Academic journal article IUP Journal of Corporate Governance

The Impact of Legal and Regulatory Environment: A Study of Corporate Governance and Disclosure Practices of Firms Listed on Bombay Stock Exchange

Academic journal article IUP Journal of Corporate Governance

The Impact of Legal and Regulatory Environment: A Study of Corporate Governance and Disclosure Practices of Firms Listed on Bombay Stock Exchange

Article excerpt

Introduction

Corporate governance and disclosure practices of listed firms having global exposure are different from firms having only domestic exposure. Domestic listed firms are listed in the home country only and are governed by local institutional environment of their home country, and there is limited pressure on these firms to adapt to the local environment arising only from institutional, legal and regulatory environment of the home country. However, this may not be the case for firms globally exposed such as cross-listed firms. Cross-listing involves a firm that is already trading on its home country's stock exchange, and deciding to also list on an international exchange. 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.

In a cross-country setting of firms listing, the variety in corporate governance practices increases. 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. Also given the differences in legal regimes and consequent requirements, it becomes more important to capture as many corporate governance aspects as possible. Although both legal and regulatory regimes and company practices have been found to matter in corporate governance by how much each does and the interaction between legal and regulatory regimes and company practices, has not much been researched to date. This research highlights some aspects of legal regimes and corporate governance practices of firms listed across various regulatory environments such as India, Europe (UK and Luxembourg) and the US. The research also looks into institutional, legal and regulatory environments of the US, UK and Luxembourg from the perspectives of corporate governance and disclosure practices, to examine whether they are significantly different for firms listed in those countries.

Literature Review

Extant literature reports corporate governance and disclosure practices at individual country as well as cross-country level. Listing status of firms can also be an important factor in explaining the 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. The present research extends the work of Madhani (2014c), as the research focused only on Indian cross-listed firms (excluding MNC subsidiaries). However, this study also includes MNC subsidiaries to analyze the impact of legal and institutional environment of host country on corporate governance and disclosure practices of firms. Research further scrutinizes differences in legal and regulatory environments of India, Europe and US and empirically tested whether such differences are statistically significant. 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 and found positive and significant correlation between disclosure practices and the US listing.

La Porta et al. (2000) and Shleifer and Vishny (1997) define corporate governance as a set of mechanisms through which outside investors protect themselves against expropriation by controlling owners. Good corporate governance is a key driver of sustainable corporate growth and long-term competitive advantage (Madhani, 2007). Despite marked convergence in corporate governance models and codes (Ugeux 2004; and Witt 2004), variation remains in approaches to, and the outcomes of, corporate governance across the countries. This variation may be explained by differences in country-level institutional environments. Legal and regulatory environment of country matters much for corporate governance. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.