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Is blood thicker Than Water? Appraising Adequacy of Indian Corporate Governance Framework For Family Based Companies: A Case Study On Satyam Computers

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  • Sapovadia, Vrajlal

Abstract

One third of the Indian companies are controlled by one or another family members in concert. In recent past corporate governance crisis is surfaced in few family controlled business houses. We studied financial & market performance of 44 top Indian companies listed in Forbes Global 2000, which includes 19 family controlled companies. We compared financial & market performance of family based companies with the non-family based companies. It is observed that family based business have higher revenue and profit generating capabilities, but we observed greater fall in market value of their securities during 2008. Our research identified companies, which faced corporate governance problem. It is found that one third of the family based companies have corporate governance problems. Our investigation shows that in spite of strong corporate governance framework & series of legislation in India, top management violates governance norms either to favor family members or due to jealousy amongst sibling. It is found that there is lack of supervision and inefficiency in prosecuting violators. We investigated in detail the recent serious governance failure at India’s 4th largest IT firm, Satyam Computers Services Limited and reasons of such large magnitude failure of checks & balances in action. We have used primary & secondary data to substantiate the conclusion using appropriate research techniques. The research is useful to the policy makers in designing & implementing corporate governance framework in general & special to family based companies.

Suggested Citation

  • Sapovadia, Vrajlal, 2010. "Is blood thicker Than Water? Appraising Adequacy of Indian Corporate Governance Framework For Family Based Companies: A Case Study On Satyam Computers," MPRA Paper 55228, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:55228
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    References listed on IDEAS

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    1. Anderson, Ronald C. & Mansi, Sattar A. & Reeb, David M., 2003. "Founding family ownership and the agency cost of debt," Journal of Financial Economics, Elsevier, vol. 68(2), pages 263-285, May.
    2. Sapovadia, Vrajlal & Patel, Akash, 2013. "Levers of Corporate Governance in India: Critical Analysis through Prism of Legal Framework," MPRA Paper 55314, University Library of Munich, Germany, revised 19 Mar 2014.
    3. Ronald C. Anderson & David M. Reeb, 2003. "Founding-Family Ownership and Firm Performance: Evidence from the S&P 500," Journal of Finance, American Finance Association, vol. 58(3), pages 1301-1327, June.
    4. Kristian Rydqvist & Kenneth Högholm, 1995. "Going public in the 1980s: Evidence from Sweden," European Financial Management, European Financial Management Association, vol. 1(3), pages 287-315, November.
    5. Ronald C. Anderson & David M. Reeb, 2003. "Founding‐Family Ownership and Firm Performance: Evidence from the S&P 500," Journal of Finance, American Finance Association, vol. 58(3), pages 1301-1328, June.
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    Cited by:

    1. Sapovadia, Vrajlal, 2012. "Corporate Governance Issues in Indian Family-Based Businesses," MPRA Paper 55226, University Library of Munich, Germany.
    2. Sapovadia, Vrajlal, 2003. "Critical Analysis of Accounting Standards vis-à-vis Corporate Governance Practice in India," MPRA Paper 55384, University Library of Munich, Germany, revised 10 Apr 2014.
    3. Sapovadia, Vrajlal & Patel, Akash, 2013. "Levers of Corporate Governance in India: Critical Analysis through Prism of Legal Framework," MPRA Paper 55314, University Library of Munich, Germany, revised 19 Mar 2014.

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    More about this item

    Keywords

    Corporate Governance; Family based; Indian corporate; Satyam Computer; Company Law;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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