Good Governance Case Study

N Balasubramanian in his book "Corporate Governance and Stewardship: An Overview", raised and discussed few pertinent questions about Good governance and whether it matters to the corporations. He says it is required to be studied that whether good governance creates sustainable value to companies and shareholders, does it mitigate their vulnerability to business risk and whether investors and stakeholders do care to see that their corporate connections are well governed or not? To answer these questions he referred some of the prior studies and suggested that the academic evidence and opinion on the relationship of good governance and good performance are mixed. He identified three categories of research i.e., opinion based research, focus

In the same study it is found that investors are ready to pay premium for a well governed company to as high as 27 per cent in Indonesia to 17 percent in Japan and Taiwan and the same is 18 per cent in US. In another study done by Deutsche Bank Research in the US market taking S&P 500 companies, found that companies that had taken initiative to improve their governance standards had outperformed those that had taken negative actions over the two period ending 2003. In India, an ICRA study for February 2004 with a sample size of 35 leading institutional investors and brokerage houses found that over 95 per cent investors are ready to pay a premium for companies with good governance practices. The CRISIL study(2004) of 40 leading companies, accounting for a significant proportion of the Nifty indices, found a strong correlation between the governance premium and quality of governance. In academic research also many scholars have studied the relationship of corporate governance and corporate performance and found a mixed kind of result. Here it is to be worth noted that the researchers have considered various parameters and metrics to measure the impact of good governance on corporate performance. But, there is no single universally agreed set

One of the most important reason is good governance leading to better accounting disclosure which increases the confidence of investors and in turn facilitates greater market liquidity and capital formation by companies. Verrecchia (1999), Botosan and Plumlee, (2002) found that companies that do not take up meaningful governance measures can pay a considerable risk premium when competing for scarce capital in the public market. Graham et al.(2002), reports that the cost of poor governance is borne heavily by the minority shareholders, specifically in emerging markets where most of the public companies are family owned. Good corporate governance ensures that the companies take care of the interest of a wide range of constituencies as well as of the communities within which they operate. It assures that the corporations operate for the benefit of society as a whole by taking into account the societal concerns related to environment and labours. In short run companies can make profit by taking the advantage of the asymmetry between the different stakeholders but in long run the growth and survival of companies will be possible only by balancing the interest of all stakeholders involved. Therefore, in various ways good corporate governance leads to benefits of all stakeholders including creditors, employees, customers, insurers, regulators and