Corporate Governance Determinants of FII in Indian IT Firms

Panicker, Vidya and Mitra, Sumit and Sensarma, Rudra (2016): Corporate Governance Determinants of FII in Indian IT Firms. Published in: Indian Journal of Corporate Governance , Vol. 9, No. 1 (2016): pp. 1-18.

Abstract

The objective of this study is to investigate the impact of corporate governance characteristics on foreign investments in the Indian IT industry. Foreign capital is important for industries in an emerging economy as it bridges the gap between investment requirements and the domestically available capital. Prior research has shown that corporate governance characteristics of a firm can influence the FII inflow into it. The sample for this study consists of 113 firms from the Indian IT industry spanning 9 years from 2005 to 2013. The Indian IT industry was chosen as the setting for this study due to the increasing levels of FII inflow to these companies and because IT companies are among the pioneers in the formulation and implementation of corporate governance regulation in India. The ownership pattern of a firm, measured through parameters like its promoter shareholdings, and the corporate governance characteristics as indicated by the total number of directors in the board are analyzed to understand their impact on inflow of FII to the firms. A fixed effect regression was run on the sample and the results were analyzed. The results show that firms with more concentrated promoter holdings have lower levels of foreign investments. Larger board size seems to attract higher levels of foreign investments. However the number of independent members on board and the board chairman being independent have been found to be insignificant in determining FII inflow to a firm. Higher market capitalization and profitability help in attracting foreign investments. These results suggest the need for a strong current level of performance before inviting international investments for fund raising and also hints at a convergence in corporate governance of Indian IT firms towards the Anglo-Saxon system of corporate governance.

• Item Type: MPRA Paper
• Language: English
• Keywords: FII, Corporate governance, ownership patterns, board characteristics, Indian IT industry
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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