Corporate Governance in India

Abstract

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, the reality is different with slow, over-burdened courts and widespread corruption. Consequently, ownership remains highly 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, widespread earnings management. However, most of India's corporate governance shortcomings are no worse than in other Asian countries, and its banking sector has one of the lowest proportions of non-performing assets, signifying that corporate fraud and tunneling are not out of control. The corporate governance scenario 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 institutions necessary to sustain its impressive current growth rates.

Keywords: Corporate Governance, International Financial Markets, Government Policy and Regulation

JEL Classification: G34, G15, G18