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Corporate Governance, Enforcement, and Firm Value: Evidence from India

43 Pages Posted: 15 Mar 2008 Last revised: 12 Mar 2012

Dhammika Dharmapala

University of Chicago Law School

Vikramaditya S. Khanna

University of Michigan Law School

Multiple version iconThere are 2 versions of this paper

Date Written: November 2011


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.

Keywords: Corporate Governance, Enforcement, Sanctions, Firm Value, Tunneling

JEL Classification: G34, G38, K22, O16

Suggested Citation

Dharmapala, Dhammika and Khanna, Vikramaditya S., Corporate Governance, Enforcement, and Firm Value: Evidence from India (November 2011). U of Michigan Law & Economics, Olin Working Paper No. 08-005; 3rd Annual Conference on Empirical Legal Studies Papers. Available at SSRN: or

Dhammika Dharmapala (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

Vikramaditya Khanna

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-615-6959 (Phone)

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