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Corporate Governance, Enforcement, and Firm Value: Evidence from India

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  • Dhammika Dharmapala
  • Vikramaditya Khanna

Abstract

This article analyzes the impact of corporate governance on firm value using a sequence of reforms in India (Clause 49) enacted in 2000, for which more severe penalties were introduced in 2004. The reforms did not apply to all firms and resulted in treatment and control groups of firms with overlapping characteristics. A difference-in-difference approach (controlling for various factors including firm-specific time trends) shows a substantial positive causal effect of the reforms in combination with the 2004 sanction increase. A regression discontinuity analysis, focusing on the thresholds for application of the reforms, leads to similar results. Across various specifications, the estimated effect is at least 6% of firm value. This effect is large, but comparable in magnitude to effects found in other studies of major corporate governance reforms, especially in emerging markets. (JEL G34, G38, K22, O16). The Author 2012. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

Suggested Citation

  • Dhammika Dharmapala & Vikramaditya Khanna, 2013. "Corporate Governance, Enforcement, and Firm Value: Evidence from India," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(5), pages 1056-1084, October.
  • Handle: RePEc:oup:jleorg:v:29:y:2013:i:5:p:1056-1084
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    File URL: http://hdl.handle.net/10.1093/jleo/ews011
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    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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