IGIDR Annual Report 2008-2009 - Indira Gandhi Institute of ...

Research Activitiesconflicts among the objectives of the parties involved,which are akin to agency relations.The paper ―Governance of Natural Resources in India:Property Rights, Legal Pluralism and Other Issues‖ inN. C. Narayana ed. State, Natural Resource Conflictsand Challenged to Governance- Where Do We GoFrom Here? Academic Foundation, 2008, by NirmalSengupta, traces the evolution of legal andadministrative provisions pertaining to common poolresources in India in order to understand the currentstate and the sources of some major problems.Corporate GovernanceThe paper by Jayati Sarkar and Subrata Sarkar titled―Multiple Board Appointments and Firm Performancein Emerging Economies: Evidence from India,‖ PacificBasin Finance Journal, Volume 17, April 2009, 271-293, extends the literature on multiple directorships,busy directors and firm performance by providingevidence from an emerging economy, India, where theincidence of multiple directorships is high. Using asample of 500 large firms and a measure of "busyness"that is more general in its applicability; they findmultiple directorships by independent directors tocorrelate positively with firm value. Independentdirectors with multiple positions are also found toattend more board meetings and are more likely to bepresent in a company's annual general meeting. Thesefindings are largely in contrast to the existing evidencefrom the US studies and lend support to the "qualityhypothesis" that busy outside directors are likely to bebetter directors, and the "resource dependencyhypothesis" that multiple directors may be betternetworked thereby helping the company to establishmore linkages with its external environment. Multipledirectorships by inside directors are, however,negatively related to firm performance. The results ofthis paper suggest that the institutional specificities ofemerging economies like India could work in favour ofsustaining high levels of multiple directorships forindependent directors without necessarily impairing thequality of corporate governance.In the paper ―Board of Directors and OpportunisticEarnings Management: Evidence from India‖published in Journal of Accounting, Auditing andFinance, Vol. 23, No. 4, December, 2008, 189-208,Jayati Sarkar, Subrata Sarkar and Kaustav Sen (PaceUniversity, New York) investigate the impact of boardcharacteristics on opportunistic earnings managementin the context of a large emerging economy, India.While the role of company boards in earningsmanagement has been examined in developed marketssetting, particularly the US and UK, understandingtheir effectiveness in emerging markets like India isparticularly important due to differences that exist inthe structure of business organizations across thesemarkets. Using a sample of 500 large Indian firms, theyanalyse the effect of board independence on earningsmanagement as has been the focus of most existingstudies, and extend the existing literature by includingcharacteristics of directors that proxy for the ―quality‖of both inside and outside directors that are likely toimpinge on the effectiveness of boards in curbingearnings manipulation. Their results indicate that it isnot board independence per se, but rather board qualitythat is important for earnings management. Theirresults show that diligent boards are associated withlower earnings manipulation, while boards that havelarge number of multiple directors exhibit higherearnings management. With respect to inside directors,their results indicate that CEO-duality and presence ofcontrolling shareholders on the board increasesearnings management. They also find that domesticinstitutional owners, one of the key control variables,mitigate earnings management and acts as acompensating control mechanism to the presence ofcontrolling shareholders on corporate boards.The chapter by Jayati Sarkar titled ―Business Groups inIndia‖ (forthcoming in the Oxford Handbook ofBusiness Groups edited by Asli M. Colpan, TakashiHikino and James R. Lincoln, Oxford University Press)aims to examine the evolution of family businessgroups in India, one of the fastest growing emergingeconomies in recent times and a country whereIndira Gandhi Institute of Development Research 23