Academic journal article IUP Journal of Corporate Governance

Corporate Governance and Disclosure Practices in India: Domestic Firms versus Cross-Listed Firms

Academic journal article IUP Journal of Corporate Governance

Corporate Governance and Disclosure Practices in India: Domestic Firms versus Cross-Listed Firms

Article excerpt


Cross-listing is the process by which a publicly held firm lists its stocks on a stock exchange beyond its national boundaries; hence it refers to a situation whereby a firm lists its stock on an overseas exchange (Karolyi, 2006; Peng and Blevins, 2012; and Shi et ai, 2012). According to Karolyi (2012), over 3,000 foreign firms have been cross-listed on over 40 major stock exchanges. The major stock exchanges of the world such as New York Stock Exchange (NYSE), NASDAQ, London Stock Exchange (LSE), and London's Alternative Investment Market (AIM) have attracted significant cross-listings of firms. Also, NYSE Euronext (Europe), Deutsche Börse, Hong Kong, and Singapore have all become popular cross-listing destinations for firms. Most foreign firms cross-list in the foreign markets via depositary receipts. According to the Citi depositary receipts' market analysis, in 2011, trading volumes of depositary receipts reached 170.7 billion shares compared to 148.3 billion shares in 2010, showing an increase in volume by 22.4 billion shares. Mainly dominated by firms from BRIC (Brazil, Russia, India, and China) countries, the capital raised by cross- listed firms totaled $16.6 bn (Peng and Su, 2014).

Cross-listing involves a firm that is already trading on its home country stock exchange deciding to also list on an international exchange. Hence, cross-listed firms face two conflicting pressures in global business environment. They face two institutional environments, viz., the external environment of host country where stock is originally cross-listed and the internal environment of home country where stock is originally listed. Cross-listed firms need to conform to the laws, values and norms of the overseas host country in which they are listed as well as the home country in which they operate. However, for domestic listed firms, there is limited pressure to adapt to the local environment only arising from legal and regulatory environment of the home country. Hence, it is possible that cross-listed firms, i.e., multiple listed firms, internalize some aspects of foreign regulation of their host country and exhibit higher level of corporate governance and disclosure. According to prior research, there is no statistically significant difference in the corporate governance and disclosure score of Indian firms across various sectors (Madhani, 2014). Hence, in this context, the present research focuses on the other variant, i.e., cross-listing of firms, in order to explain the behavior of Indian firms with regard to corporate governance and disclosure practices.

Literature Review

The focus of corporate governance is shifting from mere obligation and compliance with laws and listing standards, to a business imperative for many firms. Good corporate governance is a key driver of sustainable corporate growth and long-term competitive advantage (Madhani, 2007). Extant literature reports corporate governance and disclosure practices at individual country as well as cross-country level. Prior research study has found substantial cross-country differences related to corporate governance (La Porta et ai, 1999) and disclosure (Bushman et ai, 2004) practices by firms. Listing status of firms can also be an important factor in explaining variability in the extent of corporate governance and disclosure. This is because cross-listed firms may well incorporate certain aspects of overseas regulation of the host country into their domestic accounts in the home country. Cooke (1989a) in an analysis of Swedish firms found that disclosure in the corporate annual reports of domestically listed firms was significantly lower than that reported by multiple listed firms. Lang etal. (2003b) found that non-US firms that are cross-listed in the US have earnings properties that are more like the US firms as compared to other firms in their home countries.

Khanna et al. (2004) analyzed the disclosure practices of firms as a function of their interaction with the US markets for a group of 794 firms from 24 countries in the Asia-Pacific and Europe. …

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