Can Independent Blockholding Really Play Much of a Role in Indian Corporate Governance?

Corporate Governance Law Review, Vol. 3, No. 3, 2007

30 Pages Posted: 25 Sep 2008

See all articles by George S. Geis

George S. Geis

University of Virginia School of Law

Date Written: September, 24 2008

Abstract

How important are active independent shareholders in a framework for sound corporate governance? Hedge funds, institutional investors, the "Warren Buffets" of the world, and other share blockholders can conceivably guard against abusive behavior by monitoring a firm's activities. As India enters its new era of corporate governance - ushered in by the Clause 49 reforms - many commentators and regulators are endorsing blockholding as an effective antidote against dysfunctional governance. While this idea has some theoretical merit, this paper argues that the present ownership structure of India's public firms does not yet lend itself to a sound blockholding strategy. To make this point, I empirically examine how stock ownership at fifty large public companies on the National Stock Exchange of India (the "S&P CNX Nifty") is split between insiders, the Indian government, and independent investors. This work suggests that many (but not all) firms currently lack enough of an outside shareholder presence to provide a meaningful governance counterbalance. Share blockholding and investor vigilance may indeed have a significant role to play in Indian corporate governance, but it will likely take some time before reform efforts in this area generate much impact.

Keywords: India, corporate governance, blockholding, empirical analysis

JEL Classification: K20, K22

Suggested Citation

Geis, George S., Can Independent Blockholding Really Play Much of a Role in Indian Corporate Governance? (September, 24 2008). Corporate Governance Law Review, Vol. 3, No. 3, 2007. Available at SSRN: https://ssrn.com/abstract=1273172

George S. Geis (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

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