A Corporate Governance Index for Large Listed Companies in India

43 Pages Posted: 11 May 2012

See all articles by Jayati Sarkar

Jayati Sarkar

Indira Gandhi Institute of Development Research (IGIDR)

Subrata Sarkar

Indira Gandhi Institute of Development Research

Kaustav Sen

Pace University - Lubin School of Business

Date Written: May 9, 2012

Abstract

In this paper we construct a Corporate Governance Index for 500 large listed firms in the Indian corporate sector for the period 2003 to 2008 using information on four important corporate governance mechanisms namely, the board of director, ownership structure, audit committee, and the external auditor. The construction of the index for six years allows us to examine the evolution of the state of corporate governance in India over a time period when a large number of corporate governance reforms took place and continue to do so. Our empirical analysis documents an increasing trend in the governance index of Indian companies. An examination of the relation of the Corporate Governance Index with the market performance of companies shows a strong association between the two with companies having better corporate governance structures earning substantially higher rates of return in the market. The empirical analysis shows that good governance practices are rewarded by the market which provides an added incentive to companies to carry out governance reforms. It provides an impetus to regulators as well as to push for further reforms.

Keywords: corporate governance index, board of directors, ownership structure, audit committee, external auditors

JEL Classification: C43, G18, G34, M41, M42

Suggested Citation

Sarkar, Jayati and Sarkar, Subrata and Sen, Kaustav, A Corporate Governance Index for Large Listed Companies in India (May 9, 2012). Pace University Accounting Research Paper. Available at SSRN: https://ssrn.com/abstract=2055091 or http://dx.doi.org/10.2139/ssrn.2055091

Jayati Sarkar

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Bombay 400065, Maharashtra
India
91-22-8400919 (Phone)
91-22-8402752 (Fax)

Subrata Sarkar (Contact Author)

Indira Gandhi Institute of Development Research ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Mumbai, Maharashtra 400065
India

Kaustav Sen

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States
212 618 6413 (Phone)
212 618 6410 (Fax)

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