Impact of Corporate Governance in Emerging Economies

There is a growing interest in the subject of corporate governance as a world economy becoming interdependent. The study of it becoming more important as corporate governance mainly deals with the ethical business practices & corporate social responsibility and the. It is the basic tool for all the organization in public sector economy. Corporate governance is associated with all the system, procedure and decision making in the organization. Globalization of product and the talent market has forced the public sector economy in India to match up the standards in corporate governance to attract investment. The major driving forces behind the reforms in corporate governance in India are privatization and globalization. Corporate governance describes basically the rights and the responsibility of the parties that have stake in the firm. There has been many research conducted in the field of the corporate governance till date & an emphasize is given to the mechanism that can protect the shareholders from fraud and it has been mostly conducted on developed economies. Thus relatively very little efforts had been taken to understand the corporate governance issue in emerging economies like India. This will provide ample scope for research and also provide the opportunities and challenges as well.

Research Rationale

The purpose of conducting the research is to understand the importance of corporate governance reform in the emerging economies like India. The major focus in this research is to exhibit the reforms that have been taken place in the corporate governance after the liberalization process in India and how important it is to the company to follow the principle of good corporate governance and benefit of it & also to describe some of the challenges of the corporate governance reforms in India. Management and stakeholders plays an important part regarding to the working of the organization in companies. Corporate governance is there for become the prime area of research for me as there has been number of study have been conducted in the field but there is very little study is conducted emerging market like India. My prime intension of research is to bring up some of the core reason for which there is need for better corporate governance in Indian companies and how it is important to company to have the good corporate governance practice & also to recommend some of the improvement in the field of the corporate governance practice in India.

Research Aim

The main focus point of the research is to see the role of the corporate governance in the public limited company of India. Also to find out the recent changes that have been taken place to strengthen the corporate governance in Indian public sector economies. The research is also carried out to demonstrate benefit of the good internal control system in corporate governance practice. The research is also important as the ownership and control in public limited company are two different thing, the real owner of the company are shareholder and investor in the company where as director act as an ‘Agent’ who control the organization’s every days affairs. Corporate governances therefore act as tool to serve the interest of shareholder of the company & much deeper research is carried out in my work to bring up some of the key concept of Agency theories, Management theories & stakeholder theories.

Objectives of Research

Impact of corporate governance in globalized economy of India has been related to endless objectives but main objective of my research is mention below.

To analyze the impact corporate governance practice in of globalized India companies.

To find out some of the procedure company is following to ensure good corporate governance practice and benefit of it.

Research Purpose

The research is carried out to in field of corporate governance in public sector economy will enable me to know the current and the past practices in the corporate governance practice in India, and also bring some of the loopholes in the practice which needs to be address to strengthen the corporate governance practice in India. My major interest in the research is to see how Indian public limited company is maintaining the good corporate governance practice to match up with the international standard and benefit of it to the company. The basic intention is to bring up some of the key issue regarding to change in the corporate governance practice in India and why it is so important in today’s globalised world.

Research Question

The main guide line for my research work is as follows.

‘Impact of corporate governance in globalized economy of India (public sector)’

To answer the above research question further study is also carried out, and some of the core issue which needs to be addressed in the research is as follows.

What is the role of corporate governance in public ltd Company?

What are the recent changes happen in corporate governance guide line after some of the scandals in Indian market & in the world market?

What are the core theories for corporate governance? (Agency theories, & stakeholders theories)

What are the measures taken by company to strengthen their corporate governance?

Literature Review

The below literature review re-examine the concept of the corporate governance with regards to public limited companies of India, & also look at core theories in the concept of corporate governance practice in India. The most important issue adder in the literature is that it recognized basic frame work of corporate governance. The below figure explain the frame work of corporate governance.

The main objective of the corporate governance in an organization is to direct and to control. The basic framework of corporate governance specifies the rules and procedures for making the decision on corporate affairs and also mentions the rights and responsibility of different groups.

The corporate governance is to give fair and reliable information about the value of the firm and motivates the mangers to increase the firm’s value instead of gaining any personal objective. After the liberalization policy of India in the year 1991 there is a very much need for comprehensive study of corporate governance in Indian public limited companies as more companies are taping the foreign investment.

In India the need for strong corporate governance is felt after some of the stock market scandals which were after liberalization in 1991. There are several instances where company has allotted some of the preference shares to the promoter of the company at much lower price than actual price. (Goswami, 2002). The most significant event in the corporate governance reform after 1991 liberalization policy is set up of SEBI Securities and Exchange in 1992, and its increasing power in jurisdiction in the matter related to corporate governance. SEBI has introduced the several changes to strengthen the corporate governance practice in India. The first committee has been formed in 1996 under the chairmanship of Mr. Rahul Bajaj and given his recommendation in April 1998. There were two more committees where formed under the leadership of Mr Kumar

Mangalam Birla (the Birla Committee) and Mr Naresh Chandra (the Chandra Committee) the main intensions of these committees are to review & strengthen the Indian corporate governance practice. As the Indian companies are now operating in developed economies and due to this factor the globalisation scale increase the level and the size of the corporate board and also subsequently size of its subsidiary board will also increase. Corporate board mostly established various specialised committees to look after some specific duties for e.g., selecting top, management, auditing, deciding the executive compensation, monitoring conduct and ethics. Often the board member who is having the specialized knowledge in the specific area of the committee is responsible to head the committee. Many corporate governance literatures shows that large board is considered to have wider experience and skills to handle much complex task and have greater amount of information processing capability. The execution of corporate governance in public limited economies of India is not only related to working matters of the company but it also includes the corporate social responsibility. The literature review there for revels the basic corporate governance and changes that has been occurred due to globalization in India. The OECD (organization for economic co- operation and development) has given the basic principle to build a good corporate governance system. Corporate governance is only the part of large economic context it depends on the macroeconomic policy of the nation where the companies operate and the competition and the factor market. The basic frame work of the corporate governance is interdependent on the legal regulation. Other such factors that affect the corporate governance are also business ethics and corporate awareness of environmental and social interest. The increasing globalized character of the company and flow of international capital is the main two factors for the companies to flow the sound principle of corporate governance. If growing economies like India have to reap the benefit of global capital market the corporate governance practice sound be credible, well understood and adhere to internationally acceptable principle It is clear from the above all matter in literature review on corporate governance practice in public limited companies of India

Can enhance the growth of the overall economic outlook of the country as well as will provide the company to access the larger international investment pool.

9. Role of Theory

The key issue in sound corporate governance is related to the Management and the ownership of the company. the main two core issue related to the corporate governance is there is separation of control and the ownership of the company this will create the classic example of agency theory. As applied to corporate governance philosophy it is the share holder who are the real owner of the company and act as a ‘principle’ while as company is control by the board of directors who are act as an ‘Agent’ of the share holder. This will lead to problem that ‘how principle can ensure that His ‘agent’ their director serves the shareholders interest rather than their own’. (Berle and Means 1932). Another theory which is very much related to corporate governance is ‘stakeholder’s theories. The stakeholder theory states that there are various groups of people who have ‘financial interest’ in the company they are like creditors, customers, employees, local communities. Shareholders are part of one of the stakeholder group but when we consider from corporate governance point of view it is important to give ‘fair’ information to the stakeholders. Study of above two theories is important and there for it will be consider in my research work because the basic principle of corporate governance is based on this two theories. My research work will employ the theories which will recognize the relationship between different stakeholder and management of the company with regrads to corporate governance practice in companies. My research there for is on one of the Information technology based company. And it will demonstrate the benefit of sound corporate governance and challenges in relations to change in the overall corporate practice in public sector economies of India.

10. Methods and Methodology

a) Methodology

In research base on corporate governance my approach will be ‘Interpretivism’. The research will identify comprehensive study of corporate governance in globalized public limited companies of India but will be specific focus is on the globalization and changes that have been taken place in corporate governance practice in Indian companies. The interview is carried out in India and participant of this will be some of the, company’s employees & investors of a research company. In six months time the research will be completed and my research is based on the research question.

b) Analysis Level

My main focal point in the research would be finding functionality of corporate governance in the public limited companies of India. Research will also identify the major fundamental changes that have been taken place in recent times of globalization and effect of it on corporate governance practice in Indian companies.

Method

d) Data collection

Qualitative approach is adopted for collecting the data for my research work. Based on my data I will be taking interview with people who are connected to corporate governance filed in the company. The questions are drafted with reference to some of the key issue regarding the corporate governance practice in public Limited coampnies of India. The considerable amount of secondary data will be used in the research work from statistics and past articles on corporate governance research.

e) Analysis of Data

The research work is hence based on the primary and secondary data and with the help of this data the conclusion are drawn on corporate governance practice in public limited companies of India. The interview method is there for contribute towards building the correlation between the globalization and change in the corporate governance practice in companies

f) Reliability of research

The interview framework and questions are developed only after approval of my research supervisor. The interview is planned in way that it will not affect the regular business plan of the individual in the organization. It will be helpful for me as the participant will have ample time to devote and provide ‘fair’ answers to the questioner. The participants are the investor and the company’s employee who are directly involved in the corporate governance reporting and practice in organization which will allow me to gather relevant and perfect information related to my research aim.

The use of wide range of secondary data provide me a deep understanding of the role of corporate governance and this data will be collected from trusted government authorities article and web sites and published articles and journals.

g) Issue related ethical research

Research work done by me is related to the key issue and Havared referencing systems have been adopted in referencing of the research material. Care has been taken with regards to secrecy of information of investor and employees of the company. The research will also keep in mind that it will not affect the daily working schedule of the participants. Hence I will give them a plan schedule before approaching for interview and as per the convince of the participant interview will be conducted.

11) Discussion

To the company good corporate governance is very important and advantageous. It is very important for companies to strengthen their corporate governance practice in globalized economise like India as it will enable the company to tap the international investment pool. The main aim & purpose of conducting the research is to understand the importance of corporate governance reform in the emerging economies like India in globalized scenario. The research finding will be useful to those companies who wish to strengthen there corporate governance practice and there is a difference in accountability and governance.