1. 26th March 2014
Department of Business Administration,
Faculty of Management Studies & Research
Aligarh Muslim University, Aligarh.
OwnershipConcentration,Corporate
GovernanceandFirm’sFinancialPerformance
Presentation by: SANTOSH PANDE
Research Guide: Dr Valeed Ahmad Ansari, AMU, Aligarh.
External Guide: Dr A K Vij, ITM University, Gurgaon.

2. Section Heading
1 Literature Review.
2 Corporate Governance in India .
3 Methodology.
4 Results and Discussions.
5 Findings and Conclusions.
Structureofthe Thesis
2

3. LITERATURE REVIEW
SECTION I:
3

4. CorporateGovernance:a definition
4
Corporate Governance has been defined as;
“… how to assure financiers that they get a return on their
investment”
Shleifer, Andrei and Vishny, Robert W., (1997); A Survey of Corporate Governance,
The Journal of Finance, Volume 52, Number 2 (June 1997).
Traditionally, Corporate Governance deals with the
Agency problem
SECTION I

5. AlternativeFrameworksforCorporateGovernance
Serial
No.
Theoretical
Framework
Basic
Discipline
Year of Origin
1 Agency Theory Economics from 1930’s
onwards
2 Stakeholder Theory Management from 1970’s
onwards
3 Stewardship Theory Psychology &
Sociology
from 1990’s
onwards
5
SECTION I

6. Limitationsof theexistingtheoreticalframeworks
These frameworks address the ‘why’ of Corporate Governance but do not
provide an answer to the ‘what’ ( to do) of Corporate Governance and provide
limited guidance to the Board of Directors in taking key decisions.
We lack an encompassing and unifying theory of corporate governance that
would guide the Board of Directors in taking key decisions.
6
Agency
With the lines between
agent(s) and principal(s)
getting blurred the
governance model based
on the Agency Theory runs
into severe limitations.
However, the Agency
Theory does help the
Board of Directors in
finding solutions to a
narrower problem of
corporate governance of
how to keep managers
from diverting corporate
funds for private purposes.
Stakeholder
Stakeholder Theory fails in
determining the difference
between means and ends –
when everything (the
objectives of all the
stakeholders) is a goal then
nothing really is the goal !
Stewardship
Under Stewardship Theory,
directors see their roles as
being stewards of
particular interest groups
only; for example when a
major shareholder secures
a seat on the board, its
appointed director will
understandably be tied to
that shareholder's aims,
whatever company law
might say.
SECTION I

7. Research across different countries has shown that:
 differing ownership characteristics of firms across the world have led to the
creation of different Governance structures , and
 there is no “one size fits all” kind of governance structure that has universal
applicability;
• La Porta, Rafel , Lopez-de-Silanes, Florencio & Shleifer, Andrei (1998);
• Klapper and Love (2002);
• Claessens and Fan (2003);
• Berglof and Claessens (2004);
• Singh and Zammit (2006);
• Jiang (2005);
• Maher and Andersson ( 1999)
The divergence in corporate governance practices across different countries in
the world and the key role played by block holder groups, especially in emerging
markets, points to the need to develop a unifying theory for corporate
governance and the focus of any robust theoretical basis for corporate
governance needs to shift from one that aims to balance between the interests of
the various stakeholders to one that focuses on the organization and in creating
enduring benefit for the organization.
Corporate Governance………across the world
7
SECTION I

8. Whyfocusongoodgovernance?
The movement towards good corporate governance has been motivated by the
presumed existence of the following intuitive linkages;
8
Good corporate
governance would
protect the interest of
the owners
(shareholders) and
harmonize the
interests of the
owners and managers
Good corporate
governance would
result in better
organizational
performance and
make it easy for firms
to access external
funds and investors
SECTION I

9. GovernanceandFirmPerformance
Good Governance has been the focus of research by Consultants, Fund
Managers, Rating Agencies, Donor organizations.
Key Studies:
Coombes, Paul and Watson, Mark, (2000); Three Surveys on Corporate
Governance, The McKinsey Quarterly, 2000, No. 4.
 Beyond the Numbers-Corporate Governance: Implication for Investors;
Deutsche Bank –submitted by Deutsche Bank A.G., in 2004 to the Asset
Management Working Group (AMWG) of the United Nations
Environment Program Finance Initiative (UNEP FI).
ICRA Corporate Governance Survey, February 2004
Corporate Governance in Asia, Recent Evidence from Indonesia, Republic
of Korea, Malaysia, and Thailand –an ADB Report
9
SECTION I

10. GovernanceandFirmPerformance………contd.
• The broad conclusion of the survey based research efforts have
been near unanimous – Good Governance pays!
• To put these findings into perspective, reforming the Corporate
Governance practices by a Firm could significantly improve its
valuation, presumably at considerably lesser effort than that
required to boost sales, cost cutting exercise or improving margins!
10
SECTION I

11. GovernanceandFirmPerformance…contd.
Key Empirical Studies:
 Gompers, Paul A., Ishii, Joy L. and Metrick, Andrew; (2003),Corporate
Governance & Equity Prices
 Lucian Bebchuk, Alma Cohen, and Allen Ferrel ; (2004) ,
What Matters in Corporate Governance?
 Lawrence D. Brown and Marcus L. Caylor; (2004), Corporate Governance
and Firm Performance
 Kenneth Lehn, Sukesh Patro, and Mengxin Zha; (2007), Governance Indexes
and Valuation: Which causes Which?
 David Larcker, Scott Richardson, and Irem Tuna; (2005), How Important is
Corporate Governance?
 Carol Padgett & Amama Shabbi; The UK Code of Corporate Governance:
(2005),Link between Compliance and Firm Performance
 Balasubramanian, N., Black, Bernard S., and Khanna, Vikramaidtya,;
(2008),Firm Level Corporate Governance in Emerging Markets – A case
study of India
11
SECTION I

12. ConclusionsfromEmpiricalResearch
Despite the intuitive appeal of the proposition that ‘Good Governance
(of the Firm) would lead to Good Performance (by the Firm)’
conclusive evidence linking good governance to good performance
has been lacking with the results obtained from empirical research
having been mixed.
…………………yet, country after country has gone in for governance
reforms around introducing ‘model’ codes for good governance in the
belief that good governance would lead to good performance!
12
SECTION I

13. KeyChallengesinCorporateGovernanceresearch
13
FIRSTLY,
• defining and
measuring corporate
governance in a
manner that it
captures its essence
is not an easy task–
assessment of good
governance requires
measuring ‘soft
issues’!
SECONDLY,
• establishing a
universal standard of
good corporate
governance – is it
indeed possible to
develop such a
standard ? Can a
policy of ‘one size fits
all’ hold for good
governance?
THIRDLY,
• establishing causality
from empirical data
is difficult- have
researchers who
have inferred
causality between
corporate
governance and
corporate
performance drawn
conclusions which
are beyond the
empirical evidence?
SECTION I

14. CORPORATE GOVERNANCE IN INDIA
SECTION II:
14

15. CorporateGovernance-a recentjourneyinIndia
15
• Focus on Corporate Governance (CG) started in the late 1990s.
• Major Milestones
 CII Code on Corporate Governance,1998.
 Kumaramangalam Birla Committee report,2000.
 Naresh Chandra Committee report,2002.
 Narayana Murthy Committee report, 2003.
 Final Adoption of Clause 49 of the Listing Agreement,2004.
 JJ Irani Committee on the New Companies Law, 2005.
 Voluntary Guidelines for Corporate Governance, 2009.
 Companies Act 2013.
SECTION II

16. CGinIndia-someDistinguishingFeatures
 The Indian Corporate structure is characterized by the presence of the Dominant
Shareholder where the traditional Anglo Saxon Model of Corporate Governance
has limited applicability.
 The Dominant Shareholder, in India, is not restricted to only Family ownership and
other forms of Dominant Shareholders such as State Ownership and Multi National
Corporations (MNCs) also exist.
 The primary objective of Corporate Governance, in India, is the protection of the
interest of the Minority Shareholder(s) as opposed to harmonizing the interest of
the Owners (Shareholders) and Managers in the Firm.
 Instances of Corporate mis-governance are usually highlighted/exposed when
disputes arise within the Dominant Shareholder Group.
 Corporate Governance initiatives relying on self governance have failed in India as
they have focused more on ‘form’ than on ‘content’.
16
SECTION II

17. CorporateGovernanceinIndia…
“The governance issue in the US or the UK is essentially that of disciplining the
management who have ceased to be effectively accountable to the owners.
The problem in the Indian corporate sector (be it the public sector, the
multinationals or the Indian private sector) is that of disciplining the
dominant shareholder and protecting the minority shareholders.
Clearly, the problem of corporate governance abuses by the dominant
shareholder can be solved only by forces outside the company itself.”
Varma, Jayanth Rama, (1997); Corporate Governance in India: Disciplining the
Dominant Shareholder, IIMB Management Review Dec 1997, 9(4), 5-18.
17
SECTION II

18. CorporateGovernanceinIndia…
“The problem of the dominant shareholder arises in three large categories of
Indian companies.
First are the public sector units (PSUs) where the government is the
dominant (in fact, majority) shareholder and the general public holds a
minority stake (often as little as 20%).
Second are the multi national companies (MNCs) where the foreign parent is
the dominant (in most cases, majority) shareholder.
Third are the Indian business groups where the promoters (together with their
friends and relatives) are the dominant shareholders with large minority
stakes, government owned financial institutions hold a comparable stake, and
the balance is held by the general public”.
Varma, Jayanth Rama, (1997); Corporate Governance in India: Disciplining the
Dominant Shareholder, IIMB Management Review Dec 1997, 9(4), 5-18.
18
SECTION II

19. CorporateGovernanceinIndia…
“It would augur well if the Indian corporate governance debate were to
transcend beyond conventional wisdom to take into account the distinctive
factors that are characteristic to the agency problems between controlling
shareholders and minority shareholders, rather than to continue to operate
under concepts that relate to the agency problems between shareholders and
managers that are inappropriate to Indian corporate law and governance ”
Umakanth Varottil, A CAUTIONARY TALE OF THE TRANSPLANT EFFECT ON
INDIAN CORPORATE GOVERNANCE , electronic copy available at:
http://ssrn.com/abstract=1331581.
19
SECTION II

20. CorporateGovernanceinIndia…
“It becomes clear that even with attentive crafting of detailed governance
rules by a group of elites with a deep understanding of corporate governance
standards around the world, the reform process is useless if an effective
infrastructure for enforcement and implementation is not in place”.
Afra Afsharipour; THE PROMISE AND CHALLENGES OF INDIA’S CORPORATE
GOVERNANCE REFORMS; electronic copy available at:
http://ssrn.com/abstract=1640249
20
SECTION II

21. CorporateGovernanceinIndia…empiricalstudies
 Balasubramanian, Black and Khanna (2008),
 Mohanty (2002),
 Sarkar, Sarkar and Sen (2012),
 Selarka (2005),
 Mohanty (2002),
 Gupta & Parua (2006),
 Samantroy(2010),
 Khanna and Palepu (2004),
 Mukherjee and Ghosh (2004),
 Pant and Pattanayak (2007),
 Kumar (2003),
 Sarkar and Sarkar (2000) ……and others.
21
SECTION II

22. Research Gap in Indian studies into corporate governance
Significant research gaps in corporate governance research, in
line with similar gaps found worldwide research;
•the elusive search for a universal standard for good
governance,
•the narrow focus of many corporate governance studies,
• the lack of econometric rigor in empirical studies,
•the absence of a robust theory for corporate governance.
Additionally, India specific factors that need to be taken into
account in Indian empirical corporate governance studies,
• the role of the dominant shareholder (in organizations) and
the impact that such shareholders have on corporate
governance and firm performance.
• corporate governance parameters that are peculiar and
specific to the Indian culture and business ethos.
22

23. METHODOLOGY
SECTION III:
23

24. Independent
Variables -Corp
Governance
parameters
Independent
Variables –Ownership
concentration,
defined qualitatively
& quantitatively
Dependent
Variable –
Firm
Performance
•Board Structure & Process.
•Index of Auditor’s
Independence
•Quantum of Related Party
Transactions
Independent
Variables –
from prior
studies.
1. Nature of dominant shareholder -;
•Government dominated
•Indian Group dominated.
•Foreign Group dominated.
•No dominant Group.
2. Promoter shareholding
percentage
• Firm Size
• Firm Age
• Leverage
• Export Intensity
• Advertising
Intensity
•Tobin’s Q
•Return on
Assets (ROA)
Notes:
•For ease of interpretation, the independent
variable are grouped into three groups
•Interaction effects (moderation) between
Ownership concentration and CG variables are
also examined.
•This is NOT a structural model.
Holistic Corporate Governance
Framework for Indian Firms
SECTION III

25. Objectives of the study
• To examine the impact that the nature of dominant shareholder has on the
performance of Indian firms.
• To examine the impact that promoters holding has on the performance of
Indian firms.
• To examine the impact that key corporate governance parameters have on
the performance of Indian firms.
• To examine whether the nature of dominant shareholder could influence
(moderate) the impact of key corporate governance parameters on firm
performance in Indian firms.
• To examine whether the promoters holding could influence (moderate) the
impact of key corporate governance parameters on firm performance in
Indian firms.
• To examine the relationship between certain key firm characteristics (firm
age, firm size, leverage, export intensity, advertising intensity) and firm
performance.
25

26. 1 H01-H03
There is no significance difference in the corporate governance variables,
i.e. board structure & process, index of auditors independence and index
of related party transactions across the four groups of companies
categorized on the basis of the nature of the dominant shareholder
2 H04-H05
There is no significant difference in firm performance ,measured by Tobin’s
Q and ROA, across the four groups of companies categorized on the basis
of the nature of the dominant shareholder.
3 H06-H07
Ownership concentration i.e nature of dominant shareholder and
ownership concentration do not significantly affect firm performance.
4 H08-H010
Corporate governance variables, i.e. board structure & process, index of
auditors independence and index of related party transactions do
significantly affect firm performance.
Hypotheses tested
26
SECTION III

27. 5 H011-H013
The nature of the dominant shareholder does not significantly influence
(moderate) the impact of the corporate governance variables i.e. board
structure & process, index of auditors independence and index of related
party transactions, on firm performance
6 H014-H016
Promoters holding does not significantly influence (moderate) the impact
of the corporate governance variables i.e. board structure & process,
index of auditors independence and index of related party transactions,
on firm performance
7 H017-H021
Other independent (control) variables i.e. size of the firm (market
capitalization), age, leverage, export intensity and advertising intensity do
not significantly influence firm performance.
27
Hypotheses tested……..contd.
SECTION III

28. Data Source used in the study
• This study is based on the sample of S&P CNX 500 companies for the
period (April-March) in financial years 2009-2010, 2010-2011 and 2011-
2012 and uses secondary data that is sourced from the Prowess
database maintained by the Center for the Monitoring of Indian
Economy (CMIE).
•The S&P CNX 500, developed and maintained by India Index Services &
Products Limited (IISL) - a joint venture between NSE and CRISIL Ltd- is
India’s first broad-based benchmark of the Indian capital
•The S&P CNX 500 Index represents about 95.37% of the free float
market capitalization of the stocks listed on NSE as on December 31,
2012 and the total traded value for the last six months ending
December 2012 of all Index constituents is approximately 94.11% of the
traded value of all stocks on NSE.
•S&P CNX 500 constituents have been considered just prior to the
changes that were announced in this Index on March 15, 2013
28

29. 29
Companies in the Study
SECTION IV
FY09-10 FY10-11 FY11-12
No of Companies in S&P CNX 500 500 500 500
LESS , Companies listed after FY 2010-11 - 7 -
-Companies listed after FY 2009-2010 21 - -
‘Universe of companies’ in the S&P CNX 500 479 493 500
LESS, Missing Data
-Details not available of either classification of Directors
(independent/non independent) or of their attendance in
board meetings
20 13 22
-Related Party Transactions details not available 5 4 2
-Other Details not available 4 1 1
-Data sets eliminated because of illogical values 3 2 5
Data sets eliminated 32 20 30
No. of Cos In the sample 447 473 470
Market Capitalization of the Sample as % of the Market
Capitalization of S&P CNX 500. 90.6% 96.7% 92.5%

30. Company Groupings- based on nature of dominant shareholder(s)
30
SECTION IV
Serial
No.
Nature of
Dominant
Shareholding
FY 09-10 FY 10-11 FY11-12
Nos % Nos % Nos %
1 Government 41 9.2% 48 10.1% 42 8.9%
2 Indian Business
Groups
337 74.7% 351 74.3% 358 76.2%
3 Foreign Business
Groups
58 13% 62 13.1% 58 12.3%
4 No Dominating
Group
11 2.5% 12 2.5% 12 2.6%
TOTAL 447 100% 473 100% 470 100%
Serial
No.
Nature of
Dominant
Shareholding
FY 09-10 FY 10-11 Fy11-12
Market Cap-
Rs Mil.
% Market Cap-
Rs Mil.
% Market Cap –
Rs Mil.
%
1 Government 11,979,618.41 24.45% 15,904,095.79 27.1% 12,601,368.45 25.72%
2 Indian Business
Groups
27,932,830.69 57.00% 31,014,346.65 53.00% 27,819,776.42 56.77%
3 Foreign Business
Groups
4,833,900.26 9.86% 5,419,524.46 9.3% 5,637,634.04 11.51%
4 No Dominating
Group
4,255,161.30 8.68% 6,190,177.65 10.6% 5,261,162.85 10.74%
TOTAL 44,746,349.36 100% 58,528,144.55 100% 51,319,941.76 100%

31. 1 Board Structure &
Process
(BSP)
Measured as
= BOARD INDEPENDENCE* BOARD DILIGENCE
=(No. of Independent Directors on the Board divided by Total No
of Directors on the Board)X ( Actual Attendance of Independent
Directors in Board Meetings divided by No of Board Meetings
held)
2 Index of Auditor’s
Independence
(AUD_IND)
Auditor’s Independence is measured as
= Amount Paid to Auditors as Audit Fees for the year/ Amount
paid to Auditors for non Audit Services for the year.
A higher value indicates greater independence for the Auditor.
3 Index of Related
Party Transactions
(RPT_IND)
Related Party Transaction is measured by constructing the
following index for Related Party transactions;
= (Sales To Related Parties +Purchases From Related Parties)/
(Total Sales + Total Purchases).
A higher value for this Index indicates a higher level of Related
Party transactions for the company.
Variables: CORPORATE GOVERNANCE PARAMETERS
31
SECTION III

32. 1
Qualitative
Dimension:
Nature of
organizational
ownership
(OWNSHP_NAT)
The will be measured as a dummy variable depending on
which of the following four categories the organization
falls into:
 Organizations where the dominating shareholder is
the Government of India- Public Sector Undertakings
(PSUs).
 Organizations where the dominating shareholder is
an Indian group.
 Organizations where the dominating shareholder is
a foreign group.
 Organizations with no dominant shareholder –which
does not fall into any of the above groups.
2
Quantitative
Dimension:
Ownership
Concentration
(OWNSP_CONC)
Ownership Concentration is measured by the % of
Promoter Group shareholding.
Variables: OWNERSHIP CONCENTRATION
32
SECTION III

33. 1
Firm Size
(LN_MKTCAP).
Several past CG studies have used total assets as a proxy for firm size;
however in the current business environment where intellectual capital has
become an important component of the firm’s assets a more appropriate
measure of the firm’s size may be market capitalization. This study uses the
natural logarithm function of market capitalization (LN_MKTCAP) as the
indicator of firm size.
2 Firm Age (LN_AGE).
The age of the company has an effect on the performance of the firm. Older
companies, having gone through many business cycles could have a more
stable and better performance. This study uses the natural log of the age of
listing (LN_AGE) as a proxy for company’s age to control for firm maturity.
3 Leverage (TL_NW).
Leverage is a control variable to proxy for the level of
Indebtedness. Debt plays an important role in limiting managerial discretion
over the use of free cash; hence, leverage influences firm value through
monitoring activities by debt holders, this study measures it as total debt
divided by total assets to proxy for financial leverage (TL_NW).
4
Export Intensity
(EXP_INT)
EXP_INT is the total revenue earned from exports of goods and services,
income earned in foreign currency by ways of interest, dividend, royalties,
and consultancy fees divided by gross sales. This accounts for the behavior of
firms that are subject to international competition.
5
Advertising
Intensity
(ADVTG_INT)
ADVTG_INT controls for the expenditure in intangible assets like brand
building. It is also a proxy for an entry barrier in firm’s product market
Other Variables : FROM PRIOR STUDIES
33
SECTION III

34. RESEARCH PROCESS – five steps
34
Investigation into whether there
are significant differences in the
three corporate governance
parameters (Board Structure and
Process, Index of Auditor
Independence and Index of
Related Party Transactions) and
in firm performance (as
measured by Tobin’s Q and ROA)
across the four categories of
firms differentiated based
classified based on the nature of
dominant shareholding.
Examine the strength of
relationship between the
various independent variables
in the holistic framework and
between Tobin’s Q and ROA.
Develop and test multiple
regression models, with firm
performance (Tobin’s Q and
ROA) as the dependent variable
and the various independent
predictor variables, as defined in
the holistic framework – a total
of 12 IVs.
Extend the enquiry, of
the third step, by
incorporating and
examining the
interaction effect of the
independent
moderating variables
and the corporate
governance variables -a
total of 24 IVs.
Carry out post hoc analysis by;
a. Run the regression model by bootstrapping to benchmark and
compare the findings.
b. Run the regression model using two stage least squares method to
benchmark and compare the findings
c. For each of the four groups of companies under study, regress to test
the relationship between the corporate governance variables and firm
performance.
1
2
3
4
5
SECTION III

35. Where:
• β0 is the intercept,
• Tobin’s Qi is the measure of the outcome,
• BSP is a measure of Board Structure and processes,
• AUD_IND is a measure of auditor independence,
• RPT_IND is a measure of the intensity of the related party transactions,
• OWNSHP_CONC is a measure of ownership concentration in the company measured by the promoter group
holding,
• OWNSHP_DUM is a dummy variable that indicates whether the dominant group in the company is a Indian
group, a Foreign group, Government or whether there is no dominant owner group.
• CTRL are control variables of firm size, firm age, leverage, profitability and industry sectors, export intensity
and advertisement intensity, and
• εi is the error term.
35
Regression Model
SECTION III

36. 36
Moderated Regression Model
SECTION III

37. REGRESSION*– carried out for both Tobin’s Q and ROA as DV
1 Model 1.1- Regression with all data with heteroscedasticity-consistent standard
error estimates.**
2 Model 2.1 -Regression after removal of outliers -with heteroscedasticity-consistent
standard error estimates.
3 Model 3.1 –Regression with Interaction effect from Indian origin dominating groups
only-with heteroscedasticity-consistent standard error estimates.
4 Model 4.1 –Regression with Interaction effect from Foreign origin dominating
groups only -with heteroscedasticity-consistent standard error estimates.
5 Model5.1-Regression with Interaction effect from Groups having no dominating
shareholders only -with heteroscedasticity-consistent standard error estimates.
6 Model 6.1-Regression with Interaction effect from promoters holding only.
*A total of 36 (6*2*3) regression models were tested in this study for the three year period
**Heteroscedasticity-consistent standard error estimates are determined using the method
suggested by Hayes and Cai (2007).
Summary of Regression Models tested
37
SECTION III

38. The regression models were tested in a four step hierarchical regression process and the
variables are entered in the following sequence;
Hierarchical Regression steps
38
In the first step the
independent variables from
previous research studies,
the following ‘control’
variables, are regressed
with the DV ( Tobin’s Q or
ROA);
• Firm Size,
(LN_MKTCAP),
• Firm Age, (LN_AGE),
• Leverage, (TL_NW),
• Export Intensity,
(EXP_INT) and,
• Advertising Intensity,
(ADVTG_INT).
In the second step,
the corporate
governance variables
are added in the
regression model,
• Board Structure
& Process, (BSP),
• Index of
Auditor’s
Independence, (
AUD_IND) and,
• Index of Related
Party
Transactions,
(RPT_IND).
In the third step the 3
dummy variables
(representing the 4
category of dominating
shareholders) are
introduced,
• Organizations where
the dominating
shareholder is an
Indian group,
(Indian_Dom_Group).
• Organizations where
the dominating
shareholder is a
foreign group,
(Foreign_Dom_Group)
• Organizations with no
dominant shareholder
–which does not fall
into any of the above
groups,
(No_Dom_Group).
In the final fourth step,
promoter holding is
added as an independent
variable,
(Ownership_Conc).
In the moderated
regression models (used
to test for the interaction
effect between the 4
moderating variables and
the 3 corporate
governance variables) a
fifth step, is added to the
above four steps, in which
the interaction terms are
added to the regression
equation
SECTION III

39. Initial checks
Run initial
regression
Check Residuals
Linearity & unusual
causes
Save Diagnostics
Transform Data
Linearity
Homoscedasticity
Independence
Normality
Assumptions met and no
bias
Heteroscedasticty
No normality
Lack of Independence
Lack of Linearity
Graphs: Scatterplot
Graphs: ZPRED vs ZRESD
Graphs: Histogram
Model can be generalized
Rerun analysis: WLS
Regression
Rerun Analysis: Bootstrap
CIs, Transform data.
transform data
Use a multilevel model
Analysis of Residuals
39
SECTION IV

40. • No Multicollineraity – VIF statistic below 10
• No Autocorrelation – Durban Watson statistic within the
acceptable range of 1.4-2.6.
• Hetreoscadesticity in residuals confirmed by Breusch-
Pagan and Koenker Test. However, standard errors are
corrected using the macro developed by Hayes and Cai
(2007).
• Residuals confirmed as non normal as per Kolmogorov-
Smirnov Test and Shapario-Wilks test. However,
transformation of data not attempted because of
limitations on interpretability of results, instead
bootstrapping regression method used to validate
results. 40
SECTION IV
Analysisof Variables/Residuals

41. Absence of any significant interaction effect between ownership concentration
(measured by the nature of dominant shareholder and promoters holding) and
the three corporate governance variables.
 A total of 72 interaction terms were tested, over three years for two DVs
(3*2*12), and only one interaction term was found to be marginally
significant - in model 3.2 in FY 09-10 with ROA as the DV - with a p value of
0.0469.
 The model wise, step wise changes in R2 in the 36 (3*2*6) regression
models tested above corroborates the absence of any significant
interaction effect. Of the 18 regressions models tested with Tobin’s Q as the
DV, not one had any significant R2 change at step 5 when the interaction
terms were introduced in the regression model; while of the 18 regression
models tested with ROA as the DV, only one, model 3.2 in FY 09-10 with
ROA as the DV, had significant R2 change at step 5 when interaction terms
were introduced in the regression model.
Interaction Effect between ownership concentration and
corporate governance variables
41
SECTION IV

42. REGRESSION*– carried out for both Tobin’s Q and ROA as DV
1
Model 7.1/7.2- Regression for only companies with Indian origin groups as
dominating shareholders-with heteroscedasticity-consistent standard error
estimates**.
2 Model 8.1/8.2 - Regression with BOOTSTRAPPING.
3
Model 9.1/9.2- Regression for companies in the base model with Promoters
holding <50% and >=50%, with heteroscedasticity-consistent standard error
estimates
4
2 Stage Least Squares (2sls) Regression to account for endogenity in
relationship.
*In the post hoc analysis a total of 24 (4*2*3) regression models were tested in this study
for the three year period
**Heteroscedasticity-consistent standard error estimates, where applicable, are
determined using the method suggested by Hayes and Cai (2007).
Post hoc analysis
42
SECTION III

43. RESULTS AND DISCUSSIONS
SECTION IV:
43

44. CG and Firm performance parameters compared across
groups -KW Test
* Significant at p< 0.05 level.
Findings, that firm performance varies significantly across business groups, is
consistent with those of Gunduz and Tataoglu (2001), Priya and Shanmughan(2011).
44
SECTION IV
Serial No. Parameter under investigation FY 09-10 FY10-11 FY 11-12
1 Board Structure& Process .000* .000* .000*
2 Index of Auditor Independence .083 .365 .115
3 Index of Related Party Transactions .000* .000* .000*
4 Tobin’s Q .000* .000* .000*
5 ROA .000* .000* .000*

45. Year Bi-variate correlation between Tobin’s Q and ROA
2009-2010 .350*
2010-2011 .552*
2011-2012 .354*
Bi-variate correlation between Tobin’s Q and ROA: FY 09-12
* Significant at 0.01 level (2 tailed test).
45
SECTION IV

46. Tobin’s Q as DV-FY 09-10 to 11-12 .
Regression results from base model and the bootstrapping model
46
Sl No Description of the variable Un standardized β coefficient
Base Model- 2.1 Bootstrapping Model - 8.1
FY09-10 FY10-11 FY11-12 FY09-10 FY10-11 FY11-12
I. Independent Variables- from previous studies
1 Total Term Liabilities to Net Worth
-.2541* -.0855 -.0084 -.254* -.096* -.016
2 Export Intensity .0045 .0023 .0031 .004 .006 .004
3 Advertising Intensity .1112* .1450* .1526* .111* .145* .155*
4 Natural Log of the Age of the Firm
-.1677* -.0916 -.0051 -.168* -.227* -.196
5 Natural Log of the Market Cap of
the Firm .3168* .3120* .3322* .317* .338* .352*
II. Independent Variables- Corporate Governance Variables
1 Board Structure & Process .5415 .1490 .2163 .542 .719 .222
2 Index of Auditor Independence -.0030 .0021 .0005 -.003 .001 .001
3 Index of Related Party
Transactions .0128* -.0019 .0060 .013* .000 .003
III Independent Variables- Ownership concentration
1 Foreign_Dom_Group .9889* .9830* 1.0223* .989* 1.094* 1.515*
2 Indian_Dom_Group .5549* .6437* .4160* .555* .540* .548*
3 No_Dom_Group .5372 .7128 .4847 .537 .851 .769
4 Ownership_Concentration .0122* .0096* .0041 .012* .015* .009*
Adjusted R2
.457 .389 .429 .297 .256
Sample Size 440 466 463 2000 2000 2000

47. ROA as DV-FY 09-10 to 11-12 .
Regression results from base model and the bootstrapping model
47
Sl No Description of the variable Un standardized β coefficient
Base Model- 2.2 Bootstrapping Model - 8.2
FY09-10 FY10-11 FY11-12 FY09-10 FY10-11 FY11-12
I. Independent Variables- from previous studies
1 Total Term Liabilities to Net Worth
-1.6459* -1.0479* -.0096 -1.705* 1.070* .026
2 Export Intensity .0503* .0384* .0020 .047* .039* .034
3 Advertising Intensity .1912* .2666* .1580* .188* .300* .411*
4 Natural Log of the Age of the Firm
.5551 .3337 -.0771 .499 .150 .950
5 Natural Log of the Market Cap of
the Firm
.6396* .9751* .3660* .646 .893* 1.455*
II. Independent Variables- Corporate Governance Variables
1 Board Structure & Process 4.0593 3.7558 .1064 2.948 3.239 4.761
2 Index of Auditor Independence -.0218 -.0022 .0022 -.017 .001 -.008
3 Index of Related Party
Transactions
-.0245 -.0568* .0037 -.005 -.046* .014
III Independent Variables- Ownership Concentration
1 Foreign_Dom_Group 5.1713* 5.6851* 1.5978* 4.871* 6.166* 2.825
2 Indian_Dom_Group 2.5327* 3.0699* .5740* 2.719* 2.711* .991
3 No_Dom_Group 1.7152 2.3364 .6649 1.871 2.287 -1.342
4 Ownership_Concentration .0479* .0623* .0071 .049* .061* .014
Adjusted R2
.249 .264 .193 .219 .223 .131
Sample Size 440 467 465 2000 2000 2000

48. Posthocanalysisconfirmedthe study findings
1. The results obtained from OLS regression in the study were found to be
robust even on retesting them by bootstrapping regression.
2. The results of the 2sls regression, carried out to address potential
endogeneity concerns did not suggest any significant changes in the
research findings arrived at on the basis of the OLS regression.
3. Regression analysis for only companies with Indian shareholders as
the dominant group corroborate the earlier results which showed an
overall lack of relationship between corporate governance variables and
firm performance.
4. In line with the findings reported in the study, a post hoc analysis in
cases where the promoters holding was below 50% or above 50%,
showed that the three corporate governance variables do not have any
significant relationship with firm performance (Tobin’s Q and ROA)
reconfirming the main findings of this study.
48
SECTION IV

49. KeyObservations…summarized
The observed lack of any significant association between corporate governance
variables and firm performance (in this study) raises the question whether the
process of good governance can be measured primarily by structural factors alone as
has been attempted in this and several other studies.
49
Ownership concentration ( the percentage of promoters
shareholding as well as the nature of dominant shareholder) has a
significant association with firm performance,
Corporate governance variables (board structure and process,
index of auditors independence and index of related party
transactions) do not seem to have any significant association
with firm performance,
There is no ‘interaction effect’ between ownership concentration
and corporate governance variables on firm performance.
At an overall level, the results from the study suggests that;
SECTION IV

50. FINDINGS & CONCLUSIONS
SECTION V:
50

51. KeyFindings
1. Firm Performance (Tobin’s Q and ROA) varies significantly across the four groups of
companies segregated based on the nature of dominant shareholders. Additionally,
there are significant differences in two of the three corporate governance
parameters investigated (index of related party transactions and board structure
and process) across the four groups of companies categorized on the basis of the
nature of dominant shareholders. The third parameter i.e index of auditors’
independence does not vary significantly across the four groups of companies.
These findings are corroborated by Gunduz and Tataoglu (2001), Priya and Shanmughan(2011) who
have also used the Kruskal-Wallis test to compare performance across various groups and, in line
with these findings, found that firm performance varies significantly across business groups.
51
SECTION V

52. 2.The correlation between firm performance measured by Tobin’s Q and ROA is
significant, but low to moderate, confirming the supposition that these two
parameters measure different aspects of firm performance.
This findings corroborates the earlier findings of Gupta et al (2006) who, in a study of 250 +
Canadian companies over 2002 -2004, reported significant (at p<.001 level) but low correlation
between Tobin’s Q and ROA ranging between .223 and .280 ;a study conducted across select East
Asian countries by Asian Development Bank, ADB (2004) that found low to moderate
correlations between ROA and Tobin’s Q across Indonesia (.23), Malaysia (.43), Korea (.09) and
Thailand (.25) and an Indian study of 1005 firms, listed on the Bombay Stock Exchange, over
1999-2000 that reported a significant but low correlation (.13) between Tobin’s Q and ROA,
Douma et al (2003). .
52
SECTION V
KeyFindings…..continued

53. 3. Positive and significant relationship between promoters’ share holding and firm
performance has been reported in this study.
This is consistent with the findings of Sarkar and Sarkar(2005), Pant and Pattanyak (2007),
Selarka(2011) on the relationship between promoters holding and the value of the firm.
4. The study reports a positive relationship between the nature of ownership and
firm performance with a relatively better performance by foreign group
dominated companies vis a vis Indian group dominated companies.
This is in line with studies where some researchers have also reported superior performance for
foreign affiliated groups as compared to other groups, Balasubramanian et al (2008),Chibber and
Majumdar (1999), Douma, George, and Kabir (2003), Gupta, Kennedy and Weaver (2006), Khanna
and Palepu (2004).Evidence for the fact that higher Indian group ownership and foreign group
ownership led to better firm performance (found in this study) supports the earlier findings of a NFCG
sponsored study across117 companies (from the BSE 200) for the period FY 03-04 to FY 05-06, Kaur
and Gill (2008). The relatively better performance for foreign group companies versus Indian group
companies is also in line with the findings in Balasubramanian et al ( 2008) who had taken foreign
group and Indian group affiliations as control variables in their regression model with natural log (
Tobin’s Q) as the dependent variable.
53
SECTION V
KeyFindings…..continued

54. 5. A key finding from this study is the absence of any statistically
significant relationship between the three corporate governance
variables (board structure and process, index of auditor independence
and index of related party transactions) with firm performance (Tobin’s
Q or ROA).
These results substantiate similar findings of Balasubramanian et al. (2008) who contrasted the
weak results found in their study on board structure with the significant negative coefficient on a
similar index in other countries and reasoned that(in India) board independence is not strongly
associated with firm performance because the minimum requirements for board independence( in
India) are strict enough so that over compliance, which is the only variation that can be tested,
does not lead to improvement in firm value. Balasubramaniam et al (2008) also found the
coefficient of Related Party Transactions in the relationship with Tobin’s Q to be close to zero.
54
SECTION V
KeyFindings….continued

55. 6. The study found an absence of any significant interaction effect (between
the corporate governance variables and ownership concentration) in
predicating firm value.
Similar results have been reported by (Balasubramanian et al., 2008, p.20), “In unreported
regressions, we add interactions between ICGI and the significant control variables; none of the
interaction terms are significant”.
55
SECTION V
KeyFindings…..continued

56. 7. Firm size( measured by the natural log of market capitalization) has a significant
positive association with firm performance indicating that bigger firms are likely
to perform better.
8. Firm Age (measured by the natural log of the age, from the date of incorporation
to the year 2013) does not seem to have any significant association with firm
performance, unlike some well known studies overseas, Bebchuk et al (2004),
Lehn et al (2007). This could be attributed to the fact that the firms in the sample
of S&P CNX 500 companies, despite being in a fairly wide band of age (5 years to
150 years), have a highly skewed distribution (median age= 29 years, mode
age= 27 years, mean age= 39 years) and were not as widely dispersed as the US
firms .
56
SECTION V
KeyFindings…..continued

57. 9. Advertising Intensity, an indirect measure of the barrier to entry ( to be faced by
potential new entrants), was found to be significantly associated with firm
performance indicating that firms with a higher level of advertising/selling
expenditure as a percentage of total expenditure would have better firm value.
10. A higher value of Export Intensity was expected to predict better firm performance
since firms that were more export intensive could be expected to be more globally
competitive. While such a relationship was observed in respect of the relationship
with ROA as the predictor for firm value, surprisingly, no such relationship was
observed with Tobin’s Q was used as the predictor for firm value.
11. The relationship between leverage and firm performance was more consistent in
cases where firm performance was measured by ROA (significant in two out of three
years) than in cases where firm performance was measured by Tobin’s Q (significant
in one out of three years) indicating a closer relationship of leverage with an internal
efficiency based measure like ROA than with an external perception based measure
like Tobin’s Q.
57
SECTION V
KeyFindings……continued

58. Contributions from this study
1. This study provides a comprehensive definition to the concept
of ownership concentration that covers not only the
quantitative measure of ownership concentration but also
incorporates a qualitative dimension as well.
2. A comprehensive empirical study that focuses on the impact of
the nature of the dominant shareholder is missing. Chibber &
Mazumdar (1999), Balasubramanian et al (2008), Khanna and
Palepu (2004), Douma , Rejie and Rezaul, (2003), have looked
at ONLY foreign group affiliated companies and/or domestic
group affiliated companies, by treating group affiliation as a
control variable, in the regression model. This is the first
comprehensive study that looks at all the four categories of
firms classified, on the basis of the nature of the dominant
shareholder, as a variable of interest in the study. 58
SECTION V

59. Contributionsfromthis study….continued
3. The widespread prevalence of dominant shareholders in
Indian organizations makes related party transactions a
commonly used mechanism by which the dominant
shareholders expropriate benefits for themselves. This study
develops, for the first time, an index for Related Party
Transactions (as a proxy measure for corporate governance)
and examines its relationship with firm performance.
4. This study is based on a holistic model for corporate
governance in Indian firms and presents an integrated view
of the impact of corporate governance on firm performance.
The possible moderating impact of ownership concentration
on the relationship between proxy corporate governance
variables (Board Structure & Process, Auditor’s
Independence and Related Party Transactions) and firm
performance is examined, for the first time, in an Indian
empirical study. 59

60. Possible new studies using more sophisticated methodology for finer data
analysis;
 Principal Component Regression method for carrying out the regression
exercise, Maddala (2007).
 This study is essentially a cross sectional study that examines a phenomenon
at a particular point in time & may not give a complete picture of the
phenomenon studied. For instance, the FY 11-12 results, which appear to be
different from the other two years, may be temporary and not a continued
occurrence. A longitudinal study including dynamic panel regression would
have better captured the changes in the investigated phenomena over a
longer period of time and in this light, future studies should be conducted on
a longitudinal basis. Using a panel data approach could also capture other
omitted variables that matter.
 Alternative Instrument Variables could be used in the 2sls method to test for
endogenity.
Possible Extensions to the Study
60
SECTION V

61. But, more importantly, what is needed is a more robust
theoretical framework for studying corporate governance
 Currently Corp Gov researchers are measuring variables in respect of “structural
independence,” rather than board and individual director effectiveness, per se,
Levrau and Van den Berghe (2007).
 Researchers neglect the broader systemic area like organizational strategy that affect
organizational performance, Heracleous (2001) .
 There is no analysis of how boards perform as boards, how they make decisions, and
of the impact of the behavioral characteristics of various directors on the decision
making process, Lebalanc, and Gilies (2003).
Once it is possible to measure variables such as “board effectiveness” and “director
effectiveness”, together with their interaction, there is a greater likelihood of distilling a
more definitive relationship between corporate governance and corporate financial
performance.
…………………….need for greater use of qualitative research methods to supplement
quantitative work for advancing research in this field. 61
SECTION V

62. 62
ContinuingStepsinCorpGovResearch……..

63. 1. “The Theoretical Framework for Corporate Governance”
at the International Conference on Gandhian Values; Sustainability and
Corporate Governance organized at Bengaluru between 7th and 9th October
2011by Karnataka Gandhi Smaraka Nidhi & Gandhi Peace Foundation,
Karnataka along with the Institute of Business Management & Technology,
Bangalore.
2. “Does good governance result in improved firm performance? Some
directions for future research” at the 3rd International Conference on
Corporate Governance. Shriram College of Commerce, Delhi University New
Delhi, on 27th March 2012.
Papers Presented

64. My jointly authored paper “Corporate Governance in India; Tracing the journey” was
the background paper in a study was commissioned by the Ministry of Corporate Affairs
and conducted jointly by the Indian Institute of Corporate Affairs, Thought Arbitrage
Research Institute and Indian Institute of Management, Calcutta over a period of 12
months called “State of Corporate Governance in India- Policies to Reality” .
The initial results were discussed in a comprehensive stakeholder consultation held in
Delhi and hosted on the IICA website for over 3 months for public comments. The
findings were subject to peer review by eminent experts, scholars and practitioners.
The Research Report was released on 9th September 2012 by Shri Veerapa Moily, Hon.
Minister for Corporate Affairs.
Research project

66. A total of eight working papers on various aspects of Corporate Governance
have been published by me on the Social Science Research Network (SSRN)
as Working Papers – they can be accessed on my author’s page as per the
following link;
http://ssrn.com/author=1714442
Several of these papers have featured in the Top 10 Ten Downloads
(reported weekly) by SSRN.
My current Author Ranking of 13,619 among the approximately 250,000
authors who have posted on SSRN puts me among the top 6 percentile of all
the authors featuring in SSRN.
Working Papers: SocialScienceResearch
Network(SSRN)

69. Dear Mr Pande,
Aligned to the Erasmus University of Rotterdam (located in the Netherlands), the Financial Study association Rotterdam (FSR)
is the study association for Finance, Accountancy and Control students in the final phase of their study (i.e. third-year bachelor
and/or master students). The FSR publishes four times a year a academic magazine, named FSR Forum. The goal of the FSR
Forum is to enlarge the knowledge of our members. We do not have a commercial purpose which is why the FSR Forum is not
for sale in the bookstores.
When searching for articles related to our latest topic, we came across your interesting publication "Position and Rights of
Minority Shareholders in Listed State Owned Enterprises (SOEs) – Experiences and Lessons from India". With your
permission, we would like to publish a summary of this article. Enclosed you will find a formal request.
Please note that FSR is not trying to (re)publish your article. Via the summary of your article we educate our readers and
encourage them to read the full article as was published in first instance by the publisher of the article. We simply want to make
our readers aware of the work you have done in research via the provision of a summary of the article in our magazine.
I hope to hear from you soon.
Kind regards,
Editorial Committee FSR 2013-2014
Martine Nieuwenhuijzen Kruseman
Lisanne Frijling
Myrna Baadjou
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Financial Study association Rotterdam
Erasmus University Rotterdam, Room H14-06
Burg. Oudlaan 50, P.O. Box 1738, 3000 DR Rotterdam
P: 010 - 408 1830 | 010 - 408 1331
E: forum@fsr.nu
W: www.fsr.nl
SummaryofpaperpublishedbyFinancialStudy
Association,ErasmusUniversity,Rotterdam

70. Paper Accepted
1. “The Theoretical Framework for Corporate Governance” (jointly with Dr
Valeed Ahmad Ansari) accepted for publication by the Indian Journal of Corporate
Governance, Hyderabad.
Papers under review
1. “ Would the current corporate governance regulations deliver results in
India ?”(jointly with Dr Valeed Ahmad Ansari) under review by Vikalpa, IIM,
Ahmadabad.
2. “Good governance and the regulatory framework for appointing
independent directors on the boards of listed companies in India”(jointly
with Dr Valeed Ahmad Ansari) under review by Vision, MDI, Gurgaon.
Papers Published

71.  Associated with Thought Arbitrage Research Institute – www.tari.co.in - a Delhi
based think tank working in the fields of corporate governance and corporate social
responsibility. –since 2010.
 Faculty for conducting a Training Program, for Company Directors at Kolkata,
conducted by the Institute of Cost Accountants of India –September 2013.
 Conducted ‘In Company’ Training program on Corporate Governance at leading
PSUs like IFFCO, Power Finance Corporation on behalf of Amity University, Noida.
 Member, Board of Studies at the School of Management at ITM University,
Gurgaon –since 2009.
 Independent Director on boards of Companies.
Involvement in various Corporate
Governance initiatives

72. THANK YOU
72