A comparative study of corporate governance practices of Indian firms affiliated to business groups and industries

What is it about?

We study the corporate governance practices in Indian listed companies to find out if industry and business group affiliation of firms influence their corporate governance. We create a corporate governance index using fifteen of the indicators used in CLSA corporate governance index. Using principal component analysis, we derive five factors for the corporate governance index—board composition, shareholder responsibility, ownership, responsible board behavior, and fair executive compensation. Using random intercept mixed effects model, we find that corporate governance behavior of firms affiliated to business groups are more similar within the group compared to that within industries. We find that while business group firms are similar in the board composition, there is considerable difference in their board functioning. Further, while firms from the same industry are similar in terms of shareholder responsibility and ownership, there is considerable difference in the board composition and functioning. To our knowledge, this is the first study that examines corporate governance behavior of firms affiliated to business groups. By making business groups (and industries) the unit of analysis, we study the corporate governance behavior of firms as a cluster.

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