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The IUP Journal of Corporate Governance
Focus

After corporate governance became a key issue in the early 1990s, all the developed countries adopted significant legal and regulatory measures to ensure protection of the stakeholders. In the late 1990s, the developing economies also followed suit and adopted corporate governance mechanisms. However, the effectiveness of such mechanisms in these countries is not up to the mark in comparison to the developed economies. This provides a basis for researchers to analyze various issues related to corporate governance in these countries. This issue focuses on corporate governance study in two developing countries, namely, India and Pakistan.

Prior research studies on the performance of State-Owned Enterprises (SOEs) vis-à-vis private ones empirically concluded that SOEs underperform in comparison. It is mainly due to weaker incentives for SOEs in the absence of market for corporate control as well as for managerial talent. In the first paper, “Ownership Structure and Performance of Listed State-Owned Enterprises Vis-à-Vis Comparable Private Enterprises: Evidence from India”, the author, Malla Praveen Bhasa, explains the rationale behind the state’s ownership of industry and how SOEs are organized in India. The author then compares the performance of the listed SOEs with that of their private competitors. In the literature, high ownership is reported to have a major negative influence on firm performance. Based on this, one can theoretically assume that majority state ownership is likely to lead to lesser value creation. After studying 39 Central Public Sector Enterprises (CPSEs) and an equal number of private enterprises listed on Bombay Stock Exchange (BSE) for the period 2006-2014, the study found mixed evidence as the CPSEs perform marginally better in terms of Return on Assets (ROA) and Return on Sales (ROS) than their private counterparts. However, on the other performance measures such as Return on Equity (ROE), they were inferior to their private competitors. Overall, the research findings show that Indian CPSEs were marginally better than the private enterprises.

Board diversity is defined as board composition of the qualities, characteristics, skills, and expertise of individual members who help to make decisions in the board. Board diversity, characterized by attributes such as gender, age, nationality and functionality, is increasingly considered as a significant mechanism of good corporate governance as well as firm performance. Therefore, the economic impact of board diversity aspects needs to be investigated empirically. The second paper, “The Relationship Between Board Diversity and Firm Performance: Evidence from the Banking Sector in Pakistan”, focuses on another developing economy, Pakistan. In this paper, the authors, Sumbul Sajjad and Kashif Rashid, examine the relationship between board diversity and firm’s performance in the developing financial market. They study the relationship between demographic diversity such as gender diversity, foreign diversity and age diversity of the board of directors and firm financial performance based on the panel data of 20 commercial banks publicly listed on Karachi Stock Exchange (KSE), Pakistan for the period 2007-2012. The characteristics of directors affect their ability to perform their services, and hence board diversity results in better problem solving, effective decision making and mutual monitoring of the board members. Therefore, firms need to maintain a proper mix and composition of board in order to benefit from it. The results suggest that a higher proportion of female and young directors on the board leads to lower firm value. On the other hand, higher representation of foreign directors improves the firm value, as measured by Tobin’s Q.

Literature suggests that MNC subsidiaries and cross-listed firms have higher corporate governance and disclosure level as compared to domestic firms. In the third paper, “Corporate Governance and Disclosure Practices of MNC Subsidiaries and Cross-Listed Firms: An Institutional Environment Perspective”, the author, Pankaj M Madhani, seeks to identify whether corporate governance and disclosure practices of MNC subsidiaries and cross-listed firms are significantly different by studying a sample of 28 firms listed in the Indian stock market, BSE for the financial year 2011-12. The research findings indicate that subsidiaries of MNCs and cross-listed firms have statistically significant differences in corporate governance and disclosure practices. The findings also reveal that domestic cross-listed firms disclose more information than MNC subsidiaries listed only in host country. This is because of the quite different institutional and legal environment for MNC subsidiaries listed in India as compared to the listing environment of the US/Europe where domestic firms are cross-listed. The research provides insight into the question of how a country’s institutional, legal and regulatory environment may influence the effectiveness of firm-level corporate governance mechanisms.

--Pankaj M Madhani
Consulting Editor

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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.

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Corporate Governance