- : Chapter – 5 : -

Research Methodology

Chapter 5: Research Design and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . 195

5.1 Problem Identification of Present Study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
5.2 Research Objectives of Present Study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
5.3 Data of Study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
5.3.1 Types of Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .200
5.3.2 Sources of Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
5.3.3 Sample Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
5.4 Defining Key Variables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
5.4.1 Corporate Governance Variables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
5.4.2 Firm Values Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
5.4.3 Control Variables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
5.5 Hypotheses Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
5.6 Methodology and Empirical Model Development . . . . . . . . . . . . . . . . . . . . . . . 212
5.7 Significance & Expected Contribution of the Study . . . . . . . . . . . . . . . . . . . . . .213
5.8 Limitations of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
Annexure5.1: Classification of Sample Companies . . . . . . . . . . . . . . . . . . . . . . . . .215
Annexure5.2: Description of Corporate Governance Indicators . . . . . . . . . . . . . . . 222
Annexure 5.3: Description of Financial Variables . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Annexure 5.4: Description of Control Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . .224

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5.1 Problem Identification of Present Study:
Corporate Governance has been defined in different ways by diverse authors and
organizations. Several of them define it in a narrow perspective to include into it only
the interest and safeguarding of shareholders, whereas many aspire it to address the
concerns of all stakeholders. Some talk about Corporate Governance as a mechanism
for a country to achieve sustainable economic development, while some others
consider it as a corporate strategy to achieve a long tenure and a healthy corporate
image. To people in developing societies and transitional economies, it is a necessary
incentive to conduct in more powerful and vibrant institutions of control. To some, it
provides another dimension to corporate ethics and social responsibility of business.
Having these all varied meanings of Corporate Governance to different scholars and
group of peoples, ultimately it means for all as a mean to an end and that is to an end
being long term shareholders’ and significantly stakeholders’ value maximization.
That is what for all corporate are existed. Being concerned for good corporate
governance practices to achieve these objectives, these authors and scholars, through
their varied and in-depth research studies, have identified and discussed many
governance problems. They are yet to reach to the collective and consolidated
conclusions in these phenomena. As the bases of this study, few imperative one
among these problems are elaborated briefly as under.

5.1.1 Balancing Outside and Inside Directors:

Board of directors is a group of people elected and appointed by the shareholders of a
limited company to ensure the smooth functioning and policy implementation of the
company for achieving its long term objectives. The board comprises number of
directors of different kinds participating in the board’s composition and tasks. The
composition of board has majorly two types of directors as executives and non-
executives directors also known as inside and outside directors respectively. Wherein,
executive directors involve and engage themselves in day to day operations of the
firm and hence become as an employee of the firm as well as member of the board.
While, non-executive directors have no separate employment relationship with the
firm; they either represent the board as Independent Directors who are free from any
business or other relationship that could materially interfere with the exercise of their
independent judgment in the firm’s decision making process, or an Affiliated or

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Nominee Directors having some kind of independence, imparting relationship with
the firm. Even though, many regulatory and statutory guidelines define the
demarcations about the optimum combination of all kinds of directors on the board, it
is a crucial issue to strike a proper balance between Outside and Inside Directors
influencing the firms’ performance in a most optimistic way.

5.1.2 Separation of CEO and Chairperson’s Roles:

The board composition issue leads toward next issue of conflict of decision making
and combining of the roles of CEO with that of Chairperson of the company. The
practice of combining the roles of CEO and Chairperson has been increasing in the
countries like U.S. and India. This also leads to the concentration of power in one
person resulting in unhealthy consequences. In U.K. and Australia, the CEO is
restricted to take a position of Chairperson of the same firm. Ideally, the CEO is a part
of executive management team running the day to day business of the firm; therefore
he becomes an executive board member. While, the Chairman has to lead the entire
board, one important responsibility of the board is to evaluate the performance of
senior executives that include the CEO too. Therefore, combining the roles of both
CEO as well as Chairperson in the firm creates complexities and dilemma to have the
Chairman as Executive Director or an Independent Director of the board. Also it
creates the issue of whether it improves the firm performance or having a separate
Chairperson would incur a huge cost to the company.

5.1.3 Insiders Shareholdings:

Insider Shareholdings usually promotes the senior officer or executive of the firm to
hold more shares or to withdraw their investment stakes in the firm. This tactic
instigate the insiders to make a security deal of either purchase or sale on the basis of
non-public price sensitive and confidential information and to make profit or avoid a
loss at the cost of other group of investors. In this case, those who hold any price
sensitive or confidential information are considered as insiders. Corporate
Governance Code in South Korea comprises one of the codes as “Shareholders should
be protected from unfair conducts of insider trading and self-dealing”. In India,
Kumar Mangalam Birla Committee’s attention includes “to suggest safeguards to be
instituted within the companies to deal with insider information and insider trading”.

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Provisions for Corporate Governance in Company Bills 2008 also encompass separate
provision under the head of ‘prohibition on insider trading of securities’. Like this
way, most of the Indian companies would have already framed their codes of conduct
for prohibition of insider trading. Up to what extent the codes related to prohibiting
the insiders trading are adhered to is very challenging to ascertain. Further, those who
stick on it promptly and accurately, whether achieve the ideal firm performance or not
are also vague or untested.

5.1.4 Board Size:

The size of the Board of Directors is directly aligned with the board composition,
since it comprises different kinds of directors statutorily. In Indian phenomenon, with
the statutory Code of Corporate Governance (Clause 49) being in trend, the Board
Size has been very significant too. The statutory requirements of having minimum
three directors on the board of any Indian Public Limited Company also made it
compulsion to include the ‘nominee directors’ to be appointed duly by supporting
financial institutions or banks. This compulsion of appointing ‘nominee directors’ on
the board has been modified with the new guidelines applicable to those companies
having the financial involvement of ₹ 500 million in combination of both debt and
equity or shareholdings exceeds 26 percent. Looking to the varied studies of many
researchers, the Board Size is multiple gamut varying from country to country and
industry to industry. That indicates that the ideal number of directors identifying the
proper Board Size is yet to be inferred well and proven as the most impacting variable
for the optimum firm performance. This leaves misperception of keeping the size of
the board reasonably low or substantially hefty.

5.1.5 Ownership Concentration:

Ownership Concentration refers to the proportion of a firm’s shares owned by a one
or given number of the largest shareholders. A high concentration of shares tends to
create more pressure on managers to behave in ways that are value-maximizing in the
interest of all but beyond a certain level of concentration, the relationship might be
negative. Correlations between Ownership Concentration and Firm Performance have
been investigated across many countries and the researchers have reported varied
evidences to support the hypothesis on relationship between firm performance and

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ownership concentration. In developing economies, ownership is also heavily
concentrated. Particularly in India and many Asian Countries, evidences are found of
pyramiding and family control of businesses. Shareholding patterns in India revealed
a marked level of concentration in the hands of promoters (Khanna and Palepu, 2005;
and Chakrabarti et al., 2008).However, although these considerable research advances
throughout the globe, the theory of optimal ownership concentration is yet to
contemplate number of conceptual and empirical gaps that require further analysis
especially in context of the Indian corporate sector. Because, what is very imminent is
that who play the role in active monitoring of companies and the same cannot be
expected from individuals who have largest and minority shareholding.

5.1.6 Debt Proportions:

The Debt capital emerges to be a device for exerting control over medium and large
enterprises in some transitional economies. The powers and incentives of creditors in
these countries are still weak, however, compared to their counterparts in more mature
market economies. Strong creditors are as grave to the proficient running of
enterprises as are brawny owners. Financing business operation of private firms
comes fundamentally from two sources: debt and equity. Though control by equity
holders is appropriate in profitable times, creditor monitoring and control become
binding in times of financial crisis, particularly when stiff controls on spending and
investment are desired. Indeed, foreclosure and insolvency laws typically shift control
of firms to creditors at such times. Thus, the development of effective creditor
controls in a crucial element in successful economic transition. Banks, financial
institutions and other debt capital lenders to the firms have an extremely significant
role to play in nurturing efficiency in majority of the medium to large firms. Pre-
financing project or firm analysis spotlight more on the potential or past performance
of the project or firm respectively and the operation. Encouraging the firm to have a
reasonable amount of leverage in the expectation that creditors might take on a
monitoring role in the firm in order to protect their debt holdings is crucial to ensure
the good governance and optimum firm performance.

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5.2 Research Objectives of Present Study:
The specific objectives of the study are as under:

1. Examine the extent to which insider shareholding may be related to firm financial
performance;
2. Ascertain the influence of the composition of board members on firm
performance;
3. Investigate the relationship between board size and firm performance;
4. Assess the influence of block holdings or ownership concentration on firm
performance;
5. Examine whether or not the separation of the posts of CEO and Board Chair is of
any value in the promotion of firm performance;
6. Examine whether or not the appointment of an expatriate CEO has any role to
play in the promotion of stakeholder interest; and
7. Examine whether, within a certain range, a positive relationship exists between
debt and firm performance.
8. Analyze the views of executives of Indian Corporate towards the corporate
governance and firm performance.

5.3 Data of Study:

The present research study is based on secondary research data which involved a
detailed scrutiny of corporate governance practices and financial performance of S&P
BSE–200 listed companies as the selected sample of the study. This is also because
this index covers the major sector of industries so; it can be considered as a
representative sample for the study. The SEBI considered the Kumar Mangalam Birla
Committee recommendation on Corporate Governance and determined to implement
first them in all new firms and firms falling in group of ‘A’ of the BSE or in S&P
CNX Nifty index as on January 1, 2000. The period of this study is kept from
Financial Year (F.Y.) 2007 – 08to F.Y.2011 – 2012.

5.3.1 Types of Data:

The SEBI implemented the recommendations of the Kumar Mangalam Birla
Committee (KMBC) through the enactment of Clause 49 of the Listing Agreements.

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The terms were applied to companies in the BSE-200 and S&P CNX Nifty indices,
and all newly listed companies, on March 31, 2001. The analysis has been
accordingly confined to all the companies that are included in the BSE-200 Index for
five F.Y. from 2007-2008 to 2011-2012. The BSE also has the second largest number
of domestic quoted companies on any stock exchange in the world after NYSE, and
more quoted companies than either the London or the Tokyo stock exchange. The
data sources were the Annual Reports of the companies, corporate database
‘PROWESS’ maintained by the Center for Monitoring the Indian Economy (CMIE),
‘Ace Equity’& ‘ACE TP’ database maintained by Accord Fintech Pvt. Ltd. and the
reports filed by companies with the BSE as part of the listing requirements. This way
the data type has been the secondary data of the entire applicable dependent and
independent as well as the control variables.

5.3.2 Sources of Data:

The information and data relating to Corporate Governance was obtained from the
Annual Reports of these companies, ‘PROWESS’ maintained by the Center for
Monitoring the Indian Economy (CMIE), ‘Ace Equity’ & ‘ACE TP’ database
maintained by Accord Fintech Pvt. Ltd. and the reports filed by companies with the
BSE as part of the listing requirements for the time period of F.Y. 2007–08 to F.Y.
2011–12. Data on financial performance too was obtained from the ‘Prowess’ of
Capitaline and ‘Ace Equity’ & ‘ACE TP’ database maintained by Accord Fintech Pvt.
Ltd. as well as the Annual Reports of these firms.

5.3.3 Sample Selection:

The S&P BSE-200Index was launched on 27th May 1994 to provide a better
representation of the increased equity stocks, market capitalization as also the newly
emerged industry groups. The companies under BSE-200 have been selected on the
basis of their market capitalization, volumes of turnover and other fundamental
factors. For the analysis, we took a subset of the above 200 companies. Due to
inconsistencies in the availability of data and unlisted status of some of these
companies for certain financial years among the selected period of the study,
eventually the analysis could be carried out for 192 companies which accounted for
96 percent of the BSE-200 Index. Out of these, 116 companies are from the

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manufacturing sector (Annexure5.1A) and 76 are from the service sector
(Annexure5.1B). Thus we excluded those 8 companies unlisted during this time
period and data inconsistency (Annexure5.1C).

5.4 Defining Key Variables:

The Study is centered on desk research which entailed assortment and analysis of data
from the Annual Reports of the selected sample of 192 S&P BSE-200 Indian
Companies. Two major sets of data were collected and studied. One set related to the
corporate governance practices represented for ‘corporate governance indicators’ as
given in the corporate governance section of the annual reports of these firms and the
other related to financial performance representing the ‘firm values’ available in the
balance sheets, other statements of accounts and notes to accounts. The third small set
of data were also considered and gathered as ‘control variables’ from these firms’
annual reports and financial statements of these firms. Data were to be collected for
the duration of F.Y. 2007–08 and F.Y. 2011–12 to study variations in corporate
governance practices and financial performance of the selected companies.

5.4.1 Defining Corporate Governance Variables:

The commonly used parameters by most of the studies have been related to the board
issues i.e. structural dimensions of the board and firm performance. Looking to this
trend, to collect and analyze data on corporate governance practices it was necessary
to determine a set of parameters indicative of good governance practices. The study
has identified comprehensive list of 9 firm attributes that are considered to be major
indicators of good corporate governance, for which the data were completely
available and were adequately different from other essentials of the corporate
governance index. These have been grouped into indices of Board structure. These
indicators have been proposed considering the typical characteristics of Indian
market. These nine sub-indicators to capture the corporate governance effectiveness
in Indian companies are: - Directors’ Shareholding, Board Size, Number of Outside
Directors on the Board, Ownership Concentration, Role of CEO (Duality), Square of
Directors Shareholding, Square of Board Size, Firm Having Foreign CEO, and Square
of Ownership Concentration. These are briefly defined as under.

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1. Directors’ Shareholding: Directors’ Shareholding represents the total number of
Shares owned by Directors of a given firm as a percentage of the outstanding
shares of that Firm. It is represented by the higher percentage as the greater
director shareholding and vice versa. It is even mandatory to Disclose about
Director's Shareholding under Section 308 of the Companies Act, 1956. This
ascertains that the firm having higher insiders’ shareholdings performs well in
compare to the firm with less insiders’ shareholding.

2. Board Size: The Board Size has been measured as the total number of directors
on the board. There is a general view that bigger boards are enhanced for firm
performance since they have assorted proficiencies on the board to help make
better decisions and restricts a powerful CEO to dominate the firm’s operation and
management. However, recent thinking has inclined towards smaller boards too.

3. Number of Outside Directors: Number of Outside Directors i.e. independent

directors on the board represents the Composition of the Board of Directors. It has
undergone a rapid transformation worldwide initiating the corporate governance
guidelines and codes of best practice and calling for the majority of the board to
be comprised on independent directors. Independent directors bring on
independent judgments to bear on issues of strategy, performance, resources,
including key appointments and standards of conduct leading towards solving the
agency problems and ultimately good performance of the firm. The Proportion of
Outside Directors Sitting on the Board is considered as one of the significant
independent variable in this study.

4. Ownership Concentration: Ownership concentration is quantification of the

power circulation among major shareholders and scattered shareholders. It is an
indicator of whether few shareholders can influence company management and
whether control is disputable. Elevated ownership concentration is allied with an
active role of shareholders in the management of the company, remarkably
through the appointment of board members, and with a limited contestability of
control. A stumpy ownership concentration then again necessitates a greater

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 independence of board members and especially of executive board members from
shareholders and, at the same time, a greater possibility of control changes
through takeovers.

5. Roles of CEO (Duality): The Indian Code of corporate governance (viz. the CII
Code, clause 49, etc.) while silent on the issue of separation of CEO and
chairman, link independent (non-executive) chairman with the component of
independent directors in the board of directors of the firm. It was of the opinion of
Birla Committee that the chairman’s role should in principle be different from that
of the chief executive officer, through the same individual may perform both the
roles. As per these codes, in the non-mandatory category, non-executive chairman
(if there) should be entitled to maintain a Chairman’s office at the company’s
expense and also allowed reimbursement of expenses incurred in performance of
his duties. In this study, role of CEO and Chairman has been coded as ‘0’ for
Firms with CEO as Chair and ‘1’ Otherwise and tried to regress with the firm
performance variables.

6. Square of Directors Shareholding: This is a dummy variable taken to grace the

regression in a more dilute manner. It is simply computed by multiplying the share
of directors’ shareholding by itself direly.

7. Square of Board Size: This is a dummy variable taken to grace the regression in
a more dilute manner. It is simply computed by multiplying the size of board by
itself direly.

8. Firm Having Foreign CEO: This is a dummy variable taken to grace the
regression in a more dilute manner. A Dummy Variable is taken with a Value of 0
for Firms having Foreign CEO with India CEOs, and 1 Otherwise.
9. Square of Ownership Concentration: This is a dummy variable taken to grace
the regression in a more dilute manner. It is simply computed by multiplying the
Ownership Concentration by itself direly.

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5.4.2 Firm Values Variables:
In this study, Variables related to the Firm Value were considered as dependent
variables. For assessing the relationship between corporate governance and financial
performance, the study has used four most significant variables representing the firm
value and regressed against the independent variables of overall corporate governance
index. Though we had explored and considered a wide range of financial parameters
to understand the impact of corporate governance, not all of these emerged
significant. The parameters which were taken are: P/E Ratio, ROA, ROE / RONW,
and Tobin’s Q. These are briefly defined as under.

1. P/E Ratio: Trailing P/E" uses net income for the most recent 12 month period,
divided by the weighted average number of common shares in issue during the
period. This is the most common meaning of "P/E" if no other qualifier is
specified. Monthly earnings data for individual companies are not available, and
in any case usually fluctuate seasonally, so the previous four quarterly earnings
reports are used and earnings per share are updated quarterly. Note, each company
chooses its own financial year so the timing of updates varies from one to another.
In this study, P/E Ratio represents the Ratio of Closing Day Share Price of the
Year to Earning per Share.

2. ROA: The accounting variable chosen was calculated as the ratio of operating
income i.e. Profit Before Interest, Depreciation and Tax (PBIDT) to Gross Block
of the Assets. The gross block is taken as the denominator because of its
availability for the selected sample firms uniquely. In other words, this happen
due to non-availability of the total assets in all firms’ cases. This has also made it
mandatory to take the PBIDT involving the portion of interest, depreciation and
the tax components among the profit.

3. ROE / RONW: Return of Net-Worth (RONW) reveals how much profit a

company generates with the money that the equity shareholders have invested
directly or indirectly. Therefore, it is also called as Return of Equity (ROE).
RONW is the ratio of net income after taxes to total end of the year net worth.
This ratio indicates the return on stockholder's total equity.

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4. Tobin’s Q: Tobin and Brainard (1968) and Tobin (1969) designed a measurement
of corporate performance, which is equal to the ratio of market value of equity and
debt together divided by the replacement costs of total assets. The notion is that
replacement costs are a logical measure of the alternative-use values of the assets.
Hence, unless assets used by firms are able to create at least as much value as the
cost of reproducing them, the assets would be better employed elsewhere.
Companies displaying. Tobin’s Q greater than unity are considered to be using
scarce resources effectively, while those with Tobin’s Q less than unity as using
resources poorly.

5.4.3 Control Variables:

In order to control for the other possible determinants of performance not captured by
the corporate governance variables, some pragmatic company characteristics need to
be included as control variables. The control variables used in the study have been
selected with reference to those employed in earlier studies too. The five principal
control variables use in this study are Leverage, Net Sales representing as Firm Size,
Age of the Firm, Sector Wise List of Companies, and Sectorial Dummies. These are
briefly defined as under.

1. Leverage: Debt owed to large creditors such as banks is also believed to be a

useful tool for reducing the agency problem. Large creditors, like large
stakeholders, also have interest in seeing that managers take performance-
improving measures. Debt holders are entitled to claims and these have the
tendency to rise at low levels of firm performance, and to remain constant beyond
a certain level of that performance. Thus, good performance benefits the
stockholders more than it does debt holders, but this is not true when performance
is very low. Leverage has been measured as Capital Employed – Net Worth /
Capital Employed to control for variations in capital structure and as proxy for
default risk.

2. Firm Size (Net Sales): A proxy for the size of a firm has been represented by the
Net Sales in this study. Size of a firm have a significant influence on firm

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 performance and a proxy for firm size is used in almost all studies explaining firm
performance. This has been well attested by a vast amount of literature too. This
has been measured by the natural logarithm of total sales of firms. Size of firm in
the form of Net Sales has been used to control for the effect of firm size on firms
value as firm performance.

3. Age of the Firm: Age of the company has indefinitely effected to its financial
performance. Older firms are more experienced, receive the benefits of learning
and are associated with first mover advantages. However, older firms are also
arguably prone to inertia and are less flexible in their ability to adapt to
competitive pressures. As a proxy for firm age, the study has used data on number
of years since the firm has been incorporated to the date of the years of
observation.

4. Sector Classification: Sector Specification has always been a key predictor for
the performance of the firm. Previous studies have found that firm performance is
sensitive to the industry effect. Industry control for manufacturing/services with
dummy variables for different categories has been made as one of the control
variable in this study.

5. Sectorial Dummy: Manufacturing sector has been the salvation for every
economy. Therefore, the manufacturing sector is taken as base in this study. For
this, the Dummy Variable for all is taken accordingly.

5.5 Hypotheses Development:

Does Corporate Governance Predict Firm Value? This has been a routine question for
the entire Corporate Governance fraternity and all the concern stakeholders. Looking
to the initiation and literature review of this study, the possible hypotheses of the
study could be elaborated and discussed in the beneath phrases.

Insider shareholding and firm value:

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The first argument to address the problem of agency concerns the use of insider
shareholding. Several researchers (De Angelo and De Angelo, 1985; McConnell and
Servaes, 1990; Loderer and Martin, 1997; Nor et al., 1999; Yeboah-Duah, 1993) have
undertaken research on this aspect, reporting very conflicting results. In particular,
McConnell and Servaes (1990) find a significant curvilinear relationship between
insider ownership and firm performance. While Loderer and Martin (1997) find no
significant relationship and Nor et al. (1999) reported a non-linear relationship,
drawing conclusions contrary to those of Yeboah-Duah (1993). Based on these
arguments and discussions, the following hypothesis is formed for this study.
1) Hypothesis 1: There is a positive relationship between Insider Shareholding and
Firm Performance.

Composition of board members:

The composition of board members is also proposed to help reduce the agency
problem (Weisbach, 1988; Hermalin and Weisbach, 1991). A positive relationship is
expected between firm performance and the proportion of outside directors sitting on
the board. Unlike inside directors, outside directors are better able to challenge the
CEOs. It is perhaps in recognition of the role of outside directors that in the UK a
minimum of three outside directors is required on the board; in the US, the regulation
requires that they constitute at least two-thirds of the board (Bhagat and Black, 2001).
Empirical evidence has grown but the results are very conflicting. Studies by
Weisbach (1988), Mehran (1995) and Pinteris (2002) have produced evidence in
support of a positive role for outside directors on firm performance. John and Senbet
(1998) in a survey of corporate governance reported that the work of Fosberg (1989)
was in support of this positive role. Other works have reported no evidence of a
significant relationship between firm performance and the proportion of outside
directors on the board (Bhagat and Black, 1999, 2000; Hermalin and Weisbach, 1991;
Yermack, 1996; and Metrick and Ishii, 2002). In fact Weir and Laing (2001) reported
a negative relationship!

John and Senbet (1998) stress the role of committee structure as a means of increasing
the independence of the board. They refer to the work of Klein (1998) and argue for
the need to set up specialized committees on audit, remuneration and appointment.

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Unlike the preceding argument in support of board structures, Laing and Weir (1999)
play down their importance, stressing instead the importance of business experience
and entrepreneurship. According to them, firms managed by dynamic CEOs tend to
perform better than other categories of firms. On the assumption that foreign firms are
managed by more experienced CEOs, Estrin et al. (2001) test whether foreign firms
perform better than domestic ones in Bulgaria, Romania and Poland. Using panel data
for the three countries for the period 1994–1998, they find that irrespective of the
estimation technique, foreign firms perform better than private domestic firms. They
attribute this finding to the possibility that foreign firms might have some superior
knowledge, which leads them to be more efficient. A common theme running through
the two studies is the important role that the experience and skills of chief executives
could play as a means for improving firm performance. As outlying the influence of
number of outside directors on the board is concerned, the below hypothesis is bent
for this study.
2) Hypothesis 2: There is a positive relationship between the proportion of Outside
Directors on the board and the performance of the firm.

Board Size:
The third mechanism proposed to deal with the agency problem is board size. There
are arguments in favour of small board size. First, Yermack (1996), in a review of the
earlier work of Monks and Minow (1995), argues that large boardrooms tend to be
slow in making decisions, and hence can be an obstacle to change. A second reason
for the support for small board size is that directors rarely criticize the policies of top
managers and that this problem tends to increase with the number of directors
(Yermack, 1996; Lipton and Lorsch, 1992). Yermack (1996) examines the relation
between board size and firm performance, concluding that the smaller the board sizes
the better the performance, and proposing an optimal board size of ten or fewer. John
and Senbet (1998) maintain that the findings of Yermack have important implications,
not least because they may call for the need to depend on forces outside the market
system in order to determine the size of the board. Influential measure of Board Size
on the Firm Performance is studied with the following hypothesis in this study.
3) Hypothesis 3: There is a significant relationship between firm performance and
the size of the board.

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Block Holdings or Ownership Concentration:
The fourth element of governance mechanism examined in this study is ownership
concentration, which refers to the proportion of a firm’s shares owned by a given
number of the largest shareholders. A high concentration of shares tends to create
more pressure on managers to behave in ways that are value-maximizing. In support
of this argument, Gorton and Schmid (1996), Shleifer and Vishny (1997), Morck et al.
(1988), and Wruck (1989) suggest that at low levels of ownership concentration, an
increase in concentration will be associated with an increase in firm value, but that
beyond a certain level of concentration, the relationship might be negative. Other
studies such as Renneboog (2000) reported results not totally in agreement with the
hypothesis of a positive relationship. Using a set of variables suggested by Agrawal
and Knoeber (1996), the author reported no evidence to support the hypothesis of a
positive relationship between firm performance and ownership concentration.
Holderness and Sheehan (1988) find little evidence that high ownership concentration
directly affects performance. The following hypothesis would be tested about this
quarrel.
4) Hypothesis 4: There is a positive relationship between ownership concentration
and firm performance.

The Role of Debt:

Debt owed to large creditors such as banks is also believed to be a useful tool for
reducing the agency problem. Large creditors, like large stakeholders, also have
interest in seeing that managers take performance-improving measures. Empirical
evidence seems to be in support of this assertion. Shleifer and Vishny (1997) in a
review article, cite the works of Kaplan and Minton (1994) and Kang and Shivdasani
(1995), who found higher incidence of management turnover in Japan in response to
poor performance in companies that have a principal banking relationship relative to
companies that do not. Another form of agency problem, known as debt agency,
arises when there is a conflict of interests between stockholders and debt holders.
Debt holders are entitled to claims and these have the tendency to rise at low levels of
firm performance, and to remain constant beyond a certain level of that performance.
Thus, good performance benefits the stockholders more than it does debt holders, but

210
this is not true when performance is very low. In fact, as the firm moves towards
bankruptcy, equity holders face the risk of losing only their shareholdings, passing the
burden of such bankruptcy to the debt holders. Taken together, these outcomes
encourage managers working to protect the interest of equity holders to embark on
risky, high-return projects. This could lead to economic inefficiency since “projects
that are otherwise profitable may be foregone [sic] in exchange for high risk but
inferior counterparts” (John and Senbet, 1998: 378). The literature seems to present
no unanimous position on the role of debt. Although some see it as having the
potential to induce the right steps by the board to protect shareholder interests, other
scholars point to the emergence of debt agency and to the need to constitute boards in
ways that would protect both shareholder and creditor interests. To achieve this, it is
suggested that the board should have a representation from the creditors, as is often
the case in Japan and Germany where banks have significant debt holding interests.
The impact of debt would be tested with the bellow hypothesis in this study.
5) Hypothesis 5: Within a certain range of leverage, a positive relationship exists
between debt and firm performance.

CEO Duality:
A considerable amount of attention has been devoted to the critical role of board’s
ability to monitor managers and remove non-performing CEOs. Jensen (1993) shows
a deep concern with regard to the fact that a lack of independent leadership makes it
difficult for boards to respond to failure in top management. In this regard, Fama and
Jensen (1983) also argue that the concentration of decision management and decision
control in one individual hinders a board’s effectiveness in monitoring to
management. It has also been noted that, when CEO doubles as board chair, it lends to
leadership facing a conflict of interest thereby increasing agency problems (Berg &
Smith, 1978; Brickley et al., 1997). It is therefore suggested that the two positions
should be occupied by two persons. The direction of impact of this variable on firm
performance also seems inconclusive. Sanda et al. (2005) show a positive relationship
between firm performance and separating the functions of the CEO and board chair
while Daily and Dalton (1992) have found no relationship between CEO duality and
firm performance. Nonetheless, it must be indicated that, when a CEO doubles as
board chair, it affords the CEO the opportunity to carry out decisions and projects

211
without undue influence of bureaucratic structures and in this regard it is expected
that CEO duality should have a positive relationship with performance (Rechner &
Dalton, 1991). We measure CEO duality as a dummy (equals unity when a CEO
doubles as board chair and 0 otherwise) and expect a negative coefficient. The
hypotheses to be tested are as follows:
6) Hypothesis 6: Firms in which the posts of CEO and Chair are separated tend to
perform better than those with a combined role for the two posts.

7) Hypothesis 7: Firms with expatriate CEOs tend to perform better than those with
indigenous CEOs.

5.6 Methodology and Empirical Model Development:

The sample for the study will be firms covered in BSE-200 SENSEX Index. The
reason behind selection of BSE SENSEX index is that this index covers the major
sector of industries so, it can be considered as representative sample. The study period
will be 2007-08 to 2011-12. This Study is exclusively carried out to understand the
influence of Major Corporate Governance Indicators on the Financial Performance of
these BSE-200 companies in India. To establish the influence of Corporate
Governance Indicators on the Financial Performance a combination of Multiple and
Step‐wise Regression Analysis has been undertaken. As observed in other similar
studies, control variables like size of the companies, have not been used to study the
impact of a set of independent variables on the dependent variable, i.e., the different
financial variables. This was due to the small size of the sample in various asset
classes. The study depended on results emerging from the stepwise regression
analysis, though the output of multiple regression analysis has helped for determining
the initial interaction among the variables. In this way, the independent variables
which have very high influence on the dependent variable are considered. In the
second step the variable which has the next highest influence is considered. This
process continued till a stage is reached when the independent variables have no
significant influence on the dependent variable, going by acceptable levels of p-values
and t-values. This helped avoiding multicolinearity problems among the independent
variables. The following model has been set to test the regression in this study.

212
Regression Model: The classic ‘Y’ is denoted as the dependent variable and the
independent variables have been denoted with ‘X1, X2, X3,……........................, Xn’.
The critical model has been developed as under:
Y = β0 + β1X1 + β2X2 + β3X3 +……. + βnXn + ε

Where Y (Firm Performance) = β(Constant Coefficient) + β1(DIRSHARE) +

β2(BOARDSIZE) + β3(OUTSIDE) +β(CONCENT) + β(CEOSTATUS) +
β(FOREIGNCEO) + β(DEBT) + β(FIRMSIZE) + β(DIRSQUARE)
+β(BDSIZESQUARE) + β(CONCENTSQ) + β(AGE)………… + βnXn + ε

5.7 Significance & Expected Contribution of the Study:

This research is an attempt to examine the extent to which the suggested mechanisms
might help reduce the agency problem in a developing stock exchange such as that of
India, where there is a yawning gap between theory and evidence. This study aims to
provide additional insights into the relationship between governance mechanisms and
firm financial performance in India. Our focus is on the five dimensions of corporate
governance, abstracting from other dimensions such as incentive schemes. In the
study an attempt will also be made to know the view of corporate executives of India
towards the relationship between market value of the firm and corporate governance.
It is hoped that the evidence would serve as important quantitative information into
the cauldron of policy as well as add to the existing body of empirical literature from
a developing stock exchange such as that of India. The need for a study of this kind is
even more important in an environment like India’s, which is characterized by
growing calls for effective corporate governance, particularly for public limited
liability companies. This call is understandable in view of the importance of effective
governance at both microeconomic and economy-wide levels. At the level of the firm,
it offers the promise of a fair return on capital invested through improved efficiency
(Metrick and Ishii, 2002). It has also some implications for the ongoing privatization
programme that the Government of India is currently undertaking. Grosfeld (2002),
citing the works of other scholars, indicated that the effectiveness of privatization is
greater when corporate governance works well. Moreover, by helping to promote firm

213
performance and the protection of stakeholder interest, corporate governance
encourages investment and stock market development, which Demirguc-Kuntand
Levine, (1996) have associated with improved macroeconomic growth. Further,
evidence in the work of Klapper and Love (2002) suggests that firm-level corporate
governance provisions matter more in countries with weak legal (or regulatory)
environments, implying that “firms can partially compensate for ineffective laws and
enforcement by establishing good corporate governance and providing credible
investor protection”.

There has been a renewed interest within academic circles as well as amongst policy
makers in both government and industry in the need to strengthen mechanisms
to ensure that managers and directors take measures to protect the interest of a firm’s
stakeholders. The case of Satyam in India has drawn attention to academic researcher
and regulatory authority how to strengthen corporate governance mechanism. This
study is a step towards this puzzle; the results of the study will be useful to the policy
makers and corporate firms.

5.8 Limitations of the Study:

There have always been some restraints to any research or study which limits to the
proper and appropriate outputs of the study. These limitations of the study must be
acknowledge with due admiration. The study is subject to the following limitations:

1. The study has covered only S&P BSE-200 firms for measuring the impact of
corporate governance indicators on the firm value. It has excluded all other
companies irrespective of size, sector, category, etc.
2. The study has been restricted with the data sample period to F.Y. 2007–08 to F.Y.
2011–12.
3. While developing the corporate governance indicators, due to unavailability of the
data, the study could not include some key variables falling under the mandatory
and non-mandatory categories of the clause 49 of the listing agreement.
4. The validity of the results drawn primarily depends on the nature of the database.
5. Many factors influence performance and not all of them have been controlled for.

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Annexure 5.1: Classification of Sample Companies:
Annexure 5.1(A)
Sector Wise List of Manufacturing Firms
Sr. Scrip
COMPANY Sector
No. Code
1 500440 Hindalco Industries Ltd Aluminium
2 532234 National Aluminium Co Ltd Aluminium
3 500008 Amara Raja Batteries Ltd Auto Ancillaries - Batteries
4 500086 Exide Industries Ltd Auto Ancillaries - Batteries
5 517334 Motherson Sumi Systems Ltd Auto Ancillaries - Electrical
6 500530 Bosch Ltd Auto Ancillaries - Engine Parts
7 500477 Ashok Leyland Ltd Automobiles - LCVs/HCVs
8 500570 Tata Motors Ltd Automobiles - LCVs/HCVs
9 505200 Eicher Motors Ltd Automobiles - LCVs/HCVs
10 500182 Hero MotoCorp Ltd Automobiles - Motorcycles / Mopeds
11 532500 Maruti Suzuki India Ltd Automobiles - passenger cars
Automobiles - Scooters and 3-
12 532977 Bajaj Auto Ltd
Wheelers
13 500520 Mahindra & Mahindra Ltd Automobiles - Tractors
14 532523 Biocon Ltd Biotechnology
15 532478 United Breweries Ltd Breweries
16 500387 Shree Cement Ltd Cement - Major - North India
17 500410 ACC Ltd Cement - Major - North India
18 500425 Ambuja Cements Ltd Cement - Major - North India
19 532538 UltraTech Cement Ltd Cement - Major - North India
20 530005 India Cements Ltd Cement - Major - South India
21 500260 Ramco Cements Ltd Cement Products
22 500164 Godrej Industries Ltd Chemicals - Organic - Large
23 500331 Pidilite Industries Ltd Chemicals - Organic - Large
24 500875 ITC Ltd Cigarettes
25 532532 Jaiprakash Associates Ltd Construction - Civil / Turnkey – Large
26 500114 Titan Industries Ltd Diamond Cutting / Jewellery – Large
27 532715 Gitanjali Gems Ltd. Diamond Cutting / Jewellery – Large
28 532432 United Spirits Ltd Distilleries
29 500040 Century Textile & Industries Ltd Diversified - Mega
30 500575 Voltas Ltd Diversified - Mega
31 517506 TTK Prestige Ltd Domestic Appliances - Cookers/Others
32 500093 Crompton Greaves Ltd Electric Equipment - General – Large
33 500103 Bharat Heavy Electricals Ltd Electric Equipment - General – Large
34 500550 Siemens Ltd Electric Equipment - General – Large
Electric Equipment - Gensets /
35 532667 Suzlon Energy Ltd
Turbines
Electric Equipment -
36 500002 ABB India Ltd
Switchgears/Relays/Circuits
Electric Equipment -
37 517354 Havells India Ltd
Switchgears/Relays/Circuits
38 500049 Bharat Electronics Ltd Electronics - Others
39 511389 Videocon Industries Ltd Electronics - TV / Audio / VCR / VCP
40 500510 Larsen & Toubro Ltd Engineering - Turnkey Services
41 532178 Engineers India Ltd Engineering - Turnkey Services

215
42 532754 GMR Infrastructure Ltd Engineering - Turnkey Services
43 500480 Cummins India Ltd Engines
44 506395 Coromandel International Ltd Fertilizers - Nitrogenous / Phosphatic
Fertilizers - Phosphatic - Single Super
45 500770 Tata Chemicals Ltd
Phosphate
GlaxoSmithKline Consumer Food And Dairy Products –
46 500676
Healthcare Ltd Multinational
Food And Dairy Products –
47 500790 Nestle India Ltd
Multinational
Food And Dairy Products –
48 500825 Britannia Industries Ltd.
Multinational
Food And Dairy Products –
49 533155 Jubilant Food Works Ltd
Multinational
50 500493 Bharat Forge Ltd Forgings – Large
51 500043 Bata India Limited Leather / Synthetic Footwear - Large
52 500870 Castrol India Ltd Lubricants
Metal - Copper / Copper Alloy
53 513599 Hindustan Copper
Products
54 500188 Hindustan Zinc Ltd Metal – Zinc
55 500295 SesaSterlite Ltd Mining / Minerals
56 526371 NMDC Ltd Mining / Minerals
Gujarat Mineral Development
57 532181 Mining / Minerals
Corp Ltd
58 533278 Coal India Ltd Mining / Minerals
59 500312 Oil & Natural Gas Corp Ltd Oil Exploration / Allied Services
60 532792 Cairn India Ltd Oil Exploration / Allied Services
61 533106 Oil India Ltd Oil Exploration / Allied Services
62 500271 Max India Ltd Packaging - BOPP Film
63 500820 Asian Paints Ltd Paints / Varnishes
64 509480 Berger Paints India Ltd Paints / Varnishes
65 500096 Dabur India Ltd Personal Care - Indian - Large
66 531162 Emami Ltd Personal Care - Indian - Large
67 531642 Marico Ltd Personal Care - Indian - Large
68 532424 Godrej Consumer Products Ltd Personal Care - Indian - Large
69 500696 Hindustan Unilever Ltd Personal Care - Multinational
70 500830 Colgate-Palmolive India Ltd Personal Care - Multinational
Pesticides / Agrochemicals - Indian –
71 512070 United Phosphorus Ltd
Large
72 500257 Lupin Ltd Pharmaceuticals - Indian - Bulk Drugs
73 532488 Divis Laboratories Ltd Pharmaceuticals - Indian - Bulk Drugs
Pharmaceuticals - Indian - Bulk Drugs
74 500087 Cipla Ltd/India
& FormlnLrg
Pharmaceuticals - Indian - Bulk Drugs
75 500124 Dr Reddy's Laboratories Ltd
& FormlnLrg
Pharmaceuticals - Indian - Bulk Drugs
76 500302 Piramal Enterprises Ltd
& FormlnLrg
Pharmaceuticals - Indian - Bulk Drugs
77 500359 Ranbaxy Laboratories Ltd
& FormlnLrg
Pharmaceuticals - Indian - Bulk Drugs
78 500420 Torrent Pharmaceuticals Ltd
& FormlnLrg
Pharmaceuticals - Indian - Bulk Drugs
79 524494 Ipca Laboratories Ltd
& FormlnLrg

216
 Sun Pharmaceutical Industries Pharmaceuticals - Indian - Bulk Drugs
80 524715
Ltd & FormlnLrg
Pharmaceuticals - Indian - Bulk Drugs
81 524804 Aurobindo Pharma Ltd
& FormlnLrg
Pharmaceuticals - Indian - Bulk Drugs
82 532296 Glenmark Pharmaceuticals Ltd
& FormlnLrg
Pharmaceuticals - Indian - Bulk Drugs
83 532300 Wockhardt Ltd
& FormlnLrg
Pharmaceuticals - Indian - Bulk Drugs
84 532321 Cadila Healthcare Ltd
& FormlnLrg
Pharmaceuticals - Indian - Bulk Drugs
85 532531 Strides Arcolab Ltd
& Formln M/S
GlaxoSmithKline
86 500660 Pharmaceuticals - Multinational
Pharmaceuticals Ltd
87 500219 Jain Irrigation Systems Ltd Plastics - Sheets
88 500411 Thermax Ltd Pollution Control Equipment
89 500084 CESC Ltd Power Generation And Supply
90 500390 Reliance Infrastructure Ltd Power Generation And Supply
91 500400 Tata Power Co Ltd Power Generation And Supply
92 532555 NTPC Ltd Power Generation And Supply
93 532627 Jaiprakash Power Ventures Ltd Power Generation And Supply
94 532779 Torrent Power Ltd Power Generation And Supply
95 532898 Power Grid Corp of India Ltd Power Generation And Supply
96 532939 Reliance Power Ltd Power Generation And Supply
97 533096 Adani Power Ltd Power Generation And Supply
98 533098 NHPC Ltd Power Generation And Supply
99 533148 JSW Energy Ltd Power Generation And Supply
100 500104 Hindustan Petroleum Corp Ltd Refineries
Mangalore Refinery &
101 500109 Refineries
Petrochemicals Ltd
102 500134 Essar Oil Ltd Refineries
103 500325 Reliance Industries Ltd Refineries
104 500547 Bharat Petroleum Corp Ltd Refineries
105 530965 Indian Oil Corp Ltd Refineries
106 500055 Bhushan Steel Ltd Steel – Large
107 500113 Steel Authority of India Ltd Steel – Large
108 500228 JSW Steel Ltd Steel – Large
109 500470 Tata Steel Ltd Steel – Large
110 532286 Jindal Steel & Power Ltd Steel - Sponge Iron
111 500800 Tata Global Beverages Ltd Tea - Indian – Large
112 532654 McLeod Russel India Ltd Tea - Indian - Medium / Small
113 500300 Grasim Industries Ltd Textiles - Manmade – Nylon
114 500303 Aditya Birla Nuvo Ltd Textiles – Rayon
115 500290 MRF Ltd Tyres– Large
116 500877 Apollo Tyres Ltd Tyres– Large

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 Annexure 5.1(B)
Sector Wise List of Services Firms
Sr. Scrip
COMPANY Sector
No. Code
1 500180 HDFC Bank Ltd Banks - Private Sector
2 500247 Kotak Mahindra Bank Ltd Banks - Private Sector
3 500469 Federal Bank Ltd Banks - Private Sector
4 531807 ING Vysya Bank Ltd Banks - Private Sector
5 532174 ICICI Bank Ltd Banks - Private Sector
6 532187 IndusInd Bank Ltd Banks - Private Sector
7 532209 Jammu & Kashmir Bank Ltd Banks - Private Sector
8 532215 Axis Bank Ltd Banks - Private Sector
9 532218 South Indian Bank Ltd Banks - Private Sector
10 532648 Yes Bank Ltd Banks - Private Sector
11 532652 Karnataka Bank Ltd Banks - Private Sector
12 500112 State Bank of India Banks - Public Sector
13 500116 IDBI Bank Ltd Banks - Public Sector
14 500315 Oriental Bank Of Commerce Banks - Public Sector
15 532121 Dena Bank Banks - Public Sector
16 532134 Bank of Baroda Banks - Public Sector
17 532149 Bank of India Banks - Public Sector
18 532276 Syndicate Bank Banks - Public Sector
19 532388 Indian Overseas Bank Banks - Public Sector
20 532401 Vijaya Bank Banks - Public Sector
21 532418 Andhra Bank Banks - Public Sector
22 532461 Punjab National Bank Banks - Public Sector
23 532477 Union Bank of India Banks - Public Sector
24 532480 Allahabad Bank Banks - Public Sector
25 532483 Canara Bank Banks - Public Sector
26 532505 UCO Bank Banks - Public Sector
27 532814 Indian Bank Banks - Public Sector
28 532885 Central Bank of India Banks - Public Sector
Computers - Software –
29 511431 Vakrangee Software Ltd
Converts
30 500209 Infosys Ltd Computers - Software – Large
31 507685 Wipro Ltd Computers - Software – Large
32 526299 MphasiS Ltd Computers - Software – Large
33 532281 HCL Technologies Ltd Computers - Software – Large
34 532466 Oracle Financial Services Software Ltd Computers - Software – Large
35 532540 Tata Consultancy Services Ltd Computers - Software – Large
36 532755 Tech Mahindra Ltd Computers - Software – Large

218
 Computers - Software -
37 526881 Financial Technologies India Ltd
Medium / Small
Computers - Software -
38 532129 Hexaware Technologies Ltd
Medium / Small
Construction - Civil / Turnkey
39 533207 Jaypee Infratech Ltd
– Large
Construction - Civil / Turnkey -
40 532832 Indiabulls Real Estate Ltd
Medium / Small
Construction - Civil / Turnkey -
41 532947 IRB Infrastructure Developers Ltd
Medium / Small
Entertainment - Electronic
42 532733 Sun TV Network Ltd
Media
43 500010 Housing Development Finance Corp Finance - Housing – Large
44 500253 LIC Housing Finance Ltd Finance - Housing – Large
45 500490 Bajaj Holdings and Investment Ltd Finance - Investment / Others
46 532659 IDFC Limited Finance - Investment / Others
Mahindra & Mahindra Financial
47 532720 Finance - Investment / Others
Services Ltd
48 532978 Bajaj Finserv Ltd Finance - Investment / Others
49 533398 Muthoot Finance Ltd Finance - Investment / Others
50 533519 L&T Finance Holdings Ltd Finance - Investment / Others
51 500111 Reliance Capital Ltd Finance – Large
52 511218 Shriram Transport Finance Co Ltd Finance – Large
Finance - Leasing And
53 532498 Shriram City Union Finance Ltd.
Diversified
54 500034 Bajaj Finance Ltd Finance – Medium
55 531213 Manappuram Finance Ltd Finance – Small
Finance - Term-Lending
56 500106 IFCI Ltd
Institutions
Finance - Term-Lending
57 532810 Power Finance Corp Ltd
Institutions
Finance - Term-Lending
58 532955 Rural Electrification Corp Ltd
Institutions
59 532155 Gail India Ltd Gas Distribution
60 532514 Indraprastha Gas Ltd Gas Distribution
61 532522 Petronet LNG Ltd Gas Distribution
62 532702 Gujarat State Petronet Ltd Gas Distribution
63 500850 Indian Hotels Co Ltd Hotels – Large
Miscellaneous - Medium /
64 500092 CRISIL Ltd
Small
Miscellaneous - Medium /
65 532921 Adani Ports and Special Economic Zone
Small
Multi Commodity Exchange of India Miscellaneous - Medium /
66 534091
Limited Small
PipavavDefence and Offshore
67 533107 Ship - Breaking / Repairing
Engineering Company Limited

219
68 500620 Great Eastern Shipping Co Ltd Shipping – Large

Telecommunications - Service
69 500483 Tata Communications Ltd
Provider
Telecommunications - Service
70 532454 Bharti Airtel Ltd
Provider
Telecommunications - Service
71 532712 Reliance Communications Ltd
Provider
Telecommunications - Service
72 532822 Idea Cellular Ltd
Provider
73 512599 Adani Enterprises Ltd Trading – Large
74 513377 MMTC LTD Trading – Large
75 532617 Jet Airways India Ltd Transport – Airlines
76 531344 Container Corp Of India Transport – Road

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 Annexure 5.1(C)
Sector Wise List of Firms with No Data or Unlisted
companies Having no Data
Sr. Scrip
COMPANY Sector
No. Code
1 505537 Zee Entertainment Enterprises Ltd Entertainment - Electronic Media
2 507878 Unitech Ltd
3 508869 Apollo Hospitals Enterprise Ltd Hospital & Healthcare
4 532800 TV18 Broadcast Ltd Entertainment - Electronic Media
5 532839 Dish TV India Ltd Entertainment - Electronic Media
6 532868 DLF Ltd
Finance-Term-Lending
7 532873 Housing Development & Infrastructure Ltd Institutions
Telecommunications - Service
8 534816 Bharti Infratel Ltd. Provider

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Annexure 5.2: Description of Corporate Governance Indicators:

Corporate Governance Variable Definitions and Measurement

Variable Variable Definition Measurement
No.
1 DIRSHARE Directors Share Total No. of Shares Owned by
Holding Directors of a Given Firm as a
Percentage of the Outstanding
Shares of the Firm (the Higher
Percentage, the Greater is the
Director Shareholding).
2 BOARDSIZE Board Size No. of Directors on the Board.
3 OUTSIDE Number of The Proportion of Outside
Outside Directors Sitting on the Board.
Directors on
Board
4 CONCENT Ownership The Proportion of Shares Owned
Concentration by the Largest Shareholders
Divided by the Total No. of
Shareholders.
5 CEOSTATUS Role of CEO A Dummy Variable, Taking a
(Duality) Value of 0 for Firms with CEO
as Chair and 1 Otherwise.
6 DIRSHSQUARE Quadratic Term Square of Directors
Shareholdings.
7 BDSIZESQUARE Quadratic Term Square of Board Size.
8 CEOFOREIGN A Firm That has A Dummy Variable Taking a
a Foreign CEO Value of 0 for Firms having
Foreign CEO with India CEOs,
and 1 Otherwise.
9 CONCENTSQ Quadratic Term Square of Ownership
Concentration.

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Annexure 5.3: Description of Firm Performance and Value Variables:

Firm Value Variable Definitions and Measurement

Variable Variable Definition Measurement
No.
1 PE Ratio Price – Earnings Ratio of Closing Day Share Price of
Ratio the Year to Earning Per Share.
2 ROA Returns on Assets Net Profit as Percentage of Total
Assets.
3 ROE / Returns on Equity Net Profit as Percentage of Equity
RONW Or Value
Return of Net Or
Worth Net Profit as Percentage of Net Worth.
4 Tobin’s Modified Tobin’s Q Year-end Market Capitalization
Q Divided by The Book Value of Total
Assets. And the Sum of Market Value
of Equity and the Book Value of Debt
Divided by the Book Value of Total
Assets.

223
Annexure 5.4: Description of Control Variables:

Control Variable Definitions and Measurement

Variable Variable Definition Measurement
No.
1 DEBT Leverage The Ratio of Debt to Share
Capital.
2 FIRMSIZE Firm Size in Terms The Natural Log of Total Assets.
of Total Assets Or
Or The Natural Log of Total Net
Net Sales Sales
3 FIRMAGE Age of the Firm The Time Duration a Firm has
been in existence from it’s
inception.
4 Sector Sector Wise List of All the selected companies have
Classification Companies been segregated sector wise.
5 SDji Sectorial Dummies Dummy Variables for all but the
Manufacturing Sector in the
Sample, which is taken as a base.

END OF CHAPTER - V

224