Working Paper Series, Department of International Economics and Management, Copenhagen Business School
Equity Pattern, Corporate Governance and Performance: A Study of India’s Corporate Sector
Abstract: In the literature on corporate governance, large outside
investors are generally observed to reduce agency costs of corporate
governance by monitoring and disciplining managers. This paper separates
large investors into foreign investors and government owned local financial
institutions and argues that the later have higher degree of moral hazard.
The empirical results of the paper, based on firm level panel data for 11
Indian industries, show that foreign investors contribute positively to
corporate performance in terms of profitability while the government
financial institutions contribute negatively. Reducing the role of
government financial institutions and opening up of the equity markets to
foreign investors under effective regulatory mechanisms should improve
corporate governance in terms of increasing transparency in developing
economies. This, in turn, contributes positively to economic growth.
Keywords: foreign equity; government financial institutions; corporate governance; (follow links to similar papers)
26 pages, October 1, 2001
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