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Firm-Level Corporate Governance in Emerging Markets: A Case Study of India

50 Pages Posted: 9 Mar 2008 Last revised: 6 Jul 2009

Bala N. Balasubramanian

Indian Institute of Management Ahmedabad; Formerly IIM Bangalore - Centre for Corporate Governance and Citizensip; Former Adjunct Professor

Bernard S. Black

Northwestern University - Pritzker School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)

Vikramaditya S. Khanna

University of Michigan Law School

Multiple version iconThere are 2 versions of this paper

Date Written: July 2, 2008

Abstract

We provide an overview of Indian corporate governance practices, based primarily on responses to a 2006 survey of 370 Indian public companies. Compliance with legal norms is reasonably high in most areas, but not complete. We identify areas where Indian corporate governance is relatively strong and weak, and areas where regulation might usefully be either relaxed or strengthened. On the whole, Indian corporate governance rules appear appropriate for larger companies, but could use some strengthening in the area of related party transactions, and some relaxation for smaller companies. Executive compensation is low by U.S. standards and is not currently a problem area.

We also examine whether there is a cross-sectional relationship between measures of governance and measures of firm performance and find evidence of a positive relationship for an overall governance index and for an index covering shareholder rights. We find an overall association, which is stronger for more profitable firms and firms with stronger growth opportunities. A subindex for shareholder rights is individually significant, but subindices for board structure (board independence and committee structure), disclosure, board procedure, and related party transactions are not significant. The non-results for board structure contrast to other recent studies, and suggest that India's legal requirements are sufficiently strict so that overcompliance does not produce valuation gains.

Keywords: India, securities law, corporate governance, Clause 49

JEL Classification: G15, G34, G38, K22

Suggested Citation

Balasubramanian, Bala N. and Black, Bernard S. and Khanna, Vikramaditya S., Firm-Level Corporate Governance in Emerging Markets: A Case Study of India (July 2, 2008). ECGI - Law Working Paper 119/2009; 2nd Annual Conference on Empirical Legal Studies Paper; U of Michigan Law & Economics, Olin Working Paper 08-011; U of Texas Law, Law and Econ Research Paper No. 87; Northwestern Law & Econ Research Paper No. 09-14. Available at SSRN: https://ssrn.com/abstract=992529 or http://dx.doi.org/10.2139/ssrn.992529

Bala N. Balasubramanian

Former Adjunct Professor ( email )

Vastrapur
Ahmedabad, GA Gujarat
India
+919167036140 (Phone)

Indian Institute of Management Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat
India
+919167036140 (Phone)

Formerly IIM Bangalore - Centre for Corporate Governance and Citizensip ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Bernard S. Black

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
312-503-2784 (Phone)

Northwestern University - Kellogg School of Management

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-5049 (Phone)

European Corporate Governance Institute (ECGI)

Brussels
Belgium

Vikramaditya S. Khanna (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-615-6959 (Phone)

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