IGIDR Annual Report 2009-2010 - Indira Gandhi Institute of ...

Research Activities
empirically. uncertain. relationship. between. board.
independence. and. governance,. the. unambiguous.
policy position.taken.across.countries.irrespective.
of. their. governance. systems. is. that. board.
independence. is. critical. for. mitigating. agency.
problems. in. public. corporations.. The. reasons.
underlying. the. puzzle,. could. be. either. a. purely.
econometric. one,. or. could. be. related. to. the.
fundamental.question.of.the.“functionality”.of.the.
concept.of.independence..
External. auditors. and. audit. committees. are.
two. important. mechanisms. for. ensuring. good.
governance. of. companies.. These. mechanisms.
ensure. that. a. company. produces. relevant,.
adequate. and. credible. information. that. investors.
and. independent. observers. can. use. to. monitor.
the. company’s. performance.. In. the. article. “Role.
of.Auditor. and.Audit. Committee. in. Governance”.
(forthcoming. in. D.. M.. Nachane. (ed.). India.
Development. Report,. Oxford. University. Press),.
Jayati. and. Subrata. Sarkar. review. the. governance.
reforms. in. India. with. respect. to. auditor. and.
audit. committee. independence.. In. doing. so.
the. paper. critically. compares. the. reforms.
with. the. regulations. existing. in. the. US.. This. is.
followed. by. a. discussion. of. the. extant. research.
on. the. effectiveness. of. audit. committees. and.
audit. independence. in. corporate. governance..
The. article. concludes. by. suggesting. some.
governance. reforms. that. may. be. considered. to.
further. strengthen. auditor. independence. and. the.
functioning.of.audit.committees.in.India..
In.“Ownership.and.Control.in.Indian.Corporates”.
(forthcoming. in. Indian. Securities. Markets. Report.
of. National. Stock. Exchange. of. India. Limited,.
2010),. Jayati. Sarkar. examines. the. ownership.
structure.of.listed.private.sector.Indian.corporates.
as.a.source.of.potential.governance.problems,.and.
analyzes.how.such.problems.can.be.alleviated.by.
different. ownership. constituents.. Using. existing.
empirical. studies. in. the. Indian. context,. the.
paper. also. reviews. the. existing. evidence. on. the.
relationship. between. ownership. and. corporate.
governance,. as. manifested. in. firm. performance..
Among. the. major. findings. of. the. paper. based. on.
ownership.data.for.the.period.2001-06.are:.(i).the.
dominance. of. concentrated. ownership. structures.
in. India. both. among. group. affiliated. firms. as.
well. as. stand. alones,. (ii). the. pervasiveness. and.
persistence. of. insider. control. over. the. years,. and.
(iii). the. inability. of. institutional. shareholders.
to. effectively. act. as. a. countervailing. force.
against. insiders. by. virtue. of. their. low. stakes..
Furthermore,. ownership. and. control. structures.
of. business. groups. are. found. to. be. complex.
and. opaque. with. in-built. incentives. for. minority.
shareholder. expropriation. and. select. instances. of.
the. same.. With. regard. to. the. empirical. evidence.
on. ownership. structure. and. performance,. it. is.
found. that. inside. block. holdings. have. non-linear.
effects,. with. insiders. having. a. positive. effect. on.
company. performance. only. after. their. ownership.
crosses.a.certain.threshold.
20 Annual Report 2009-10