India's Corporate Governance Reforms and Listed Corporations' Capital Structures

Kavita Goel, Ronald McIver

Research output: Contribution to journalArticlepeer-review


THE study aims to examine the impact of reforms of India’s corporate governance standards
(via the introduction of and amendments to Clause 49) on the capital structure of its listed
Design/Methodology/Approach: Simple fixed effects panel regression analysis is utilized on a sample
comprised of a balanced panel data set of 275 companies from BSE 500 index of Mumbai Stock
Exchange during the 1999 to 2013 period.The study examines the impact of corporate governance
reforms on the gearing ratio of firms in India’s listed corporate sector. The impact of stock market
development, in terms of increased market capitalization and liquidity after liberalization, and changes
in the perceived quality of India’s institutions, are accounted for analysis of this data.
Findings: It concludes that while the initial introduction of reforms to Clause 49 in 2001 reduced
average levels of gearing, that the more recent 2006 increase in the scope of Clause 49 has increased
its average level. It also finds, consistent with the literature, that stock market development is associated
with lower gearing, while improvements in the quality of development of India’s institutions are
associated with higher gearing.
Research Limitations/Implications: The study is conducted on companies listed on BSE 500
index and captures data only until 2012-13. Thus, although taken across all sectors the sample of
firms is drawn only from larger firms, which may limit generalizability of results/conclusions.
Recent amendments to Clause 49 suggest that it may be useful to extend the sample period in future
research to check for consistency with this study’s results. Additionally, the recent SEBI proposal
for the adoption of a corporate governance model based on the Anglo-Saxon model may show promise.
Therefore, scope exists to undertake complementary studies on the impact of the adoption of UKbased concepts such as ‘comply or explain’ on the structure of Indian businesses.
Originality/Value: Addresses a lack of recent studies of the impact of India’s financial liberalization
and reforms on financing patterns within its listed corporate sector. Specifically, what has been
addressed is the impact of corporate governance reforms, as expressed in Clause 49 of the The Listing
Agreement, on corporate financing patterns.
Key Words: India, Stock market development, Debt-Equity Ratio (Gearing), Governance
Reform, Clause 49, Capital market, Market capitalization, Liquidity, Listing agreement.
Original languageEnglish
Pages (from-to)7-18
Number of pages12
JournalDelhi Business Review
Issue number2
Publication statusPublished - 2016


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