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Equity Pattern, Corporate Governance and Performance: A Study of India’s Corporate Sector

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  • Patibandla, Murali

    (Department of International Economics and Management, Copenhagen Business School)

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    Abstract

    In the literature on corporate governance, large outside investors are generally observed to reduce agency costs of corporate governance by monitoring and disciplining managers. This paper separates large investors into foreign investors and government owned local financial institutions and argues that the later have higher degree of moral hazard. The empirical results of the paper, based on firm level panel data for 11 Indian industries, show that foreign investors contribute positively to corporate performance in terms of profitability while the government financial institutions contribute negatively. Reducing the role of government financial institutions and opening up of the equity markets to foreign investors under effective regulatory mechanisms should improve corporate governance in terms of increasing transparency in developing economies. This, in turn, contributes positively to economic growth.

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    File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/6588
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    Bibliographic Info

    Paper provided by Copenhagen Business School, Department of International Economics and Management in its series Working Papers with number 9-2001.

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    Length: 26 pages
    Date of creation: 01 Oct 2001
    Date of revision:
    Handle: RePEc:hhb:cbsint:2001-009

    Contact details of provider:
    Postal: Department of International Economics and Management, Copenhagen Business School, Howitzvej 60, DK-2000 Frederiksberg, Denmark
    Phone: +45 3815 2515
    Fax: +45 3815 2500
    Email:
    Web page: http://www.cbs.dk/departments/int/
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    Related research

    Keywords: foreign equity; government financial institutions; corporate governance;

    References

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    1. Cremer, Jacques, 1995. "Arm's Length Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 275-95, May.
    2. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
    3. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-50, July.
    4. Henry, Peter Blair, 2000. "Do stock market liberalizations cause investment booms?," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 301-334.
    5. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
    6. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June.
    7. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    8. Klaus M. Schmidt, 1990. "The Costs and Benefits of Privatization," Discussion Paper Serie A 287, University of Bonn, Germany.
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