A comparative study of corporate governance practices of Indian firms affiliated to business groups and industries

Purpose This paper aims to study the corporate governance practices followed by the listed companies in India to find out if industry and business group affiliation of firms influence their corporate governance practices. Design/methodology/approach The authors have created a corporate governance index for India using 15 of the variables used in past research. Hierarchical regression has been used in the study to control for possible inter-firm correlation in governance scores. Findings Using principal component analysis, the authors derive five factors for the corporate governance index - board composition, shareholder responsibility, ownership, responsible board behavior and fair executive compensation. Using the random intercept mixed-effects model, the authors find that corporate governance behaviors of firms affiliated to business groups are more similar within business groups than within industries. Practical implications Regulatory authorities generally target individual firms to enforce good corporate governance practices. As companies affiliated with the same business group exhibit similar governance practices, regulators can also set norms for business groups in addition to individual firms. Originality/value Scant research has studied the corporate governance behavior of firms affiliated with business groups. By making business groups (and industries) the unit of analysis, the authors have studied the corporate governance behavior of firms as a cluster in the context of an emerging country, India.