Corporate Governance and the Role of Institutional Investors in India

Abstract

ABSTRACT The objective of this paper is to study the role of large institutional investors in monitoring the performance of company management in India, in comparison with other advanced countries in the world. The focus of this study is based on the pattern of debt and equity holdings and its relationship to boards of directors' intervention and monitoring of company management. Our analysis revealed that the role of nominee directors of financial institutions has been restricted to safeguard their institutional interest in the companies. It is unfortunate that corporate governance regulation has taken on a strict form without any commensurate conviction on the part of corporate leadership. The responses thus revealed that their role in the board of directors meetings, in assisting better management practices, productivity, efficiency and effective functioning of the company has been dissatisfactory. Further, we find that the role of institutional investors, like mutual funds and pension funds, seems to not be active in corporate governance. If the nominee directors are endowed with expertise and an independent disposition, they can bring the much-needed transformation to boardrooms, allowing board meetings to become effective strategy sessions for decision-making.