Corporate Governance, Enforcement, and Firm Value: Evidence from India
University of Chicago Law School
Vikramaditya S. Khanna
University of Michigan Law School
U of Michigan Law & Economics, Olin Working Paper No. 08-005
3rd Annual Conference on Empirical Legal Studies Papers
This paper analyzes the impact of corporate governance on firm value using a sequence of reforms in India (Clause 49) enacted in 2000, for which more severe penalties were introduced in 2004. The reforms did not apply to all firms and resulted in treatment and control groups of firms with overlapping characteristics. A difference-in-difference approach (controlling for various factors including firm-specific time trends) shows a substantial positive causal effect of the reforms in combination with the 2004 sanction increase. A regression discontinuity analysis, focusing on the thresholds for application of the reforms, leads to similar results. Across various specifications, the estimated effect is at least 6% of firm value. This effect is large, but comparable in magnitude to effects found in other studies of major corporate governance reforms, especially in emerging markets.
Number of Pages in PDF File: 43
Keywords: Corporate Governance, Enforcement, Sanctions, Firm Value, Tunneling
JEL Classification: G34, G38, K22, O16
Date posted: March 15, 2008 ; Last revised: March 12, 2012
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