Whistleblowing is an important tool to preserve the supremacy of ethical practices in organizations. The whistleblower, an employee or a former employee, helps the stakeholders by exposing the fraudulent or illegal activities committed in their organizations. The first paper, “Examining the Dynamics of Whistleblowing: A Causal Approach”, by Shivaji Banerjee and Shaunak Roy, analyzes the theoretical foundations of the act of whistleblowing. The authors explain, using literature, the situational and individual antecedents that pave the path for whistleblowing. They also examine the behavioral issues with regard to whistleblowing: given the risk involved in the act, what motivates people to expose the wrongdoings is dealt with the support of existing literature. Finally, they present two examples of whistleblowing in the Indian context to highlight the limitations in Indian legal system which does not have provisions to safeguard the whistleblowers. They also provide a broad framework for whistleblower protection in India.

The second and third papers of this issue focus on corporate governance issues in the Indian context. The impact of the nature of the industry on the corporate governance practices of the firms is a little-researched topic in literature. The second paper, “Corporate Governance and Disclosure Practices of Indian Firms: An Industry Perspective”, by Pankaj M Madhani, attempts to fulfill this gap in the Indian context. In this paper, the author first measures the corporate governance practices of top six firms as per market capitalization from each of the nine selected sectors, excluding the financial services industries. Then, he compares the scores across the industries. The findings indicate that the IT companies typically show better corporate governance disclosures than other industrial firms. On the other hand, healthcare, auto and consumer durables industries show poor corporate governance and disclosure. However, the results highlight that there are no statistically significant differences in the corporate governance and disclosure score of firms across various sectors.

Institutional investors are considered to be an important external corporate governance mechanism in the Anglo-American context. It is because of the fact that when institutional investors hold significant stake in a firm, they help influence the board of directors in ensuring better corporate governance practices. But in the Indian context, typically the role played by the institutional investors is limited with respect to corporate governance issues. In this context, the third paper, “Institutional Investments in India: A Review of the Literature”, by Amiya K Sahu, L K Vaswani and Amrita Chakraborty, surveys the literature, to understand and compare the results of various research studies. First, the authors analyze the development of institutional investments in general under different categories like ownership and firm performance, role of large shareholders, and institutions as large shareholders in influencing corporate governance, reducing agency costs and affecting firm performance. They also discuss the monitoring role of institutional investors and the cost and benefits of monitoring. Then, the authors analyze the Indian context by classifying the institutional investors into various categories. They highlight the differences in the influence of the domestic and foreign institutional investors on firm performance. However, the authors conclude that as the institutional participation increased after the 1990s, there has been an increase in the institutional monitoring activities in the Indian context.

The last paper, “Board Size and Board Independence: A Quantitative Study on Banking Industry in Pakistan”, by Aqil Waqar, Kashif Rashid and Aamna Jadoon, discusses the corporate governance issue in another South Asian country, Pakistan. The authors focus on the most important internal corporate governance mechanism, namely, the ‘board of directors’ and examine board size and board independence by analyzing their relationship with productivity and efficiency of the 23 banks listed on the Karachi Stock Exchange. The authors use the data obtained from the annual reports of the selected banks to run the regression after controlling for the effects of variables like the size of a firm and funds available for lending. The findings corroborate the positive relationship between board independence and bank profitability and efficiency. The results also suggest a positive relationship between total assets and deposits of the firm and firm’s performance, supporting the stewardship theory.

-- S Subramanian
Consulting Editor