Governance Practices of Indian Firms: An Empirical Analysis

Abstract

This paper examines the impact of corporate governance (CG) on financial performance (FP) considering the endogeneity between governance and firm characteristics using a sample of large listed Indian firms from 2008 to 2011. We construct a "CG Index" based on six important governance mechanisms covering a total of 44 attributes affecting the governance of Indian companies. The panel data regression is employed for empirical analysis. The results indicate that CG has a strong influence on performance of Indian firms. We also find that firms with promoter dominated boards and lower leverage report better performance while firm size negatively impacts performance.

Keywords: Corporate Governance Index, Financial Performance, Panel Data Analysis, Endogeneity, Simultaneous Equation Model

JEL Classification: C33, C36, G18, G34, M41