Firm Value and Corporate Governance in the Indian Banking Sector: An Empirical Analysis

This research examines the effect of corporate governance on firm's value. The system of corporate governance is important for the banks in India because firstly, as India has a large banking sector, with over 90 scheduled commercial banks, majority of them being listed on the India's stock exchanges and secondly, majority of the banks are in the public sector, where they are not only competing with one another, but also with other players in the banking as well as the financial services systems, including financial institutions, mutual funds and other intermediaries. The research has been carried out on the sample of 40 listed banks, public as well as private sector and focused on the impact of key determinants of corporate governance on the firm value of the these banks. Panel data for 8 years (2005–2013) was analysed via the generalised method of moments (GMM) approach. There are several aspects and dimensions of corporate governance, which may influence a firm's value but this study focused on four aspects namely Ownership Concentration (OWNCON), Institutional Ownership (INOWN), Chief Executive Officer Duality (CEO) and Board's Independence (BOIN). Firm's value has been measured through Tobin's Q and market capitalisation. Strong and positive impact of corporate governance on firm's value has been seen.