Essays on corporate governance in India

Abstract

India has undertaken a series of institutional and policy reforms to attract foreign investment and increase competition among Indian companies. In this context, a large number of corporate governance reforms have been initiated to strengthen internal governance mechanisms as well as facilitate external governance mechanisms like the market for corporate control. This thesis aims to contribute to the existing literature on corporate governance by presenting three essays on the relationship between governance mechanisms and firm performance by analyzing publicly traded companies in India. newlineThe first essay addresses the relationship between ownership concentration and firm value by investigating the effects of insider and outsider ownerships. It also attempts to see if outside investors coordinate among themselves to utilize their increased blockholdings. The study finds a significant U shaped curvilinear relationship between firm value and the fraction of voting rights owned by insiders. The curve slopes downward until the insider ownership reaches approximately between 45% and 63% respectively for business group and standalone companies and then slopes upward. Empirical results on ownership concentration by outside blockholders do not support the monitoring hypothesis by these investors. Furthermore, the coordinated behavior of largest two outside blockholders has value increasing (decreasing) impact on firm value when the collective control is located in the lower (higher) range. Coordination problem further exacerbates if the largest two outsiders are private corporate bodies. newlineThe second essay examines the role of mergers and acquisitions on value creation for minority shareholders by estimating performance of acquiring firms. The literature is divided in its opinion about the impact of concentration of ownership on firm performance. On the one hand, concentration of ownership that, in turn, concentrates management control in the hands of a strategic investor eliminates agency problems associated with dispersed