) report that ownership structure could be a significant influence on the risk management and internal control decisions of Indian firms. For example, firms that have highly concentrated shareholdings (e.g., family-controlled firms) are likely to transfer business risk to third party insurance companies as a cost effective alternative to risk retention within an undiversified ownership structure.…”