Securities And Exchange Board Of India Research Articles

THE INFLUENCE OF GROUP AFFILIATION ON IPOS PERFORMANCE: AN EMPIRICAL ANALYSIS OF INDIAN IPOS

Securities and Exchange Board of India (SEBI) keeps on improving the securities market regulations to improve investors' protection. To revive the primary market, in 2009, SEBI ICDR (Issue of Capital and Disclosure Requirements) Regulations, 2009 was amended with revised guidelines. The advantage of group affiliation and reputation on IPO performance differs with time and varied business groups. Grouped IPOs evidenced mixed outcomes based on theories developed under tunnelling, propping, network and certification hypothesis. We examine how the business group affiliation impact the underpricing, liquidity and volatility performance of IPOs. Using database of 259 IPOs issued in Indian market from 2009 to 2019, we find less underpricing, liquidity and volatility for group affiliated IPOs. The present study supports certification, network and propping hypothesis. We find underpricing extent is reduced than earlier period, average security return 12 percent while underpricing 11.79 percent is evidenced. Liquidity and volatility reported a declining trend from listing day to 1-month post listing.

Taking the Heat: (Non) disclosure of Climate Change Risks in India

Following the bankruptcy of Pacific Gas and Electric in California, a number of academic commentators, central banks and regulators are coming to the realization that climate change poses a massive threat to the existing financial markets. While numerous legislative proposals to combat the emerging threat are being discussed across the world, there has been a massive rise in securities litigation involving climate change issues, particularly in the US. As early as in 2007, some US states had begun investigating companies for deliberately misleading their shareholders through non-disclosure of climate change risks. A number of similar suits have followed, increasingly binging into question the meaning and extent of ‘material information’ in the context of capital markets. In India, the Reserve Bank of India (RBI) has identified climate change as a potential risk to the stability of the financial system, but there has been little legislative action in this regard. The Securities and Exchange Board of India (SEBI) has a provision similar to that in the US requiring all listed companies to disclose ‘material’ facts regarding their assets and value on the market, while Indian courts have long recognized that corporations as well as intermediaries on the securities market are bound by a fiduciary duty to disclose all material information to investors. Drawing a comparison with the rising trend of climate change related securities litigation in the US, this article explores whether a company failing to disclose risks associated with climate change would be in violation of the current Indian regulatory framework, and what kind of legislative changes, if any, are required to safeguard the interests of Indian investors.

The Failure of Corporate Governance at Infrastructure Leasing and Financial Services Limited: Lessons Learnt

This case study investigates multiple issues related to corporate governance, regulations, auditing and financial reporting of Infrastructure Leasing and Financial Services Limited (IL&FS). Combinations of these issues resulted in default in payment obligations by IL&FS in August 2018 originated from the agency problem. It posed a substantial systematic risk to the whole financial system of India. This case study highlights the severe drawback of concentration of decision-making and unprofessional work ethics at the senior management level. Further, the case study also provides the opportunity to discuss the inappropriate regulations and governance practices which cause a severe problem in long-standing and prominent organizations like IL&FS. Research Questions: (a) Discuss the vital role of corporate governance in major corporations and the reasons behind governance failures. (b) How did asset–liability mismatch create liquidity problems in a company which deals with long-term projects? (c) How does lack of a proper and unified regulatory framework for Non-Banking Financial Corporation (NBFC) harm investors’ interest? Link to Theory: This case study provides an opportunity to learn the role of corporate governance in NBFC. This case demonstrates the problems arisen because of agency problem and conflict of interest among real-world stakeholders. The case study also highlights the importance of assets–liabilities management in a strategically important organization like IL&FS. Phenomenon Studied: This case study attempts to understand the potential problems that occurred in IL&FS from the failure of good governance, lack of unified regulations for NBFCs and non-adherence of professional responsibilities by the external auditors. Case Context: The case study explores the vital role of the infrastructure development and financing companies in developing economies like India and how it may affect other vital entities of the financial system. Further, it demonstrates how unethical practices at senior management and lack of unified regulations can harm the organization. Findings: The research study found senior management’s potential involvement in unethical practices while managing the company. The financial statements did not reflect the true and fair picture of the entity, which misled investors and other stakeholders. It created chaos in the stock market, resulting in a loss to shareholders. The government set up a new board to restore the confidence of the stock market. Further, the government started to address the problems that arose. Discussions: The case of IL&FS by default, at first glance, looks like a case of asset–liability mismatch due to the lack of supervisory roles of the board and senior management’s massive regulatory failure. It is shocking how under the nose of regulators like Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Ministry of Corporate Affairs (MCA) a default of this scale could take place. How could IL&FS group grow unchecked into a massive 348 entity. It appeared that regulators, marquee shareholders (banks and institutions), and the board of directors failed in their fiduciary obligation to regulate and supervise IL&FS.

Issues in separating Chairman and CEO/MD roles in Family Firms: Evidence from India’s SEBI reform

This paper analyzes the issues of implementing the new corporate governance code Securities and Exchange Board of India (SEBI), which is Contract agreement reforms (Clause 49) enacted in 2018.This code has ordered Indian companies to separate the role of chairman and chief executive officer (CEO)/managing director(MD)in family firms. Not only that more severe penalties were introduced in 2020 to expand the efficacy of this enactment, the SEBI had also recommended certain companies, in the new contract agreement reform, to implement it by October 01, 2019.There exist many problems on implementation of this reform in India. The separation between the position of Chairman and CEO/MD, which may lead to more independent boards, will provide the essential checks and balances over management’s performances. But, in most Indian promoter-led companies, the posts of chairman and CEO/MD are interwoven. The promoters say that the committee did not recommend that the two posts be separated, and hope the order gets deferred for 2-3 years.A qualitative research analysis is conducted focusing on the implications of this reform on family businesses and their managing boards. Hence, this paper will analyze the present conditions, trends, and future challenges from a theoretical as well as practical perspective. Keywords:Family firms, corporate governance reforms, separated Chairman and CEO/MD, SEBI, India.

A Move Towards Intelligent Economy: Indian Evidence

The current study accounts for a transitional move initiated by NITI Aayog and Securities and Exchange Board of India (SEBI) recently in the form of adoption of artificial intelligence (AI) in Indian economy. Empirical analysis of data of top 500 Indian companies reveals that adoption of this transformation is likely to enhance firm performance. The annual reports of Indian companies mention the use of AI in the business, which clearly indicates that Indian economy has initiated a move towards intelligent economy. It is observed that the banking companies are using AI and chatbots at a wider scale. Firms belonging to other sectors are gradually following the adoption of AI in the business process which results in improved financial performance. The findings of the study suggest that Indian legislators should gradually move towards mandatory adoption of AI in business economy at large in line with the global trend, which began its footprints through Digital India.

Whether auditors’ resignation affects India’s corporate governance standards: A stricter regime to curb the same?

In the recent decades, India has witnessed huge number of corporate scandals which have severely endangered the economic progress of the country. The increase in corporate frauds poses questions on the effectiveness of present corporate governance regime and often calls for a complete overhaul and redemption of the system. The phenomenon of auditor resignation is not a new anomaly and unprecedented but the rate at which it is increasing is quite alarming. During the past few years, audit as a profession has faced several challenges in India. The audit failures had gone unnoticed but the innumerable auditor resignations and increased regulatory scrutiny have brought the issue into spotlight. The issue of auditor resignation is of sufficient interest to the legal community as accounting scandals adversely affects the entire stakeholder community including shareholders and investors. In response to recent spate in auditors’ resignation, the new Companies Act 2013, Securities and Exchange Board of India (SEBI) and National Finance Reporting Authority (NFRA) have taken up several measures to act against erring auditors and improve the overall audit system. However, as the clamour grows for strict action against the auditors, the profession finds itself at a crossroads hinting upon the weak regulations and enforcement strategies. This paper focuses primarily on the issue of resignation of statutory auditors as there is a recent surge in the auditors’ resignation. The first part of the paper provides a background about the issue of auditor resignation and the law governing it. The second part focuses on the cases of auditor resignation in India and analyses the reasons behind such resignations. The third part engages in the critical analysis of the existing legal framework and the recent developments in terms of regulations and enforcement mechanism that have come in place to tackle and prevent such audit failures. The fourth part concludes the paper by giving plausible reforms and suggestions to redefine and structure the existing legal framework.

Taking the Heat: (Non)Disclosure of Climate Change Risks in India

Following the bankruptcy of Pacific Gas and Electric in California, a number of academic commentators, central banks and regulators are coming to the realization that climate change poses a massive threat to the existing financial markets. While numerous legislative proposals to combat the emerging threat are being discussed across the world, there has been a massive rise in securities litigation involving climate change issues, particularly in the US. As early as in 2007, some US states had begun investigating companies for deliberately misleading their shareholders through non-disclosure of climate change risks. A number of similar suits have followed, increasingly binging into question the meaning and extent of ‘material information’ in the context of capital markets. In India, the Reserve Bank of India (RBI) has identified climate change as a potential risk to the stability of the financial system, but there has been little legislative action in this regard. The Securities and Exchange Board of India (SEBI) has a provision similar to that in the US requiring all listed companies to disclose ‘material’ facts regarding their assets and value on the market, while Indian courts have long recognized that corporations as well as intermediaries on the securities market are bound by a fiduciary duty to disclose all material information to investors. Drawing a comparison with the rising trend of climate change related securities litigation in the US, this paper explores whether a company failing to disclose risks associated with climate change would be in violation of the current Indian regulatory framework, and what kind of legislative changes, if any, are required to safeguard the interests of Indian investors.

Determinants of a successful commodity contract: Evidence from the Indian agriculture futures market

In this study, I examine the determinants of a successful futures contract and explore whether an exhaustive checklist of criteria such as the one proposed by the Securities and Exchange Board of India (SEBI) guarantees the success of a commodity contract. Using panel random-effects method on 30 agriculture futures contracts trading in India from 2003–2016, I find that volatility in spot prices is the most crucial determinant, followed by hedging effectiveness and open interest of a futures contract, whereas the size of the underlying spot market, compulsory settlement, and government-imposed ban on futures trading negatively impacts the success of futures contracts. This study has important implications for contract design and new product launches.

Venture Capital: An Analysis of Investment and Exit Patterns of Indian Firms

This article reviews investment and exit patterns in the Indian venture capital (VC) segment. In the last few years, the Indian economy has experienced a massive inflow of investment via the venture capital industry. Consequently, more than 4,000 start-up ventures have been funded by these investments. Venture capital investment is characterized as a driving force behind entrepreneurship development in emerging economies, and the economic growth of emerging economies gains momentum with the development of start-up firms. The study specifically focuses on venture capital investment as well as exit trends in India, covering 4,346 deals from January 1998 to December 2018. The authors find that as the number of deals rises, so too does the size of total investment. They document the industry-wise classification of Indian VC investment. The information technology (IT) and IT-enabled services (ITES) industry holds 58.49% of the total investment made since 1998. On the other side, VC firms have exited mainly through either IPOs or by mergers and acquisitions. The exit data show a similar pattern as the investment data, with most of the exits in the IT and ITES industry. TOPICS:Real assets/alternative investments/private equity, emergingexchanges/markets/clearinghouses, performance measurement Key Findings ▪ Venture capital investment in India has shown remarkable growth since the 2012 Securities and Exchange Board of India (SEBI) Alternative Investment Funds Regulation. However, exits are more than double investments. ▪ The number of deals in the venture capital segment is on the high end; consequently, the total investment size has shown significant growth. ▪ The Investment pattern shows that a few sectors— such as IT and ITES, banking, financial services, insurance (BFSI), and healthcare—emerged as strong contestants for investment and investors’ preferred pick.

Investors’ Preference and Regulatory Aspects in the Indian Derivatives Market

The Indian Stock market undoubtedly experienced tremendous growth in the trading activity in the last twenty-five years. The Derivatives segment of the market began its operations with the launch of Index Futures by the National Stock exchange of India (NSE) in the year 2000. The Derivatives, as a financial product, derives its value from an underlying asset and is primarily designed to reduce the risk which businesses and individuals face due to the fluctuations in the asset prices. It helps individuals and companies to undertake risky projects with high returns and use derivatives as a tool to hedge risk, which can potentially lead to wealth creation. The popular instruments of equity derivatives market are- Forward, Future, Option, and swaps. This paper presents the legal framework and regulatory aspects by the market regulator Securities and Exchange Board of India (SEBI) involving derivatives that is based on the recommendations of the L.C. Gupta Committee. SEBI laid its objectives in regulating derivative markets to ensure transparent trading environment, safety, and integrity.

INSIDER TRADING IN INDIA - RULES TILL NOW

This paper analyses the lose threads amongst the SEBI (“Securities and Exchange Board of India”) as a regulatory authority (“regulator”) who are required enforce the laws and reforms to efface insider trading in the Indian economy. The paper focuses on the role of regulatory authority dealing with the cases of insider trading and the elements that might lead to delay in the resolving the matters which leads to piling up of unresolved matters in insider trading leading to disturbing the economy and loss of faith of investors on the trading activities of stock market.

Corporate Governance: An Insight into the Imposition and Implementation of Gender Diversity on Indian Boards

Prolific research on gender diversity invariably links it to the financial outcomes, responsible behaviour, stock movements and the like. Very few studies have tried to peep into the actual board composition of the companies to know the effective implementation status of the various impositions and regulations introduced by the legislators to embrace gender equality on board seats. The current study attempts to examine the implementation of three main governance reforms that have been introduced recently by the Indian market regulator, Securities and Exchange Board of India (SEBI) and Companies Act, 2013. In doing so, the study undertook content analysis of annual reports of top 200 Indian companies, constituting BSE200 index over a period of five years, that is, 2015–2019. The observations made about the board composition clearly indicate mere compliance and appointment of women as tokens on Indian boardrooms. The study makes some useful recommendations for the corporate managers and the policymakers.

The Use of Financial Derivatives to Acquire ‘Control’ of the Target Company: Locating the Indian Regulatory Approach vis-à-vis the European Discourse

The question of what amounts to ‘acquisition of control’ under the Securities and Exchange Board of India (SEBI) (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations) remains a vexatious issue, academically as well as judicially. The controversy is further compounded in case of usage of financial derivatives to acquire creeping control of the target company. This article, while providing a theoretical account for the disclosure and inclusion of financial derivatives in the determination of an open offer trigger on a qualitative basis, traces the responses of the regulators in the jurisdictions of the United Kingdom, Italy, and Germany to the usage of financial derivatives for the purposes of acquisition of de facto control of the target company. In this light, this article critiques the approach adopted by the SEBI in its determination of the trigger of the mandatory offer in the matter of New Delhi Television Limited (NDTV) in June 2018, which involved the use of financial derivatives. This article further proposes that the SEBI takeover regime ought to be overhauled to incorporate exclusive provisions regarding the disclosure and inclusion of financial derivatives in the determination of a mandatory offer trigger, if the use of derivative instruments enables the acquirer to gain effective control of the target company, in order to ensure that the Indian takeover regulations are in accordance with the regulatory practices developed by mature jurisdictions. Acquisition of control, financial derivatives, takeover regime, minority shareholders, decoupling

Corporate governance in the indian it sector- trends and implications

Corporate governance is basically the system by which business corporations are directed and controlled. The structure of corporate governance specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and spells out the rules and procedures for making decisions on corporate affairs. Corporate governance guidelines are essentially policies that are put in place, to facilitate seamless operations of an organization vis-a-vis factors like compliance with law, allocation and distribution of roles and responsibilities, inhibiting concentration of powers in a few hands or abuse of power, etc. In India, the Securities and Exchange Board of India (SEBI) appointed a committee under the Chairmanship of Kumar Mangalam Birla to recommend a code of corporate governance. The report was submitted by the committee in November 1999 and accepted by SEBI in December 1999. Listed companies were asked to comply with the guidelines by 2001. Infosys was one of the early adopters and had accepted the recommendation of both CII & SEBI. Through this rigour, the company was able to manage its company affairs, much better than its peers. As a result, the company had received many awards and recognitions for its corporate governance endeavour. However, since the late 2016, the company has been slipping on various corporate governance issues. A huge fracas between the founding members and the management, and the developments thereafter, had led to a lot of speculation on the company’s own corporate governance standards. Through this paper, we wish to discuss the concept of corporate governance, its utility for corporates, the genesis in India, early mover - Infosys and the misses on this front the company has reported of late.

An examination of environmental disclosures of most polluting companies in India

The purpose of the study is to find the status of environmental disclosures of the most polluting companies in India. Environmental disclosures are measured by a checklist of items based on 'global reporting initiative' guidelines as well as environmental regulations prevailing in India. Disclosure scores are drawn individually by using content analysis of annual reports for a sample of 130 most polluting companies in India for a period of eight years, i.e., from 2009-2010 to 2016-2017. The extent of environmental disclosures of the most polluting companies in India is limited. But the year wise movement shows an increasing trend, suggesting that disclosure practices have been improved over the study period especially after the inclusion of business responsibility reports. The overall result shows that the polluting companies in India are disclosing environmental information in their annual reports as a strategy to create social image among their stakeholders and also for competitive advantage. It is felt that for better environmental disclosures, Securities and Exchange Board of India (SEBI) should mandate all the listed companies to disclose detailed environmental information in their periodic report for enhancing the transparency and accountability of such disclosure.

An examination of environmental disclosures of most polluting companies in India

The purpose of the study is to find the status of environmental disclosures of the most polluting companies in India. Environmental disclosures are measured by a checklist of items based on 'global reporting initiative' guidelines as well as environmental regulations prevailing in India. Disclosure scores are drawn individually by using content analysis of annual reports for a sample of 130 most polluting companies in India for a period of eight years, i.e., from 2009-2010 to 2016-2017. The extent of environmental disclosures of the most polluting companies in India is limited. But the year wise movement shows an increasing trend, suggesting that disclosure practices have been improved over the study period especially after the inclusion of business responsibility reports. The overall result shows that the polluting companies in India are disclosing environmental information in their annual reports as a strategy to create social image among their stakeholders and also for competitive advantage. It is felt that for better environmental disclosures, Securities and Exchange Board of India (SEBI) should mandate all the listed companies to disclose detailed environmental information in their periodic report for enhancing the transparency and accountability of such disclosure.

Investors’ probable solutions to their problems: a study of Punjab

PurposeSmall and ignorant investors have had very unpleasant experiences in the stock market. They should be alert and have proper knowledge and understanding of the various problems that can arise in their dealings and how these can be resolved. This paper aims to analyse the investors’ probable solutions to their investment-related problems by using descriptives and factor analysis technique. Only Securities and Exchange Board of India (SEBI) can ensure a free and fair market and take India into league of major global capital markets in the next round of reforms.Design/methodology/approachBy personally visiting the offices of the stockbrokers, 1,000 questionnaires have been distributed among retail equity investors of Punjab, i.e. Amritsar, Jalandhar, Ludhiana and Mohali. Stockbrokers have been selected using simple random sampling technique because of their large number. In total, 373 questionnaires have been filled up by the respondents, and 45 questionnaires have been found to be incomplete and thus have been excluded from the analysis. Remaining 328 questionnaires have been used for the analysis. The objective of the research is to study the investors’ probable solutions to their investment-related problems. The collected data have been analysed using descriptives and factor analysis technique.FindingsIt has been found that 24.7 per cent retail equity investors have filed complaints while dealing in the securities market; on the other hand, 75.3 per cent retail equity investors have not filed any complaint neither against the company nor against the intermediaries. It has been found that the authorities have taken 12-90 days and even four-five months in providing first reply to their complainants. Moreover, it has been found that in some of the cases, SEBI has written to the concerned companies to resolve the complaints, and some issues have been still pending with SEBI. It has been revealed that SEBI has taken quite long time to resolve the complaints, and equity investors have not been satisfied with the decisions of the SEBI. This study has further highlighted the importance of variables considered by investors as probable solutions to their problems while dealing with securities. The highest mean score has been found for the variable grievance redressal mechanism has been slow, followed by investors have been exploited by the malpractices of companies, merchant bankers and auditors, stronger regulations have been required to strengthen investor protection, investor has yet not educated enough to discriminate between good and not-so-good scrips, etc. These 22 variables measuring the construct of investors’ probable solutions to their problems have been analysed with the help of factor analysis. Six factors have been identified with the help of factor analysis, i.e. stability measures for stock market, investor awareness and education norms, measures to impart knowledge to investors, measures to protect investor rights, audit of companies and investor grievance redressal, and these factors have together explained 68.441 per cent of the variance in data.Research limitations/implicationsBased on the study done by the researcher, the following suggestions are identified for further research. As the present study is at a state level, it could be extended to national level. The impact of retail investment in capital market may be studied in view of rural investors. The study may further be carried out to analyse the impact of reforms on the functioning of stock exchanges. A study on the awareness of women investors about retail investment pattern could be attempted. Implications of internet stock trading in India can be taken up for study. Impact of technological innovation in capital markets can be studied.Practical implicationsThis study would be of great use for investors who make decisions regarding investment. This study will help policymakers in formulating strategies and will also help credit rating agencies in rating the investment instruments.Social implicationsThis study is of great help for investors and SEBI. This study guides the investors regarding various laws that have been formulated for their protection and guides the SEBI in making strict regulations for the protection of the investors.Originality/valueThis task is 100 per cent original and some authors have been quoted.

The impact of board structure on corporate governance practices in India

India is one of the developing countries where corporate governance systems are in the evolutionary stage. Various reforms have been undertaken including establishment of the Securities and Exchange Board of India (SEBI) in 1992 and the formation of four major committees (Bajaj Committee in 1996, Birla Committee in 2000, Chandra Committee in 2002, and Narayanan Murthy Committee in 2003), to review governance issues and to propose governance laws and a new set of codes and practices. This study investigates the various aspects of corporate governance in India. It also examines different aspects of the effectiveness of boards of directors, board composition, board size, board leadership and board activity in relation to financial performance. The study used correlation analysis, to evaluate various factors and composition of board structure, to gauge the effectiveness of corporate governance. The results suggest that inclusion of more number of independent/outside directors, with diverse professional skills as well as increased public shareholding, would enhance professionalization of corporate boards and the efficiency of corporate governance practices in India.

Corporate Social Responsibility Practices of Commercial Banks in India

Corporate Social Responsibility (CSR) of a business yields welfare measures to the society. The word “responsibility” calls for moral obligations towards the society. Now-a-days CSR has drawn commendable significance in the corporate world including banking sector. Commercial Banks in India are occupied a lot of operations which they showcase as their contribution in terms of Corporate Social Responsibility (CSR). The CSR activities of banks have gained further importance in the wake of new listing guidelines issued by Securities and Exchange Board of India (SEBI) and on the introduction of Companies Act 2013. The main objective of this article is to make a study on the perception of employees and beneficiaries of the CSR initiatives regarding the major issues that they feel that the bank should take up on priority basis. Further the theoretical aspects of Corporate Social Responsibility (CSR) in commercial banking have also been exposed along with the actual spending by Indian commercial banks for CSR activities during the financial years 2014-15 and 2015-16.

Bolstering Director Independence in Controlled Companies in India

A vast majority of listed companies in India is “Controlled” by dominant shareholders acting also as the executive, directly or indirectly. Most of the legislative and regulatory requirements, however, are based on “best practices” evolved in countries like the United States where corporate ownership is “dispersed” with no identifiable controlling shareholder in management. In this paper, based on my submissions to a Committee appointed in June 2017 by the capital market regulator, Securities and Exchange Board of India (SEBI), I have proposed for consideration some structural changes in the manner of appointment, functioning, and removal of independent directors on listed company boards aimed at further enabling such directors to exercise their independence without undue inhibition in the interest of non-controlling shareholders. Principally, the recommendations seek restraints on controlling shareholders’ voting power in approving appointment and removal of independent directors (and independent auditors), with the rest of the shareholders being exclusively empowered to approve them.