Foreign ownership and the enforcement of corporate governance reforms
Bhatta, Bibek and Marshall, Andrew and Neupane, Suman and Thapa, Chandra (2022) Foreign ownership and the enforcement of corporate governance reforms. Review of Quantitative Finance and Accounting, 58. 541–580. ISSN 0924-865X (https://doi.org/10.1007/s11156-021-01002-2)
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Abstract
This study examines whether a stronger corporate governance enforcement regime influences the investment decisions of foreign portfolio investors in an emerging market context. Using a natural experiment provided by an Indian corporate governance regulatory reform introduced in 2000, but for which stricter sanctions for non-compliance were imposed in 2004 our results provide strong evidence that governance reforms that include stricter sanctions for non-compliance lead to higher foreign ownership. Depending on specifications, the difference-in-differences estimates show that, on average, the effect is up to 2.8% increased foreign ownership post regulatory reform of 2004. The paper adds to the debate on simultaneity between foreign ownership and corporate governance as we show that in the context of an emerging market corporate governance regulations are extremely important in attracting foreign investors. In the context of prevalence of weak enforcement (of existing regulations) in emerging markets, this study provides empirical support to the notion that strictly enforcing the existing governance regulations has the potential to attract higher level of foreign investment. The results suggest that policy measures aimed at attracting foreign investors in emerging markets should not only concentrate on adopting the best international corporate governance practices but should also signal strong enforcement of these regulations by assigning significant penalties for non-compliance.
ORCID iDs
Bhatta, Bibek, Marshall, Andrew ORCID: https://orcid.org/0000-0001-7081-1296, Neupane, Suman and Thapa, Chandra ORCID: https://orcid.org/0000-0001-8661-8079;-
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Item type: Article ID code: 77005 Dates: DateEventFebruary 2022Published18 July 2021Published Online29 June 2021AcceptedSubjects: Social Sciences > Commerce > Accounting Department: Strathclyde Business School > Accounting and Finance Depositing user: Pure Administrator Date deposited: 07 Jul 2021 00:38 Last modified: 21 Dec 2024 05:24 Related URLs: URI: https://strathprints.strath.ac.uk/id/eprint/77005