Dominating Shareholders in Indian Organizations – Their Relevance for Corporate Governance and Firm Performance

Abstract

Unlike the central governance issue in the Anglo Saxon world, which is essentially that of disciplining management that may stop being accountable to the owners, who are dispersed shareholders, the central challenge in corporate governance in India is that of disciplining the dominant shareholder and in protecting the interest of the minority shareholders.

Other forms of domination, besides family ownership, such as domination by government or a foreign group also exist in Indian organizations; additionally, often promoters of companies exercise influence that is disproportionate to their actual shareholding.

Our study finds that differences in the nature of the dominating shareholder result in significant differences in the firm’s corporate governance characteristics. Furthermore, while the corporate governance parameters do not have any significant impact on the firm’s performance, the nature of the dominating shareholder significantly impacts the firm’s performance