Corporate Governance Reforms and Financial Disclosures: A Case of Indian Companies

Abstract

Corporate governance reforms assume critical significance for developing economies like India, which is moving towards a more transparent and accountable system of economic governance. Though India has initiated serious efforts towards overhauling the corporate governance mechanisms through comprehensive corporate governance laws and regulations, their enforcement remains inadequate. Earlier studies indicate that disclosure practices of Indian companies do not go beyond the mandatory requirements, thus creating an urgent need for corporate governance reforms. The main objective of this study is to evaluate the impact of corporate governance reforms brought out by Securities and Exchange Board of India (SEBI), Clause 49 of the Listing Agreement (2006), on the level of financial disclosures of the Indian firms. The current research has been carried out with 30 Indian listed companies which form part of Bombay Stock Exchange (BSE) index for the pre-reform period (2001-02 to 2004-05) and post-reform period (2005-06 to 2008-09). A Corporate Governance Transparency and Disclosure Score (CGS) has been constructed for the sample companies based on the attributes drawn from the Standard and Poor’s (S&P) Transparency and Disclosure Survey (2008). The study indicates that despite impressive corporate governance reforms, there is only a moderate level of financial disclosures by the Indian firms. It emphasizes a need for improved enforcement of legal and regulatory structures to enhance financial reporting quality.