Do Shareholder Activism Effect Corporate Governance and Related Party Transactions: Evidences from India?

Islam, Ajaz Ul

doi:10.1177/0974686220966810

Cited by 11 publications

(14 citation statements)

References 64 publications

(54 reference statements)

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“…Existing research in the area of SA in India suggests that SA has gained momentum over the past decade (Shingade et al, 2022a(Shingade et al, , 2022bIslam et al, 2020;Islam, 2020), and there has been a significant increase in the number of proposals rejected by shareholders since the implementation of various regulatory and policy reforms (Shingade et al, 2022a(Shingade et al, , 2022b Investigations into the impact of SA on the firm-level variables in India revealed a significant increase in the performance of the firm post-SA (Islam, 2020). However, a shred of contrasting evidence has also been proposed, suggesting that there is no significant impact of SA on performance measures, including valuation, profitability, margins and return results (Shingade et al, 2022a(Shingade et al, , 2022b.…”

Section: Unfolding Of Shareholder Activism In Indiamentioning

confidence: 99%

“…India has a different ownership structure of listed companies in comparison to other developed countries, wherein the majority of the listed companies are family-owned and managed, hence giving rise to a conflict of different nature (Sarkar et al , 2012). Corporate governance policies and procedures have been mainly directed to address the conflict of interest between majority shareholders and minority shareholders, rather than the conflict of interest between principal and agent as evident in most developed countries (Islam, 2020; Gupta, 2014).…”

Section: Introductionmentioning

confidence: 99%

“…Over the past decade, a lot of effort has been put in by the regulators, policymakers and governing institutes (including the Securities and Exchange Board of India, proxy advisory firms and other institutions) through acts (Companies Act 2013), rules and listing agreements (SEBI listing agreements) so that shareholders’ participation in corporate decision-making can be augmented (Islam, 2020). Various reforms aimed at the active participation of activist shareholders included changes in the manner of voting, e-voting and shareholders’ approval of corporate decisions, among others.…”

Section: Introductionmentioning

confidence: 99%

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The unfolding of shareholder activism in India: an exploratory study

Islam

2023

IJLMA

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Purpose The purpose of this study is to provide a holistic view of the emergence of shareholder activism (SA) in India. However, specifically, this study aims at fulfilling the research gap by discussing the policy and legal advancement in the area of SA and investigating the chronological evolution of SA, manifestations of SA, motives of SA, outcome of SAs and impact of SA on the financial performance of the firm. Design/methodology/approach This study used a mixed methodology (both qualitative and quantitative) to draw inferences, including content analysis, descriptive statistics, independent sample t-test and paired sample t-test. The data has been collected from the annual reports of the sample companies and the Prowess database. Return on assets and return on equity have been used as measures of financial performance while investigating the difference in financial performance between firms subjected to SA and firms not subjected to SA. Findings The findings of this study suggest that there has been significant growth in the occurrence of SA incidents in India in the past decade, with shareholders prominently manifesting by opposing the proposals at annual general meetings/extraordinary general meetings, mostly involving governance-related demands. The findings from the independent sample t-tests revealed that there has been a significant difference in the financial performance of the sample subjected to SA and firms not subjected to SA. Furthermore, the results of the paired sample t-test provide strong evidence of significant improvement in the financial performance of firms’ post-SA. Practical implications The findings of this study have implications for various stakeholders. The findings of this study suggest that SA has been relatively more successful in the Indian context and may encourage minority shareholders to follow active participation through shareholder proposals and votes rather than a passive strategy to trade and exit. For firms, it can provide valuable inferences about the emergence of SA and how it has a positive impact on the financial performance of the firm, which can lead to a change in the perception of investors and promoters who perceive SA as a threat (Gillan and Starks 2000; Hartzell and Starks, 2003). For policymakers, it can act as a tool to investigate whether the regulatory changes have been able to bring the intended transparency, accountability and enhanced shareholder participation. This will encourage policymakers to be more agile, as their efforts are bearing fruit. This will also act as a guide to formulating future policies and regulations. Originality/value This study is an effort to provide a holistic view of SA scenarios in a developing economy setting like India, where SA is a very recent phenomenon. Although there are studies in the area of SA, there is a dearth of studies that have investigated the various dimensions of SA in the Indian context in a very systematic and extensive manner, investigating all the different dimensions of SA. Furthermore, this study also intends to investigate the impact of SA, which is normally perceived as a threat to financial performance and provide valuable contrasting evidence.

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Section: Unfolding Of Shareholder Activism In Indiamentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The unfolding of shareholder activism in India: an exploratory study

Islam

2023

IJLMA

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“…For example, Wasan and Mulchandani [ 10 ] examined 182 firms listed on S&P BSE 500 from 2010 to 2018. Islam [ 11 ] utilized data from 322 firms for a period spanning from 2008 to 2015. Accordingly, there is a lack of research that assess RPTs in the context of financial institutions in India.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

“…According to the amendments, publicly listed firms are required mandatorily to disclose the transaction of RPTs with its related parties in their annual report, and minority shareholders are empowered to raise their concerns about RPTs of a firm by voting and/or by a nominated board member. Further, Islam [ 11 ] states that the listed companies are obliged to disclose the details of RPTs in their annual reports.…”

Section: Introductionmentioning

confidence: 99%

The moderation role of board independence change in the relationship between board characteristics, related party transactions, and financial performance

Almaqtari

Farhan²,

Al-Hattami³

et al. 2022

PLoS ONE

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The present study examines the moderation effect of board independence change on the relationship between board characteristics, related party transactions and financial performance of Indian listed banks over 10 years from 2010 to 2019. While board size, independence, diligence, and remuneration were taken to represent board characteristics, all key personnel and subsidiaries’ transactions were considered measures for related party transactions. On the other hand, the financial performance of banks was measured by two accounting-based measures (return on assets and profit after tax) and two market-based measures (earning per share and Tobin Q). The results revealed that board independence change has a significant negative effect on financial performance. Further, the results indicated that board independence change moderates positively and significantly the relationship between related party transactions and financial performance. The findings also showed that board independence change had a moderating effect that significantly and negatively weakens board size and effectiveness, negatively influencing banks’ profitability. Unlike other studies, this study uniquely uses board independence change as a moderator between board characteristics, related party transactions, and several measures of banks’ financial performance. The limited research highlighting this issue, where Indian banks have encountered several challenges in the last few years, has motivated the present study to bridge the existing gaps in the strand literature. Therefore, this research opens useful insights and has beneficial implications for policymakers, bankers, financial analysts, and academicians.

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