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- Corporate governance
- Top PDF Development of Corporate Governance Policies Vis- A- Vis Investor Protection, India
- Corporate Governance
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It may be defined as a set of systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders. The elements of good corporate governance include maintenance of transparency, accountability, disclosures, compliance with the legal framework, shareholders value, etc.
The legal and regulatory framework of corporate governance should aim at protection of investors. Since maintenance of transparency in dealings of the company is the most important facet of corporate governance in India, the same shall be ensured in order to provide a mechanism for protection of the investors.
The need to protect the investors arises because the companies indulge in unfair trade practices and corporate frauds. When such corporate frauds are committed, the investors are the class of stake holders who are most adversely affected. The companies shall also consider that in case they go beyond the corporate governance norms, the confidence of the shareholders in the company would be instilled; which is indirectly beneficial for the company.
Hence, the corporate governance mechanism shall be viewed as a mode by which the companies can gain the confidence of the shareholders. The need for making adequate disclosures rises because only adequate disclosures enable the shareholders in taking an informed decision. Also, the Companies Act, has for the first time included various aspects relating to corporate governance.
This would further ensure that the companies follow good corporate governance practices. Investor Protection is the most significant facet of corporate governance. However, it is neglected. In the wake of various corporate scams and accounting scandals, insider trading, non-disclosure by companies, vanishing companies and other such practices of corporate; the relevance of investor protection has increased.
On account of such corporate frauds, the investors are the segment of the stakeholders who are most gravely affected. Hence, the framework of Corporate Governance in India should aim at protection of the investors. Shareholder Activism is a modern trend which triggers the corporates to follow good corporate governance practices and ensure investor protection.
The Securities and Exchange Board of India plays a pivotal role in protecting the investors in India. A mandatory requirement under Clause 49 of the Listing Agreement is formulation of the Investors Grievance Committee, which shall entertain the complaints of the investors and ensure that such grievances are redressed. However, there seems to be a vacuum in the requirement of the unlisted companies to follow corporate governance practices. The Corporate Governance Voluntary Guidelines, can be followed by the unlisted companies, while since the guidelines are not mandatory, the purpose remains unserved.
Corporate Governance plays a significant role in investor protection. The researcher seeks to analyse whether good corporate practices have the potential of safeguarding the investors. The researcher would trace the evolution of corporate governance in India and the changing face of investor protection. In the past, India has witnessed various corporate frauds, which reflect loopholes in the current framework of the corporate governance.
The researcher would analyse whether good corporate governance practices have the potential to curb corporate frauds and thereby lead to protection of investors. The researcher would also throw some light on the corporate governance provisions in India under the Companies Bill, Clause 49 of the Listing Agreement is the basis of corporate governance framework in India and it focuses majorly on the aspect of disclosure by the Company.
Apart from the Clause 49 of the Listing Agreement, the Companies Act, and various regulations of the SEBI reflect the importance of disclosures to the shareholders. The researcher shall examine the relation between corporate governance and investor protection. The manner in which Clause 49 of the Listing Agreement furthers corporate governance in India shall be highlighted. The Corporate Governance Voluntary Guidelines, provides a set of disclosures that shall be made to the shareholders.
The researcher would analyze the role that these guidelines would play in protecting the interests of the investors.
Investor protection may be seen as a manifestation of good Corporate Governance. If the company concerned makes the adequate disclosures to the Shareholders and ensures that the investors interest is protected, it would imply that the Company follows good governance practices encompassing investor protection.
The Satyam Fiasco displayed that a companys inadequate corporate governance framework may defeat the interests of the investors. The Reebok Fraud Case brought the issue of the requirement of adequate corporate governance measures in the unlisted companies. The unlisted companies do not have any mandate to follow corporate governance practices and this may defy the interests of the investors.
The researcher would scrutinize the Reebok Fraud case and the Satyam Fiasco in order to analyze the failure of corporate governance mechanisms. In unlisted companies, the shareholders have various rights such as proceeding against the company for oppression or mismanagement and proceeding towards winding up of the company, while they do not have any statutory right to mandate the company to make disclosures to them as required under the Corporate Governance mechanism.
Thus, the Corporate Governance Dissertation Page 2. The issue of rights of minority shareholders shall also be examined with respect to the corporate governance mechanism in India. The Companies Act, has provided for class action suits and thus has taken a leap in protecting the interests of minority shareholders.
The role of institutional investors in mandating the company to follow corporate governance practices has come to the fore in recent past. The institutional investors can play a significant role in influencing the company to follow good corporate governance practices. The concept of shareholder activism is also a significant issue in terms of corporate governance practices.
Shareholder Activism entails that the shareholders shall take a proactive role in formulating a dialogue with the management of the company on a regular basis. The reforms in India which highlighted the aspect of shareholder activism have also been discussed.
Corporate Governance in India is based on the maintenance of transparency in the company and the same leads to the protection of investors.
The researcher would also bring out the need of shareholder activism in India in terms of corporate governance. The essence of the research shall be examining the adequacy of the legal and regulatory framework in India with regard to corporate governance in protecting the interest of the investors. Investment by the shareholders may thus be termed as an act reflecting faith of the investors in the ability of the management. The investors expect the management to act as trustees of the investment and earn a higher rate of return as compared to the cost of capital.
Hence, the investors expect the management to adopt good corporate governance practices and act in the best interests of the investors. The Narayana Murthy Committee defined Corporate Governance as the acceptance by the corporation's management of the inalienable rights of the shareholders as the owners of the corporate entity and the role of the management as trustees of the investment of the shareholders.
Hence, corporate governance is about conducting the business in an ethical manner, commitment towards values and drawing a distinction between personal and corporate funds in the management of a company. The structure of corporate governance defines the distribution of rights and responsibilities of the managers, stakeholders, shareholders and other participants and specifies the rules and procedure of decision making.
Maintenance of transparency and an ethical conduct is essential for attracting and retaining capital investment from the stakeholders. The Kumar Mangalam Birla Report was the first formal and comprehensive attempt to evolve a Code of Corporate Governance, considering the governance in Indian companies, as well as the state of capital markets at that time. The recommendations of the report led to the inclusion of Clause 49 in the Listing Agreement in the year These recommendations had the aim of improving the standards of corporate governance in India and were classified as mandatory and non-mandatory recommendations.
These recommendations were made applicable to listed companies with paid up capital of Rs 3 crores and above or companies having a networth of Rs. The responsibility of brining the recommendations into force lied with the Board of Directors of the Company8. According to the report, the Board should have an optimum combination Executive and Non-Executive Directors and not less than 50 per cent of the Board should comprise of Non-Executive Directors.
In case of the Chairman is a Non-Executive Director, one-third of the Board should compose of non-executive directors. The companies shall conduct Board Meetings at least four times in a year and a time gap of four months should exist between two meetings.
A director should not be the member of more than 10 Committees or act as a Chairman of more than 10 Committees.. The Report discussed the composition of the Committee, other aspects such as quorum, frequency of meeting, powers of audit committee and functions of the Committee.
The Committee was to be composed of atleast three members, all being non-executive directors, and atleast one director shall have knowledge in finance and accounting. Also, the Committee shall be headed by an independent director. The functions of the audit committee include oversight of the companys financial reporting process and the disclosure of its financial information in order to ensure that the financial statements are credible and 6.
The committee can also recommend on aspects such as appointment and removal of external auditor, fixation of audit fee and approval for payment for any other services. The committee can also review the annual financial statements before submitting to the Board. The Remuneration Committee was another body which the Report recommended to be set up by the Company. This was a non-mandatory recommendation.
The Committee was assigned the task of determining the remuneration of the non-executive director and the Annual Report shall make disclosures about the remuneration paid to the Directors. The Report also recommended that the Company should set up a Shareholders Grievance Committee to redress the issues of the shareholders The Report also made recommendations pertaining to Disclosures.
The details on noncompliances with regard to capital market related issues in the past three years and the penalties imposed shall be disclosed. Also, half-yearly report shall be sent to the shareholders and quarterly report shall be sent to the institutional investors.
Various details which are vital for awareness of the shareholders shall be disclosed in the Annual Report. Auditors certificate on Corporate Governance shall also be annexed with the Annual Report. Companies shall also disclose the consolidated accounts of their subsidiary companies in which they hold atleast 51 per cent or more capital.
Shareholders should use the General Meetings as a platform to ensure that the affairs of the company are being conducted in the best interests of the investors The Half-yearly declaration of financial performance including the summary of important events in the past six months shall be disclosed to the shareholders. The Report also threw light on the role institutional investors in corporate governance.
It was recommended that the institutional shareholders shall take active interests in composition of the Board; they shall be vigilant and maintain systematic and regular contact with the management to examine the performance and quality of management and also to ensure that the voting intentions are translated into practice PL Sanjeev Reddy.
The group was given the task of examining ways to operationalise the concept of corporate excellence on a sustainable basis so as to sharpen Indias Global competitive edge and to further develop corporate culture in the country.
In November , a Task Force on Corporate Excellence13 set up by the group came out with a report comprising of various recommendations for raising governance 10 It also suggested the setting up of a Centre for Corporate Excellence. One of the recommendations of the report was that there shall be higher delineation of independence criteria and the probability of conflict of interest shall be minimized.
The commitment and accountability of the Directors shall be ensured by fewer and more focused board and committee membership. There shall be a meaningful and transparent accounting and reporting by disclosing various details in order to ensure informed participation by shareholders. Introduction of formal recognition of Corporate Social Responsibility was also recommended in the report. The Task Force on Corporate Excellence recommended that there shall be highest standards of corporate governance that shall be followed by the companies.
The Naresh Chandra Committee was established in It is believed that the Committee was established by the Indian Government in response to the Enron debacle in , various scams in the US involving the fall of various corporates like Xerox, WorldCom etc and the subsequent enactment of the Sarbanes Oxley Act, which is regarded as a stringent legislation. The Naresh Chandra Committee made various recommendations in line with international best practices
Top PDF Development of Corporate Governance Policies Vis- A- Vis Investor Protection, India
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A possible reason is that not only the quality of the standard-setting process, but also other factors might affect accounting quality and one of its dimensions, namely, value relevance. By analysing data from a sample of financial entities listed in 43 countries from all over the world and adopting IFRS 9 in place of IAS 39 as of 1st January , this paper tests whether the quality of firm-level corporate governance and country-level investor protection environments affects the value relevance of equity values calculated according to the requirements of IFRS 9 and IAS The results suggest that, despite both accounting standards providing investors with value relevant information, in the presence of high-quality corporate governance or a high-quality investor protection environment, IFRS 9 is more value relevant than IAS 39, whereas the opposite is true in the presence of low-quality corporate governance or a low-quality investor protection environment. The research results provide the first empirical evidence of the value relevance of the new accounting standard on financial instruments and contribute to the debate on the existence of other factors that, together with the quality of the IASB standards, affect the quality of financial reporting. The objective of this paper is to investigate whether the quality of both corporate governance and the investor protection environment affect the value relevance of international financial reporting standard IFRS 9 and international accounting standards IAS The first-time adoption FTA of the former at the beginning of in place of the latter provides the opportunity to test the ability of firm-level and country-level factors to improve value relevance, thanks to the availability of accounting amounts calculated according to the requirements of both accounting standards on financial instruments. Despite the fact that they are considered to be a set of high-quality accounting principles that improve financial reporting comparability among companies on a worldwide basis Jacob and Madu , evidence has not provided homogeneous findings about their ability to improve financial reporting quality.
PDF | The purpose of this research is to analyze the effect of law system for investor protection on implementation of corporate governance at.
Subscription price IJCG is a peer reviewed international journal publishing high quality, original manuscripts that analyse issues related to corporate governance. Contributions can be of a theoretical or empirical nature. IJCG targets scholars from both academia and the business community. Papers examine emerging trends in corporate governance and fast-changing concerns faced by companies from a comprehensive range of areas. Papers that apply financial regulations and organisational behaviour to corporate governance issues are also welcome.
It may be defined as a set of systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders. The elements of good corporate governance include maintenance of transparency, accountability, disclosures, compliance with the legal framework, shareholders value, etc. The legal and regulatory framework of corporate governance should aim at protection of investors.
Corporate governance is the collection of mechanisms, processes and relations used by various parties to control and to operate a corporation. Corporate governance includes the processes through which corporations' objectives are set and pursued in the context of the social, regulatory and market environment. These include monitoring the actions, policies, practices, and decisions of corporations, their agents, and affected stakeholders. Corporate governance practices can be seen [ by whom? Interest in the corporate governance practices of modern corporations, particularly in relation to accountability , increased following the high-profile collapses of a number of large corporations in —, many of which involved accounting fraud ; and then again after the financial crisis in
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