Efficacy of involuntary corporate Governance regulations

Abstract

Corporate Governance (CG) regulations are evolving across the world. Apart from the enactment of CG regulations, the efforts of regulators to make the business accountable to the shareholders and stakeholders are continuing. This thesis consists of two studies that examine the efficacy of forced corporate governance regulations. The underlying question that the thesis tries to address is whether forced corporate regulations really work. The first study, titled Should We Regulate Corporate Social Responsibility Spending? , exploit a counterfactual regulation that forced profitable Indian firms to contribute a minimum of 2 percent of their net profit towards Corporate Social Responsibility (CSR) to assess whether CSR spending should remain voluntary or regulated. The second, titled On the Side Effects of Mandatory Gender Diversity Laws in Corporate Boards , investigate how reducing Representation-based Gender Gap (RGP) through regulatory measures would impact the compensation-based gender gap (CGP). newlineThis first study examines the efficacy of mandatory CSR spending law by assessing the incremental impact of changing from disclosure regulation regime to penalizing regulation. We examine if the market responds to the change in the legal status of CSR positively or negatively. We identify firms that did not respond to awareness but responded to penalty and firms that responded to awareness and continue to do so when a penalty is introduced. Further, we explore the intra-organizational dynamics in CSR implementation by focusing on how CSR managers discretion improves the CSR-CFP relationship. Our results show no significant difference in firm-level accounting and market performance, attributable to mandatory CSR spending law, between the involuntary firms (treated firms) and voluntary firms (control firms). Our results based on hand-collected data on each firm s specific CSR initiatives indicate that voluntary and involuntary firms spent on similar areas/projects. Further, variations in managerial involvement