Private equity and corporate governance in India

Abstract

Purpose

Developing economies that are subject to global influences, such as through exposure to global product, labor and capital markets, may be expected to practice higher standards of corporate governance (CG) than less globalized developing economies. This paper seeks to understand the relationship between CG and firm ownership by private equity investors in India, and to understand whether CG practices in particular national institutional contexts change when the firm is exposed to investors with a background in other countries' institutional contexts. Taking India as a test case, the paper aims to explore how CG standards are affected by private equity investment that originates from developed countries.

Design/methodology/approach

A primary survey on Indian firms' CG practices for firms that receive private equity and for comparable firms that do not was used to determine differences in CG. Private equity investors were surveyed to determine their national institutional contexts. The CG practices were then related to the national institutional context that the private equity investors came from.

Findings

Private‐equity funded firms display higher standards of corporate governance than firms that do not receive such funding. The difference arises from the application of developed country standards of CG arising from the investors that own the private equity funds. These funds are primarily owned by developed country investors. The strategies through which these occur are: reconstituting the board of directors, influencing senior executive recruitment, and changing the firm's operating and strategic rules.

Originality/value

Developing countries like India usually display low standards of CG. Such standards tend to evolve slowly in line with the country's stage of development. The literature has not hitherto identified ways in which this process can be hastened. This study finds that standards can be raised above the prevailing standards through the governance practices imported into developing countries by private equity funds that are primarily owned by developed country investors. Hence, the findings of this paper contribute to the understanding of how globalization influences CG.

Citation

Dossani, R. (2012), "Private equity and corporate governance in India", Journal of Asia Business Studies, Vol. 6 No. 2, pp. 223-238. https://doi.org/10.1108/15587891211254416