Impact of Corporate Governance on Organisational Performance of Indian Firms

This research study explored the link between corporate governance practices (CGPs) and organisational performance in India, especially in the context of some major CG reforms that have been undertaken since the turn of the twenty-first century. The authors also attempted to understand in-depth the implications of these reforms for the companies. For assessing the link between CG practices and organisational performance, data were collected from a sample of 100 listed companies in India using an adapted version of the Institute of Company Secretaries of India (ICSI)’s questionnaire. Multilevel Factor Analysis (MFA) for scores along 5 CG sub-categories revealed 17 first-level and 4 second-level factors. Regression of organisational performance, measured using Compound Annual Growth Rate (CAGR), against these factors showed that the first-level factor representing corporate social responsibility and sustainability (CSRS) was a significant predictor of organisational performance. This finding is significant while considering the introduction of mandatory CG provisions for corporate social responsibility (CSR), applicable to companies meeting specified turnover and profitability thresholds according to CG regulations in India. The findings of this study open the debate on CG regulation and on mandatory and desirable norms in the Indian context. Eligible Indian companies must focus on the CG practice of investing in CSR initiatives through purpose-led CSRS interventions and their long-term benefits, rather than on viewing it as a mandatory CG provision that induces short-term expenses.

Socially Responsible Investing and Sustainable Indices: A Sustainability Agenda

COVID-19 pandemic has brought climate change and socially responsible investing back to the forefront. Sustainable investing, though well-entrenched in developed countries, is slowly gaining traction in emerging markets. Sustainability indices operate as quality indicators and bridge information gap. This study explores the usefulness of three such indices and offers an autoregressive moving average model on Carbonex series for sustainable investments on Bombay Stock Exchange. However, the model fails to align with the long-term goals of socially responsible investing and the investor community needs to engage with regulators, corporations and rating agencies so that these sustainability indices can better serve their information needs and offer a valid measure of sustainable practices. COVID-19 brings with it the opportunity to ideate and envision innovative approaches to support a carbon-free economic agenda and to design eco-friendly infrastructure, planned urban development and transition to clean energy. Take–make–consume–waste attitude is out and the philosophy of preserve–endure–nurture–bequeath will be the new normal.

The Devil’s Laugh at Corporate Governance: The Case of Punjab and Maharashtra Co-operative Bank (PMC Bank) India

The trust of depositors in the Indian banking system was shaken in September 2019 when the five-page confession letter written by Joy K Thomas, Managing Director and Chief Executive Officer of Punjab and Maharashtra Co-operative Bank (PMC Bank), one of the ten largest co-operative banks in India revealed gross financial irregularities, collusion and fraud in banking operations of PMC Bank from 2008 onwards. The Reserve Bank of India (RBI) came into swift action and placed curbs on routine banking activities and restricted the withdrawal of money to a limited amount. Succumbing to the shock, depositors protested at several places and even, eleven depositors lost their lives. With a huge exposure of 73% of the overall loan portfolio to a single borrower, Housing and Development Infrastructure Ltd (HDIL) & group companies, that too facing insolvency proceedings, the recovery of full money was almost impossible. The malice at PMC Bank is the classic case of crony capitalism, collusion and fraud, and failure of corporate governance. The case draws important lessons for reforming co-operative banking sector and strengthening banking supervision in the country.

Emerging Prospects of Shareholder Engagement in India

The need for strengthening engagement between companies and its shareholders is being increasingly recognised over the past few years. Various authors have discussed about the role of shareholder engagement in enhancing corporate governance standards. The literatures discussing these aspects are focusing on developed countries. This study seeks to make a contribution to the debate by discussing the scope and challenges for shareholder engagement in India. Many reforms were introduced to enhance shareholder participation and engagement in India. The study explains the significance of shareholder engagement and the strategies adopted by shareholders to influence corporate policy. The study gives a brief overview of scheme of division of power between board of directors and the company in general meeting in India. It examines the statutory reforms introduced in India for promoting shareholder engagement in corporate governance processes. It also discusses some incidents in Indian corporate sector to examine the growth of shareholder engagement in India.

Impact of Audit Quality on Earnings Management: An Empirical Analysis in the Indian Context

Anchoring upon the agency theory of corporate governance, auditing function as a monitoring mechanism is supposed to alleviate information asymmetry between the managers and the shareholders of a company by controlling distortion of reported earnings by the former. The aim of this study is to determine the effect of audit quality on earnings management and substitutability of earnings management strategies using a sample of all Bombay Stock Exchange-listed companies for 10 financial years, that is, from 31 March 2010 to 31 March 2019. The previous studies addressing the issue have mostly captured companies in the developed countries or have dealt with only one strategy at a time. This study adds to the literature by undertaking a comprehensive approach to the analysis by studying both accrual earnings management as well as real earnings management in the Indian context, which are estimated through various models. The findings suggest significance of Big 4 auditors in constraining all forms of earnings management. For firms within the sample that have the incentives to distort earnings, long auditor tenure is found to be aiding earnings management through accruals, thus impairing audit quality.

Impact of Board Diversity on Agency Costs in the Context of Agency Theory Approach: Evidence From Listed Companies in Sri Lanka

Effective corporate governance leads the way towards aligning the interest between managers and shareholders. Effectiveness of practicing the corporate governance of companies in Sri Lanka is debatable topic due to the variation between standard and actual practices. This study aims to examine the influence of board diversity on agency costs of companies listed in Sri Lanka as proposed by agency theory. The sample of this research consists of all companies listed in Sri Lanka, exclusive of bank and financial institutions which are practicing unique governance practices issued by Central Bank of Sri Lanka. The final sample consists of 180 companies during the period from 2013 to 2019. This study deployed panel regression analysis to test the relationship formulated in the hypotheses by using the EViews 9 software. The results showed that the board diversity-related variables such as separate leadership structure and presence of non-executive director on companies’ board are appeared to have significant influence on agency costs. Meanwhile, board size does not have direct impact on agency costs. The findings of this study regarding board diversity and agency costs have important managerial implications, that these findings are unlikely to the prediction of agency theory and best practices. Agency theory is not applicable to these companies, since the exiting corporate governance practices increase agency costs. The potential benefits of this study led to re-think the board of directors of the companies, managers, shareholder and the policymakers to re-organise the implementation of best practices.

Audit Characteristics, Gender Diversity and Firm Performance: Evidence from a Developing Economy

This study aims to explore the impact of audit characteristics and gender diversity on firm performance across family and non-family firms in Bangladesh. Using data of 61 non-family and 48 family firms from 2013 to 2019, this study applies system generalised method of moments approach to carry out regression analysis. Next, the consistency of results is detected by a full sample interaction analysis. In case of non-family firm, this study documents that Big4 audit firms (Big4) and female directors on board (FDR) have significant positive impact on firm performance. Conversely, audit meeting frequency (AMF) contributes negatively to the firm performance. Unfortunately, audit committee size (ACS) and audit committee independence (ACI) have no significant contribution on firm performance. In case of family firms, this study finds that ACS and ACI have significant negative impact on firm performance. Besides, Big4, AMF and FDR have no significant contribution on firm performance. It reflects that corporate governance mechanisms in family firm are not working well and even to some extent detrimental to the firm performance. It, ultimately, demands for reforms in corporate governance framework and incorporating new dimensions for family firms.