Investor Capitalism and the Reshaping of Business in India
There is general agreement that institutional shareholders have been the major force driving the movement for better standards of governance and accountability in corporate business worldwide. How does this work in an 'emerging' market where foreign institutional investors can establish a dominant market position but need to interact with business cultures run by local promoters and low in corporate transparency? This paper argues that while the foreign institutional investors (FIIs) have established considerable leverage over Indian companies, and mounted successful pressure for modernisation of the stock market, their role in corporate governance is unlikely to be as significant as that of the domestic institutions which own substantial chunks of equity in Indian industry. The paper looks at the controversy surrounding the Securities and exchange Board of India's, (SEBI)'s, draft code of corporate governance and suggests that regulators seeking to enforce higher standards of governance in globally integrating markets should reinforce the position of institutional shareholders rather than undermining it.
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