Indian Business Groups and Other Corporations: Comparative Organisational Perspectives on Indian Corporate Firms (India Studies in Business and Economics)

This book contributes to growing literature on the role of business groups in the development of corporate sector and contains perspectives from the Indian economy. It brings together an array of well-researched papers that provide a comprehensive understanding of evolution and nature of the Indian business groups, as well as various aspects of their functioning. All chapters are primarily empirical, use appropriate quantitative techniques and are strongly grounded in relevant theories. This fine combination of data, techniques and theories is expected to provide the reader with in-depth understanding of the complex structures and behaviour of firms affiliated to business groups. Readers interested in the Indian corporate sector, especially Indian business groups, will find the book useful. Preface and Acknowledgments 6 Contents 8 Editors and Contributors 10 1 Business Group Firms in India: A Short Introduction 12 1.1 The Backdrop 12 1.2 Business Group Affiliates and Stand-Alone Firms 14 1.3 Chapters in This Volume 18 References 22 2 The Regime of Capital Accumulation, the Hindu Undivided Family and the Business Group in Independent India 24 2.1 Firm-Family Duality and the HUF in India 25 2.2 Institutional Embedding of the HUF in Corporate Governance Structures 28 2.3 HUF as a Vehicle of Tax Avoidance 32 2.4 Conclusion 37 References 38 3 Corporate Response to Public Policy Changes: Some Intriguing Aspects 39 3.1 Introduction 39 3.2 Data Sources 40 3.3 Rising Role of Private Corporate Sector 41 3.4 Changing Corporate Financing Practices 53 3.5 Trends in Incidence of Corporate Tax 59 3.6 External Sector Orientation 63 3.7 Understanding the Economy and Corporate Sector in Its New Incarnation 66 References 67 4 Ownership Control and Board Governance of Indian Business Groups: Continuity or Change? 68 4.1 Introduction 69 4.2 Business Group as an Organizational Form 70 4.3 Characteristics of Indian Business Groups 73 4.3.1 Incidence of Business Groups 73 4.3.2 Dominance of Business Groups 74 4.3.3 Persistence of Business Groups 77 4.4 The Nature of the Governance Problem of Indian Business Groups 84 4.4.1 Agency Problems in Business Groups 84 4.4.2 Concentrated Ownership and Control in Indian Business Groups 87 4.4.3 The Persistence of Concentrated Ownership and Control 92 4.4.4 Ownership Complexity 94 4.5 Insider Control and Board Governance 98 4.5.1 Monitoring by the Board 100 4.5.2 Board of Directors: The Evolving Corporate Governance Framework in India 102 4.5.3 Promoter Presence and Board Governance 106 4.5.4 Board Independence 110 4.5.5 Women Directors on Board 113 4.6 Concluding Comments 115 Annexure 116 References 117 5 The Multi-entity Structure and Control in Business Groups 120 5.1 Introduction 120 5.2 The Business Group as a Dynamic Structure 122 5.3 The Business Group: Control and Ownership 124 5.4 Liberalization and Control in Business Groups 128 5.5 Conclusion 132 Appendix 132 References 136 6 Business Group Affiliation, Financial Distress and Corporate Investment-Cash Flow Sensitivity: Evidence from India 138 6.1 Introduction 138 6.2 Literature Review 140 6.2.1 Theories of Corporate Investment 140 6.2.2 Neoclassical Theory of Investment 140 6.2.3 Accelerator Theory of Investment 141 6.2.4 Tobin’s Q Theory of Investment 141 6.2.5 Empirical Evidence 142 6.2.6 Cash Flow and Corporate Investments 142 6.2.7 Other Firm Specific Factors and Corporate Investments 144 6.2.8 Business Group Affiliation and Corporate Investments 145 6.2.9 Financial Distress and Corporate Investment 145 6.3 Variables, Data and Preliminary Evidence 147 6.3.1 Variables 147 6.3.2 Data 151 6.3.3 Preliminary Evidence 152 6.4 Model Specification and Econometric Method 153 6.4.1 Models Specifications 153 6.4.2 Econometric Method 158 6.5 Discussion of Results 158 6.5.1 Empirical Results (Whole Period) 158 6.5.2 Empirical Results (Crisis vs. Non-crisis Periods) 161 6.5.3 Empirical Results (High Growth vs. Low Growth Companies) 171 6.6 Conclusions 171 References 178 7 Promoter Ownership and Performance in Publicly Listed Firms in India: Does Group Affiliation Matter? 183 7.1 Introduction 183 7.2 Review and Hypotheses 185 7.2.1 The Role of Promoter Ownership in Indian Firms 185 7.2.2 Performance Effects of Variations in the Level of Promoter Ownership 186 7.2.3 Group-Affiliation Compared to Stand-Alone Firms with Promoter Ownership 188 7.2.4 Methodological Concerns 191 7.3 Data and Methods 192 7.3.1 Data 192 7.3.2 Variables 193 7.3.3 Analytical Approach 194 7.4 Results 196 7.4.1 Descriptive Statistics 196 7.4.2 Propensity Score Matching (PSM) Results 198 7.4.3 Regression Results 198 7.5 Discussion and Conclusion 208 7.5.1 Limitations and Directions for Future Research 209 References 210 8 Differences in the Performance of Group-Affiliated and Stand-Alone Firms 215 8.1 Introduction 215 8.2 Methodology 220 8.2.1 Performance of Group-Affiliated Firms as Against Stand-Alone Firms 220 8.2.2 Impact of Different Factors on the Performance of Group-Affiliated Firms 222 8.3 Data 223 8.4 Key Variables of the Study 223 8.4.1 Dependent Variable 223 8.4.2 Explanatory Variables 223 8.4.3 Control Variables 228 8.5 Empirical Analysis 228 8.6 Conclusion 236 References 237 9 Related Party Transactions and Stock Price Crash Risk: Evidence from India 240 9.1 Introduction 240 9.2 Related Party Transactions in India: The Institutional Context 243 9.2.1 The Companies Act, 1956 243 9.2.2 Indian Accounting Standard 18 244 9.2.3 Kumar Mangalam Birla Committee Report and Clause 49 244 9.2.4 Companies Act, 2013 244 9.3 Data, Hypotheses and Methodology 246 9.4 Empirical Results 248 9.5 Conclusion 254 Appendix 257 Box 1: Related Parties Under the Indian AS18 257 Box 2: Related Parties Under the Ind As24 258 References 259 10 Minsky’s Financial Instability Hypothesis: A Theoretical Engagement in the Indian Context 261 10.1 Introduction 262 10.2 Stylized Facts for the Indian Corporate Sector on FIH 264 10.3 Reinterpreting Minsky 268 References 272