Prelims

doi:10.1108/978-1-78973-847-620191001

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Governance-Led Corporate Performance: Theory and Practice

Author and Other Information

Apu Manna

Balurghat College, India

Tarak Nath Sahu

Vidyasagar University, India

Arindam Gupta

Vidyasagar University, India

Emerald Publishing Limited

DOI:

https://doi.org/10.1108/9781789738476

ISBN electronic:

978-1-78973-847-6

ISBN print:

978-1-78973-848-3

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2019

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Prelims

Author and Other Information

2019

Emerald Publishing Limited

Doi:

https://doi.org/10.1108/978-1-78973-847-620191001

Published:

2019

2019

Emerald Publishing Limited

Governance-Led Corporate Performance

Governance-Led Corporate Performance: Theory and Practice

Apu Manna

Balurghat College, India

Tarak Nath Sahu

Vidyasagar University, India

Arindam Gupta

Vidyasagar University, India

United Kingdom – North America – Japan India – Malaysia – China

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Emerald Publishing Limited

Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2019

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List of Tables		ix
List of Abbreviations		xi
About the Authors		xiii
Preface		xv
1.	Conceptual Approach of Corporate Governance	1
	1.1. Introduction	1
	1.2. Corporate Governance and Its Various Dimensions	2
	1.3. Corporate Governance Mechanisms	3
	1.3.1. Ownership Structure	4
	1.3.2. Board of Directors	5
	1.3.3. CEO Characteristics	6
	1.4. Theories of Corporate Governance	6
	1.4.1. Agency Theory	6
	1.4.2. Stewardship Theory	7
	1.4.3. Resource Dependence Theory	8
	1.4.4. Stakeholder Theory	9
	1.4.5. Signalling Theory	9
	1.4.6. Managerial Hegemony Theory	9
	1.4.7. Political Theory	10
	1.5. Motivation of the Study	10
	1.6. Chapter Plan of the Book	11
2.	Corporate Governance in India	13
	2.1. Introduction	13
	2.2. Three Historical Models and their Development Impact in India	14
	2.2.1. The Managing Agency Model (1850–1956)	14
	2.2.2. The Business House Model (1956–1991)	15
	2.2.3. The Anglo-American Model (1992 to Date)	16
	2.3. Features of Corporate Governance in India	17
	2.4. Corporate Governance Codes in India	18
	2.4.1. CII Code on Corporate Governance (1998)	19
	2.4.2. Kumar Mangalam Birla Committee on Corporate  Governance (1999)	20
	2.4.3. Naresh Chandra Committee on Corporate Audit and  Governance (2002)	21
	2.4.4. Narayana Murthy Committee Report on Corporate  Governance (2003)	22
	2.4.5. Dr J. J. Irani Committee Report on Company Law (2005)	24
	2.5. Corporate Governance and Legislations in India	25
	2.5.1. Amendments to the Companies Act 1956	25
	2.5.1.1. The Companies (Amendment) Act 2000	25
	2.5.1.2. The Companies (Amendment) Act 2001	26
	2.5.1.3. The Companies (Amendment) Bill (2003)	26
	2.5.1.4. The Companies (Amendment) Bill (2008)	27
	2.5.2. The Companies Act 2013	28
	2.5.3. SEBI: Regulation of Capital Market	29
	2.6. Good Governance Indicators	30
	2.7. Summary	32
3.	Literature Review	33
	3.1. Introduction	33
	3.2. An International Approach	34
	3.3. A National Approach	48
	3.4. Research Gap	51
	3.5. Objectives of the Study	52
	3.6. Research Hypotheses	53
4.	Data and Methodology	55
	4.1. Data	55
	4.1.1. Data Source	55
	4.1.2. Sample Selection Procedure	55
	4.1.3. Study Period	56
	4.1.4. Selection of Variables	56
	4.1.4.1. Dependent Variables	56
	4.1.4.1.1. Cash Earnings Per Share	56
	4.1.4.1.2. Return on Capital Employed	57
	4.1.4.1.3. Tobin’s Q	57
	4.1.4.1.4. Market Value Added	58
	4.1.4.2. Independent Variables	58
	4.1.4.2.1. Promoters’ Shareholding	58
	4.1.4.2.2. Institutional Investors’ Shareholding	59
	4.1.4.2.3. Board Size	59
	4.1.4.2.4. Proportion of Executive Directors	59
	4.1.4.2.5. Proportion of Independent Directors  in Board	59
	4.1.4.2.6. Multiplicity of Directorship	59
	4.1.4.2.7. CEO Duality	60
	4.1.4.2.8. CEO Tenure	60
	4.1.4.3. Control Variables	60
	4.1.4.3.1. Executive Remuneration	60
	4.1.4.3.2. Size of the Firm	60
	4.1.4.3.3. Growth in Profit After Tax	61
	4.1.4.3.4. Debt Equity Ratio	61
	4.1.4.3.5. Assets Turnover Ratio	61
	4.2. Research Methodology	61
	4.2.1. Statistical Methods Used	61
	4.2.1.1. Descriptive Statistics	62
	4.2.1.2. Bi-variate Data Analysis	62
	4.2.1.3. Test for Multicollinearity	62
	4.2.1.3.1. Detection of Multicollinearity Property	63
	4.2.1.4. Test for Heteroskedasticity	63
	4.2.1.5. Test for Autocorrelation	63
	4.2.1.6. Panel Data Model	64
	4.2.1.6.1. Advantages of Panel Data Model	64
	4.2.1.6.2. Techniques of Panel Data Model	64
	4.2.1.6.3. Constant Coefficient Method or  Pooled OLS Method	64
	4.2.1.6.4. FEM or Least Square Dummy  Variable Regression Model	65
	4.2.1.6.5. REM or Error Component Model	65
	4.2.2. Scheme of Investigation	67
5.	Analysis and Findings	69
	5.1. Descriptive Statistics	69
	5.2. Analysis of Bi-variate Correlation	71
	5.3. Detection of Multicollinearity Property	72
	5.4. Detection of Heteroskedasticity	72
	5.5. Analysis of Multiple Regressions: Panel Data Model	74
	5.6. Key Findings and Its Interpretations	82
	5.6.1. Ownership Structure and Corporate Performance	82
	5.6.1.1. Promoters Shareholding and Firm Performance	82
	5.6.1.2. IINV and Firm Performance	84
	5.6.2. BS, Composition and Corporate Performance	84
	5.6.2.1. BS and Corporate Performance	84
	5.6.2.2. EDs and Firm Performance	85
	5.6.2.3. IDs and Firm Performance	85
	5.6.2.4. MD and Firm Performance	86
	5.6.2.5. CEO Characteristics and Performance	86
	5.6.3. Control Variables and Corporate Performance	86
6.	Summary and Conclusion	89
	6.1. Summary	89
	6.2. Conclusion	90
	6.3. Contribution of the Study	91
	6.4. Policy Recommendation	92
	6.5. Limitations and Scope for Further Research	92
Bibliography		95
Index		103

List of Tables		ix
List of Abbreviations		xi
About the Authors		xiii
Preface		xv
1.	Conceptual Approach of Corporate Governance	1
	1.1. Introduction	1
	1.2. Corporate Governance and Its Various Dimensions	2
	1.3. Corporate Governance Mechanisms	3
	1.3.1. Ownership Structure	4
	1.3.2. Board of Directors	5
	1.3.3. CEO Characteristics	6
	1.4. Theories of Corporate Governance	6
	1.4.1. Agency Theory	6
	1.4.2. Stewardship Theory	7
	1.4.3. Resource Dependence Theory	8
	1.4.4. Stakeholder Theory	9
	1.4.5. Signalling Theory	9
	1.4.6. Managerial Hegemony Theory	9
	1.4.7. Political Theory	10
	1.5. Motivation of the Study	10
	1.6. Chapter Plan of the Book	11
2.	Corporate Governance in India	13
	2.1. Introduction	13
	2.2. Three Historical Models and their Development Impact in India	14
	2.2.1. The Managing Agency Model (1850–1956)	14
	2.2.2. The Business House Model (1956–1991)	15
	2.2.3. The Anglo-American Model (1992 to Date)	16
	2.3. Features of Corporate Governance in India	17
	2.4. Corporate Governance Codes in India	18
	2.4.1. CII Code on Corporate Governance (1998)	19
	2.4.2. Kumar Mangalam Birla Committee on Corporate  Governance (1999)	20
	2.4.3. Naresh Chandra Committee on Corporate Audit and  Governance (2002)	21
	2.4.4. Narayana Murthy Committee Report on Corporate  Governance (2003)	22
	2.4.5. Dr J. J. Irani Committee Report on Company Law (2005)	24
	2.5. Corporate Governance and Legislations in India	25
	2.5.1. Amendments to the Companies Act 1956	25
	2.5.1.1. The Companies (Amendment) Act 2000	25
	2.5.1.2. The Companies (Amendment) Act 2001	26
	2.5.1.3. The Companies (Amendment) Bill (2003)	26
	2.5.1.4. The Companies (Amendment) Bill (2008)	27
	2.5.2. The Companies Act 2013	28
	2.5.3. SEBI: Regulation of Capital Market	29
	2.6. Good Governance Indicators	30
	2.7. Summary	32
3.	Literature Review	33
	3.1. Introduction	33
	3.2. An International Approach	34
	3.3. A National Approach	48
	3.4. Research Gap	51
	3.5. Objectives of the Study	52
	3.6. Research Hypotheses	53
4.	Data and Methodology	55
	4.1. Data	55
	4.1.1. Data Source	55
	4.1.2. Sample Selection Procedure	55
	4.1.3. Study Period	56
	4.1.4. Selection of Variables	56
	4.1.4.1. Dependent Variables	56
	4.1.4.1.1. Cash Earnings Per Share	56
	4.1.4.1.2. Return on Capital Employed	57
	4.1.4.1.3. Tobin’s Q	57
	4.1.4.1.4. Market Value Added	58
	4.1.4.2. Independent Variables	58
	4.1.4.2.1. Promoters’ Shareholding	58
	4.1.4.2.2. Institutional Investors’ Shareholding	59
	4.1.4.2.3. Board Size	59
	4.1.4.2.4. Proportion of Executive Directors	59
	4.1.4.2.5. Proportion of Independent Directors  in Board	59
	4.1.4.2.6. Multiplicity of Directorship	59
	4.1.4.2.7. CEO Duality	60
	4.1.4.2.8. CEO Tenure	60
	4.1.4.3. Control Variables	60
	4.1.4.3.1. Executive Remuneration	60
	4.1.4.3.2. Size of the Firm	60
	4.1.4.3.3. Growth in Profit After Tax	61
	4.1.4.3.4. Debt Equity Ratio	61
	4.1.4.3.5. Assets Turnover Ratio	61
	4.2. Research Methodology	61
	4.2.1. Statistical Methods Used	61
	4.2.1.1. Descriptive Statistics	62
	4.2.1.2. Bi-variate Data Analysis	62
	4.2.1.3. Test for Multicollinearity	62
	4.2.1.3.1. Detection of Multicollinearity Property	63
	4.2.1.4. Test for Heteroskedasticity	63
	4.2.1.5. Test for Autocorrelation	63
	4.2.1.6. Panel Data Model	64
	4.2.1.6.1. Advantages of Panel Data Model	64
	4.2.1.6.2. Techniques of Panel Data Model	64
	4.2.1.6.3. Constant Coefficient Method or  Pooled OLS Method	64
	4.2.1.6.4. FEM or Least Square Dummy  Variable Regression Model	65
	4.2.1.6.5. REM or Error Component Model	65
	4.2.2. Scheme of Investigation	67
5.	Analysis and Findings	69
	5.1. Descriptive Statistics	69
	5.2. Analysis of Bi-variate Correlation	71
	5.3. Detection of Multicollinearity Property	72
	5.4. Detection of Heteroskedasticity	72
	5.5. Analysis of Multiple Regressions: Panel Data Model	74
	5.6. Key Findings and Its Interpretations	82
	5.6.1. Ownership Structure and Corporate Performance	82
	5.6.1.1. Promoters Shareholding and Firm Performance	82
	5.6.1.2. IINV and Firm Performance	84
	5.6.2. BS, Composition and Corporate Performance	84
	5.6.2.1. BS and Corporate Performance	84
	5.6.2.2. EDs and Firm Performance	85
	5.6.2.3. IDs and Firm Performance	85
	5.6.2.4. MD and Firm Performance	86
	5.6.2.5. CEO Characteristics and Performance	86
	5.6.3. Control Variables and Corporate Performance	86
6.	Summary and Conclusion	89
	6.1. Summary	89
	6.2. Conclusion	90
	6.3. Contribution of the Study	91
	6.4. Policy Recommendation	92
	6.5. Limitations and Scope for Further Research	92
Bibliography		95
Index		103

List of Tables

Table 1.

Descriptive Statistics of Dependent, Independent and  Control Variables

Table 2.

Bi-variate Analysis: Correlation Analysis

Table 3.

Correlation Matrix and VIF Values of Independent and  Control Variables

Table 4.

Tests of Heteroskedasticity

Table 5.

Regression Results: Dependent Variable – ROCE

Table 6.

Selection of an Appropriate Model of Regression Analysis

Table 7.

Regression Results: Dependent Variable – CEPS

Table 8.

Selection of an Appropriate Model of Regression Analysis

Table 9.

Regression Results: Dependent Variable – TQ

Table 10.

Selection of an Appropriate Model of Regression Analysis

Table 11.

Regression Results: Dependent Variable – MVA

Table 12.

Selection of an Appropriate Model of Regression Analysis

Table 13.

Summarized Regression Results

List of Abbreviations

ATR

Assets Turnover Ratio

BSE

Bombay Stock Exchange

Board Size

BSC

Balanced Scorecard

CEO

Chief Executive Officer

CEO_DUA

CEO Duality

CEO_TEN

CEO Tenure

CEPS

Cash Earnings Per Share

Corporate Governance

CVA

Cash Value Added

D/E

Debt and Equity Ratio

DPS

Dividend Per Share

Dividend Payout

EPS

Earnings Per Share

Executive Director

Executives’ Remuneration

EVA

Economic Value Added

FEM

Fixed Effect Model

Independent Director

IINV

Institutional Investors’ Shareholding

M-Cap

Market Capitalisation

Multiplicity of Directorship

MVA

Market Value Added

PAT

Profit After Tax

P/E Ratio

Price Earnings Ratio

Promoters’ Shareholding

REM

Random Effect Model

Residual Income

ROA

Return on Assets

ROCE

Return on Capital Employed

ROI

Return on Investment

SIZE

Size of the Firm

SEBI

Security Exchange Board of India

Shareholder Return

SROI

Social Return on Investment

SVA

Shareholder Value Added

TBR

Total Business Return

TSR

Total Shareholder Return

Tobin’s Q

VIF

Variance Inflation Factor

WAI

Wealth Added Index

About the Authors

Dr Apu Manna is presently an Assistant Professor in the Department of Commerce, Balurghat College, Balurghat, West Bengal, India. He has over four years of undergraduate teaching and research experience. Dr Manna passed M.Com. in Accounting and Finance with silver medal. He has attended several workshops and faculty development programmes and presented a number of research articles in several national and international doctoral colloquium, seminars, symposiums and conferences. He has a number of published research works to his credit in the field of Commerce, Economics and Management in different avenues of publication like national and international journals and edited volumes. He is the life member of Indian Accounting Association.

Dr Tarak Nath Sahu is presently an Assistant Professor in the Department of Commerce, Vidyasagar University, Midnapore, West Bengal, India. He has over 12 years of postgraduate teaching and research experience. His specialisation is in finance and financial markets and his research publications are in the area of corporate finance, corporate governance, financial market, investment behaviour, etc. Dr Sahu, a gold medalist at both graduate and post-graduate levels, has authored two books published by Palgrave Macmillan, New York, and Emerald Publishing Limited, UK, and co-edited four books. Dr Sahu has published more than 40 research articles in reputed national and international journals.

Dr Arindam Gupta is presently a Professor in the Department of Commerce, Vidyasagar University, Midnapore, West Bengal, India. He has over 24 years of postgraduate teaching and research experience. His specialisation is in finance and public policy. Dr Gupta is gold medalist at post-graduate level, has a post graduate diploma in financial management and professional qualification of cost and management accountancy. He has completed four research projects sponsored by University Grants Commission and also post-doctoral assignment at Indian Institute of Management Calcutta. Dr Gupta has published more than 100 articles in reputed national and international journals, authored/edited 4 books, and has presented papers in more than 200 occasions in international and national level conferences or lecture programmes.

Preface

The economic growth of any nation largely depends on the vitality of its industry and capital market at large. The responsibility of maintaining the health of the industry as well as capital market mostly depends on the efficiency and effectiveness of the controlling agencies of government and their implemented policies, practices, rules, regulations, etc. A major part in the subject of corporate governance deals with these issues and ensures their apt implementation in the business corporations. The industrial growth in India along with the development of corporate culture started after independence in 1947 but the expression ‘corporate governance’ remained in vogue until 1990. The concept of corporate governance and its problems are as old as the concept of a business corporation and especially the joint stock companies. It started gaining importance after experiencing a number of corporate scandals come out mainly after economic liberalisation. In India, the crucial need for corporate governance was first realised with the occurrence of Harshad Mehta’s scam that was exposed in April 1992. During the last two decades along with many developed and developing economies, India also witnessed a number of serious cases of corporate misgovernance in a handful of joint stock companies. It was clearly indicating the nature and extent of corporate misgovernance that exists in those Indian companies.

In this context, the impact of corporate governance on corporate performance is gradually becoming a key area in research. Although a number of notable studies have been conducted to establish the relationship most of them typically focussed on developed economies and the effect of these corporate governance issues on the firm performance in emerging economies like India has got little attention. The results of earlier studies also provide contradictory findings. By considering the stewardship theory, some studies have suggested that larger board size is better for the firm, whereas by considering the agency theory some studies support small boards and less outsiders. Believing the resources dependency theory some studies have stated that large numbers of outsiders in the board help the organisation to get key resources for the organisation conveniently.

These contradictory findings of the earlier studies became the principal drive behind conducting this research work. This extensive research regarding the effect of corporate governance variables on firm performance in India addresses basic questions for specific areas viz., corporate board, ownership structure and chief executive officer characteristics. Findings of this study provide a comprehensive understanding of the dynamic relationship between corporate governance variables and corporate performance in Indian companies. It discusses the theoretical hypotheses of this relationship and compares with empirical evidence as available from earlier research works. The present study is expected to add several primary contributions to the extant literature. Besides investors, findings of the study help an organisation to determine their policies regarding ownership structure and board composition. Again this study may also provide support to the corporate governance policy-making agencies of the country to provide recommendations regarding board size, independence of the board, multiplicity of directorship, etc.

Thus, such a study is worth undertaking in emerging economies like India, in view of the fact that the study contributes to managerial science by providing scientific elements through identification and validation of the effects of corporate governance variables on corporate performance.

Prelims

Governance-Led Corporate Performance

Governance-Led Corporate Performance: Theory and Practice

Copyright Page

Contents

List of Tables

List of Abbreviations

About the Authors

Preface

Email alerts

Prelims

Governance-Led Corporate Performance

Governance-Led Corporate Performance: Theory and Practice

Copyright Page

Contents

List of Tables

List of Abbreviations

About the Authors

Preface

Related Topics

Email alerts

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