Corporate governance in India: Moving gradually from a regulatory model to a market-driven model — A survey

Joshi V.

Liyanage S.I.

Sandhya S., Parashar N.

There are many factors that affect corporate governance (CG). It is highly difficult to comprehend corporate governance and define it. Yet, research is imperative to understand the changing specific needs of good corporate governance practices and the impact of such practices. As banks have special governance needs, in this study the corporate governance of banks in India has been studied with the help of corporate governance index (GCI) especially designed for banks. Following the method used by Ararat, Black, and Yurtoglu (2017) to investigate the effectiveness of corporate governance, the index was divided into six sub-indices and to test the index it was used to find the correlation of CG practices with the banks profitability measured in terms of return on assets (RAO) and net interest margin (NIM) as dependent variables. The fixed regression model was run to know the relationship between the sub-indices and the dependent variables. Apart from the CG index, capital adequacy ratio (CAR) and Net NPA ratio were taken as independent variables. A weak correlation was found between CG and ROA and NIM that contributes to the findings of Fallatah and Dickins (2012).

Almaqtari F.A., Al-Hattami H.M., Al-Nuzaili K.M., Al-Bukhrani M.A.

Mendonca A., D’Cruz P., Noronha E.

This chapter brings novel theoretical contributions that advance the concept of external bullying at work. Based on a hermeneutic phenomenological study aimed at understanding the lived experiences of beauty service workers employed in unisex salon chains in Bangalore, India, the present chapter examines customer abuse in the context of interactive bodywork. Taking into account the stigmatized nature of beauty service work, the chapter notes that employees in salons experience customer abuse because of occupational features of a low-skilled, low-status and sexualized job, in addition to the unequal power relationship between them and their customers arising from the notion of customer sovereignty. Gender, caste and regional identity also play a role. Beauty service workers feel humiliated and helpless during negative customer encounters. However, they endure and overcome the abuse due to favourable aspects of their jobs, namely, occupational, organizational and contextual factors which make beauty service work a high-profile offering due to its commercial, professional and branded setting. The findings of the study further the aetiology of and rewrite power dynamics linked to external bullying at work. Other original contributions include contrasting external bullying at work in in-situ/traditional versus cyber/virtual environments and demonstrating dual locus workplace bullying.

Goel P.

Currently the corporate governance reforms in India are at cross roads where though the intention behind the reforms is good yet there is a need to look for a complete solution addressing country specific challenges in Indian context. Keeping pace with developments at international level, India also introduced reforms for improving corporate, social and environment disclosures. This paper explores the effectiveness of these corporate governance reforms by analyzing the corporate governance practices followed by Indian companies in two reform periods (FY 2012–13 as Period 1) and (FY 2015–16 as Period 2). Considering mandatory regulations as per clause 49 of Listing agreement with Securities exchange board of India and the governance norms in the new Company Act, 2013, a corporate governance performance (CGP) index is developed to measure corporate governance score of Indian companies. Though there is a significant improvement in corporate governance structures implied by Indian companies but the number of independent directors inducted in the board decreases after the reforms in period 2. All the sectors under study show a significant improvement in following corporate governance practices after the reforms. The study reported a significant relationship between integrated framework of total corporate social performance and financial performance only in period 1. Corporate governance reforms do not impact financial linkages in Indian market in period 2.

Uzma S.H.

Purpose This paper aims to study from three perspectives: the developed countries corporate governance (CG) practices, the role of OECD in the global convergence of CG standards and India as an emerging country. Design/methodology/approach The paper reviews the various CG codes and regulations enacted in the Indian paradigm with special reference to the Indian Companies Act 2013 (cited as Act 2013). Findings The Act 2013 endeavours to provide a governance landscape in India with reforms. The new CG codes comprehensively introduce more accountability, transparency and stringent disclosure requirements. However, these changes are affected by the ownership structure, the level of enforcement and regulatory compliance of CG disclosure practices imposed on companies. Research limitations/implications Further research can be carried out in three domains in emerging countries: ownership structure, the effect of legal and regulatory environment and impact of mandatory compliance. Practical implications Legal and regulatory environment are notable extent that can effectively govern the CG codes. An increase in the board size, investor protection and gender diversity, with strong governance structure, can enhance the transparency of companies. Originality/value The paper examines the prominence of CG norms with the ratification of the Indian Companies Act 2013, which is analogous with global CG policies and regulations.

Baker H.K., Kapoor S., Jabbouri I.

Purpose This study aims to examine dividend policy from the perspective of institutional investors in India. It focuses on the level of importance these investors attach to the dividend policy of their investee firms, the level of influence they exercise in shaping such firms’ dividend policies and their reactions to changes in dividends. This study also reports how institutional investors view various explanations for paying dividends. Design/methodology/approach A mail survey provides a profile of respondents and their firms, as well as responses to 29 closed-ended questions involving various explanations for paying dividends and 22 closed-ended questions on various dividend issues. Findings The evidence shows that Indian institutional investors attach substantial importance to dividend policy and prefer high dividend payments. Their reactions to dividend changes are asymmetric. Taxes are a major driver for why they seek dividends, whereas liquidity needs to play little role in shaping their preferences. The two most commonly used methods of active monitoring are selling shares and communicating concerns to investee companies. Research limitations/implications The number of responses limits the ability to test for statistically significant differences between the various competing hypotheses. Practical implications The findings support multiple explanations for paying cash dividends and provide new evidence supporting the positive relation between inflation and dividend payments. Originality/value This study provides the first survey evidence on the views of institutional investors on dividend policy in India.

Haldar A., Shah R., Nageswara Rao S.V., Stokes P., Demirbas D., Dardour A.

PurposeThe purpose of this paper is to examine the effect of the presence of independent board directors on financial performance in India.Design/methodology/approachThis study used panel regression models on large listed Indian firms to investigate the impact on financial performance owing to the presence of independent directors.FindingsThe findings suggest that independent board directors in Indian contexts do not significantly affect financial performance.Practical implicationsThis study has implications for the formulation of regulation related to appointment of independent directors and the extent of their representation on the board for them to be effective.Social implicationsThe proportion of independent directors on the board of the firm is influenced by the trade-off between the cost of having independent directors on the board versus the benefits to the firm and society.Originality/valueThe impact of the presence of an independent director on financial performance in highly concentrated ownership remains ambiguous.

Mayur M., Saravanan P.

PurposeThe purpose of this paper is to examine the performance implications of board size, composition and frequency of board meetings on the performance of banks.Design/methodology/approachThe performance of banks is assessed on various parameters such as return on assets (ROA), Tobin’s Q, non-performing asset ratio (NPA ratio) and the net write-off ratio (NWO ratio). The effects of changes in board size and composition and frequency of meetings on the performance of banks are investigated using feasible generalized least square (FGLS) estimation of panel data covering a time span of five years concerning 40 banks incorporated in India. Frequency of board meetings is taken as a proxy for board activity and involvement. The authors have also tested for endogeneity issues in the model.FindingsA curvilinear relationship was found between the board size and performance of banks. The authors have modelled a cubic form of the relationship for Indian banks. The authors’ findings indicate that an increase in board size is associated with better bank performance within both low and high board size ranges. Alternatively, increased board size is negatively associated with bank performance in the intermediate board size range. The study did not find any significant relationship between performance and frequency of board meetings and board composition.Research limitations/implicationsThe behavioural variables reflecting the involvement of the board have not been incorporated in the model to determine the impact of board involvement on the performance of banks owing to the availability of data. It is hoped that this paper will be useful for major regulatory bodies such as the Ministry of Corporate Affairs (MCA), Securities and Exchange Board of India (SEBI), Company Law Board (CLB) and stock exchanges in India and other emerging economies in devising listing norms and other governance-related aspects.Originality/valueNon-linear relationships between the board size and performance are not normally prevalent in emerging economies, especially in the banking sector. However, such a relationship exists among the Indian banks. This paper is the first of its kind to identify and address the same.

D'Cruz P., Bjørkelo B.

Purpose – Through state-of-the-art insights on whistleblowing in India, the purpose of this paper is to highlight the role of sociocultural dynamics in whistleblowing. Design/methodology/approach – A review of literature on wrongdoing and whistleblowing in India revealed various aspects of the national context pertinent to different stages of the phenomenon. Thematic analysis of these dimensions, allowing for a nomothetic approach, resulted in identifying six sociocultural themes common across wrongdoing and whistleblowing. Findings – Sociocultural dynamics impacting the emergence, persistence and recognition of wrongdoing, the decision to blow the whistle, engagement in whistleblowing and the outcomes of whistleblowing encompass social relationships, power distribution, materialistic considerations, sense of propriety and fairness, public/civic orientation and ideological leanings. These factors coexist with international influences, institutional framework, workplace ethos and individual orientation. The presence of wrongdoing and the trajectory of whistleblowing in India are affected by the aforementioned factors. Research limitations/implications – The paper is based on secondary data rather than empirical endeavours. Social implications – By underscoring the relevance of contextual dynamics, in particular sociocultural factors, in the whistleblowing process, the paper indicates an important basis for appropriate interventions to manage wrongdoing and encourage whistleblowing while protecting whistleblowers and ensuring attention to rectifying wrongdoing and sanctioning offenders. Originality/value – Apart from providing a contemporary and comprehensive overview of whistleblowing in India, the paper uncovers the significance of sociocultural factors which have been overlooked so far in the substantive area. Moreover, a contextualised process model of whistleblowing is proposed based on the analysis. In subsuming temporality, context and outcomes for all stakeholders, the model displays complexity and causality, emphasising holism.

Sahu A.K.

In this study I use a large sample of quarterly changes in equity holding by institutional investors and find strong evidence that the functions of institutional investors which were missing in India (Khanna and Palepu, 2000) are taking shape as external controllers of corporate governance. I provide a robust proof that foreign financial institutions (FIIs) have a positive influence on firm performance. For the first time I disintegrate domestic institutions into different categories and find that mutual funds’ influence on firm performance is divergent as compared to banks, financial institutions (FIs) and insurance companies. While the effect of mutual fund holdings on firm performance was inconclusive; equity holding by banks, FIs and insurance companies showed a negative impact. Empirical proof from this study also adds to the existing literature on the monitoring role of institutional investors in India. It is evident that FIIs are better monitors of corporate actions. The other groups of institutions are either poor monitors or do not monitor as changes in their shareholding does not have an influence on firm performance.

Sahu A.K., Vaswani L.K., Chakraborty A.

Young S., Thyil V.

This research aims to explore the relationship between corporate governance and CSR: What are the major factors that play a direct role in the establishment of this relationship? How does context and institutional background impact upon the relationship between CSR and Governance? Using in-depth semi-structured interviews from two types of governance systems in three countries over three years, this study has demonstrated that in practice, within different settings, CSR is being used both as a strategy as well as a reaction to different drivers. We call this adaptive governance where governance can be defined as a flexible system of action incorporating strategic and monitoring activities that determines the way a company enacts its responsibilities to its shareholders and stakeholders and which is determined at any given time by the interrelationship of institutional drivers and behavioural norms. Governance systems and their interrelationships with CSR are demonstrated as fluid according to the national and institutional context, economic situation and industry impact. In the eyes of practitioners corporate governance includes both structural and behavioural factors as well as responsibilities and actions towards shareholders and stakeholders. Contextual factors that this research highlights to be important to the incorporation of CSR into governance include the economic environment, national governance system, regulation and soft law, shareholders, national culture, behavioural norms and industry impacts. Hypotheses on the impact of institutional contexts, industry impacts and economic situations on different types of CSR actions are proposed for further research.

Kumar N., Singh J.P.

PurposeThe purpose of this paper is to examine the effect of corporate board size and promoter ownership on firm value for selected Indian companies.Design/methodology/approachThe study analyses the corporate governance structure of 176 Indian firms listed on the Bombay Stock Exchange using linear regression analysis.FindingsThe empirical findings show a negative relationship of board size with firm value and significant positive association of promoter ownership with corporate performance. The study suggests that only above a critical ownership level of 40 percent does promoter's interest become aligned with that of the company, resulting in positive effect on firm value.Research limitations/ implicationsThe research has been limited to some selected Indian companies, with focus only on board size and promoter ownership as predictor variables. The study suggests that corporate governance reforms in India and introduction of non‐executive independent directors to the board have resulted in diminishing effect of board size on the firm value.Practical implicationsThe study implies that for emerging economies like India, it is practical to have greater ownership control by promoters to enhance company value. Also, it is not advisable to have a board size above certain limit.Originality/valueThe paper adds to existing literature on corporate governance by establishing a relationship between firm performance and board size and promoter ownership.

Prasanna P.K.

Effective corporate governance helps build vibrant and efficient capital markets. There was a remarkable transformation in the disclosure practices of Indian companies since the legislation of corporate governance norms through Clause 49 of the Listing Agreement in the year 2000. This in turn improved both the quantity and quality of information available for an investor in the capital market. Ideally, this should result in ‘informationally-efficient’ stock markets. This article investigates the consequences of governance regulations and the impact of information diffusion on Indian capital market efficiency using GARCH (1, 1). The corporate governance legislation through Clause 49 had a significant impact on the Indian stock market volatility. There has been substantial reduction in market volatility in the post-governance act period. However, there was no evidence substantiating that additional news improved the informational efficiency of the markets. In fact, the additional information resulted in greater volatility persistence.