Corporate Governance in India

16 Pages Posted: 2 Apr 2008

See all articles by Rajesh Chakrabarti

Rajesh Chakrabarti

OP Jindal Global University

William L. Megginson

University of Oklahoma

Pradeep K. Yadav

University of Oklahoma Price College of Business

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Abstract

Among more recent changes, the enactment of Sarbanes Oxley type measures in 2004 which includes protections for minority shareholders in family- or promoter-led businesses has contributed to recent increases in institutional and foreign stock ownership. And while family- and government-controlled business groups continue to be the rule, India has also seen the rise of successful companies like Infosys that are free of the influence of a dominant family or group and have made the individual shareholder their central governance focus. But for all its shortcomings, Indian corporate governance has taken major steps toward becoming a system capable of inspiring confidence among institutional and, increasingly, foreign investors. The Securities and Exchanges Board of India (SEBI), which was established as part of the comprehensive economic reforms launched in 1991, has made considerable progress in becoming a rigorous regulatory regime that helps ensure transparency and fair practice. And the National Stock Exchange of India, also established as part of the reforms, now functions with enough efficiency and transparency to be generating the third-largest number of trades in the world, just behind the NASDAQ and NYSE. The Indian corporate governance 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 overburdened courts and significant corruption. Ownership remains concentrated and family business groups continue to be the dominant business model, with significant pyramiding and evidence of tunneling activity that transfers cash flow and value from minority to controlling shareholders. But for all its shortcomings, Indian corporate governance has taken major steps toward becoming a system capable of inspiring confidence among institutional and, increasingly, foreign investors. The Securities and Exchanges Board of India (SEBI), which was established as part of the comprehensive economic reforms launched in 1991, has made considerable progress in becoming a rigorous regulatory regime that helps ensure transparency and fair practice. And the National Stock Exchange of India, also established as part of the reforms, now functions with enough efficiency and transparency to be generating the third-largest number of trades in the world, just behind the NASDAQ and NYSE. Among more recent changes, the enactment of Sarbanes Oxley type measures in 2004which includes protections for minority shareholders in family- or promoter-led businesses has contributed to recent increases in institutional and foreign stock ownership. And while family and government-controlled business groups continue to be the rule, India has also seen the rise of successful companies like Infosys that are free of the influence of a dominant family or group and have made the individual shareholder their central governance focus.

Suggested Citation

Chakrabarti, Rajesh and Megginson, William L. and Yadav, Pradeep K., Corporate Governance in India. Journal of Applied Corporate Finance, Vol. 20, Issue 1, pp. 59-72, Winter 2008. Available at SSRN: https://ssrn.com/abstract=1115534 or http://dx.doi.org/10.1111/j.1745-6622.2008.00169.x

Rajesh Chakrabarti (Contact Author)

OP Jindal Global University ( email )

Sonepat Narela road
Sonepat
Sonepat, Haryana 131001
India

William L. Megginson

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

Pradeep K. Yadav

University of Oklahoma Price College of Business ( email )

307 W.Brooks, Room 205A Division of Finance
Norman, OK 73019
United States
4053256640 (Phone)
4053255491 (Fax)

HOME PAGE: http://www.ou.edu/price/finance/faculty/pradeep_yadav.html

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