Corporate Governance and Firm Performance: A Study of Listed Firms in India

Corporate Governance and Firm Performance: A Study of Listed Firms in India

Devanjali Nandi (George College, India) and Arindam Das (The University of Burdwan, India)
DOI: 10.4018/978-1-4666-8274-0.ch013
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Abstract

Ownership structure is considered to be of prime importance in corporate governance of a firm. The ownership structure significantly varies across the nations. The main focus of this chapter is twofold: firstly to see the impact of ownership structure on performance of the firm and secondly to investigate the relationship between stock market performance and ownership structure during the crisis period. Panel data analysis of CNX 200 companies has been done for the time period of 2006-2013.The study also takes into account the relationship between crisis period stock return and ownership structure. The results of this study reveal a positive relationship of promoter's shareholding with performance while a negative relationship of performance is found with the non-promoters shareholding. The regression of stock price performance on ownership variable gives a significant negative relationship during the crisis period.
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Introduction

Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting return on their investment (Shliefer & Vishny, 1997).The development of corporate governance is a global occurrence and is a complex area having legal, cultural, ownership and other differences. Corporate governance systems are usually classified according to the following five key features (Miguel, Pindado & Torre, 2003): the level of ownership concentration, the effectiveness of boards, the development of capital markets, and the role of the market for corporate control and the legal protection of investors. The publication of Jensen and Meckling’s model resulted in a voluminous body of research, both theoretical and empirical. Through the 1970s and 1980s that research was largely focused on the governance of US corporations, and US-based corporate governance research continued to expand. By the early 1990s, however, research on governance in countries other than the US began to appear. In the beginning, that research focused mainly on other major world economies, primarily Japan, Germany, and the United Kingdom. More recent years, however, have witnessed an explosion of research on corporate governance around the world, for both developed and emerging economies. The governance mechanisms that have been most extensively studied in the US can be broadly characterized as being either internal or external to the firm. Gompers, Metrick and Ishii (2003) identify four dimensions of corporate governance at the level of the firm that can help to minimize the agency problem: board of directors, ownership structure, executive incentive contracts and charter and bye law provisions. Among these the board of directors and the equity ownership structure of the firm can be defined as internal factors. The primary external mechanisms are the external market for corporate control (the takeover market) and the legal/regulatory system.

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