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The study under consideration Role of Institutional Investors in Corporate Governance in India has been conducted to examine whether institutional investors and its constituents play an active role in Corporate Governance practices of companies and whether they do have any impact over the financial performance of respective companies. This study is empirical and exploratory in nature. It is empirical in the sense that it is a data based research used to derive meaningful conclusions that are capable of being verified by observation or experimentation. It is exploratory in the sense that it explores the evidences of role of institutional investors in Corporate Governance practices and their financial performance. The study tried to maintain reasonable level of accuracy in constructing Corporate Governance score and data collection. Widely acknowledged statistical approaches have been used to achieve the study objectives.
Corporate Governance has been emerged as the most pertinent issue in the corporate world in the recent era. Agency problem is considered as the central cause of governance problems around the world. To overcome this agency problem and to improve the governance practices, the role of institutional investors has become very vital in the present scenario as they have larger ownership stake and their monitoring abilities are also better than other stakeholders. But the institutional investors have also to concentrate on their own specific business objectives also. Therefore, while looking into the role of different categories of institutional investors in Corporate Governance, two more related issues have to be considered. Whether the institutional investors presence improve the firm performance and whether the governance practices adopted by the corporations have any impact over their financial performance. Hence, the intricacy of role of institutional investors in Corporate Governance, impact of institutional investment on firm performance and impact of Corporate Governance over firm performance needs attention. Various studies have been conducted so far on the above issues around the world and in India also on the above issues and the results have been inconclusive so far. Results are mixed as to the whether the institutional investors invest in the companies with good governance practices or their investment improve the governance practices adopted by the corporations. Similarly, the impact of Institutional Holdings over financial performance of firms is also not clear and the results are not coherent regarding the impact of Corporate Governance over firm performance also.
The present study is expected to draw the attention of corporate world and researchers towards the role of institutional investors in Corporate Governance practices in India. The present research work would provide important guidelines for institutional investors too whether they should concentrate on the financial performance of target companies only or they should also value the governance practices followed therein. Similarly, it will draw the attention of policy makers towards institutional investor activism in India and thereafter, making policies to enhance the same.
3.1 Objectives of the Study:
The present study attempts to achieve the following objectives:
To construct the Corporate Governance score
To establish relationship between Institutional Holdings and Corporate
To establish relationship between Corporate Governance score and
To establish relationship between Institutional Holdings and firm performance
To establish relationship between Corporate Governance score and
3.2 Sample Design and Data:
The study was started with a vast sample of 4,000 non-finance companies but due to lack of information on all the required variables, sample of 200 companies was considered adequate for the study irrespective of the industries covered. The present study is based on the secondary data. It covers a period of five financial years from 1st April 2004 to 31st March 2008. It is considered long enough to generalize on the role of institutional investors.
Data has been collected on the Institutional Holdings in total as well as on different constituents of Institutional Holdings from nseindia.com. Institutional Holdings are further segregated into three constituents. The mutual funds being the first one. The second constituent includes various public and private sector banks, all the developmental financial institutions (like IFCI, ICICI, IDBI, SFC) and insurance companies like the LIC, GIC, and their subsidiaries. And the last constituent comprise of foreign institutional investors.
The secondary data regarding annual reports to construct the Corporate Governance score have been collected from respective company websites and sebiedifar.com. The firm performance measures have been divided into two categories, one being the accounting measures while others are based on market returns. The accounting return measures include (%) return on net worth, (%) return on capital employed, Profit after Tax, (%) Return on Assets, Net Profit Margin and Earning Per Share. Whereas, market return based measures include Tobin's Q, (%) Risk Adjusted Excess Return and (%) Dividend yield. Data for the study period on financial performance measures have been collected from Prowess Database.
Name of Companies Selected for Analysis
Name of Company
Name of Company
Aban Offshore Ltd.
Jaiprakash Hydro-Power Ltd.
Ador Welding Ltd.
Jubilant Organosys Ltd.
Agro Dutch Industries Ltd.
Jet Airways India Ltd.
Aarti Industries Ltd.
Jindal Steel and Power Ltd.
Alfa Laval India Ltd.
Jaypee Hotels Ltd.
Aditya Birla Nuvo Ltd.
JSW Steel Ltd.
Aegis Logistics Ltd.
Kajaria Ceramics Ltd.
Kansai Nerolac Paints Ltd.
Alps Industries Ltd.
Apar Industries Ltd.
Khaitan Electricals Ltd.
Apollo Hospital Enterprises
Lakshmi Machine Works
Arvind Remedies Ltd.
LGB and Bros. Ltd.
Asian Paints Ltd.
Larsen and Toubro Ltd.
Ashok Leyland Ltd.
Liberty Shoes Pvt. Ltd.
Asahi India Glass Ltd.
Lumax Industries Ltd.
Asian Electronics Ltd.
Lotte India Corporations Ltd.
Asian Hotels Ltd.
Lupin Chemicals Ltd.
Aurobindo Pharma Ltd.
Mahindra and Mahindra Ltd.
Balaji Telefilms Ltd.
Bombay and Burmah Trading Corporation Ltd.
Maruti Suzuki India Ltd.
BASF India Ltd.
Max India Ltd.
Bell Ceramics Ltd.
Madras Cements Ltd
Berger Paints (I) Ltd.
Malwa Cotton Spinning Mills Ltd.
Bharat Rasayan Ltd.
Moser-Baer India Ltd
Nagarjuna Construction Co Ltd.
Bharat Electronics ltd.
National Aluminum Company Ltd.
Bharat Petroleum Corporation Ltd.
Navneet Publications (India) Ltd.
Bharat Forge Ltd.
NEPC India Ltd.
Bharti Airtel Ltd.
Neyveli Lignite Corporation Ltd.
Blue Star Infotech Ltd.
Bharat Heavy Electricals Ltd.
Nahar Industrial Enterprises
Bhushan Steel and Strips Ltd.
Birla Corporation Ltd.
OCL India Ltd.
Omax Autos Ltd.
Bombay Dyeing and Manufacturing Co. Ltd.
Britannia Industries Ltd.
Oil Country Tubular Ltd.
Balmer Lawrie and Co. Ltd.
Pantaloon Retail India Ltd.
Cadila Healthcare Ltd.
Petron Engg. Construction
Century Textiles and Industries Ltd.
Petronet LNG Ltd.
Cyber Media (I) Ltd.
Chambal Fertilizers and Chemicals Ltd.
Patel Engg. Ltd.
Chennai Petrochemical Corporation Ltd.
Patspin India Ltd.
Chemplast Sanmar Ltd.
Radico Khaitan Ltd.
Rajesh Exports Ltd.
CCL Products (I) Ltd.
Rashtriya Chemicals and Fertilizers ltd.
Cheslind Textiles and Industries Ltd.
Radaan Mediaworks (I) Ltd.
Crompton Greaves Ltd.
Reliance Industries Ltd.
Dabur India Ltd.
RPG Cables Ltd.
R S W M Ltd
Delta Magnets Ltd.
Rico Auto Industries Ltd.
Dharani Sugars and Chemicals Ltd.
Rane Holdings Ltd.
Deepak Fertilizers Ltd.
Ruchi Soya Industries Ltd.
Dalmia Cements (Bharat) Ltd.
Ramco Industries Ltd.
D-Link India Ltd.
Saregama India Ltd.
Dr. Reddy's Laboratories Ltd.
S Kumars Nationwide Ltd.
Eicher Motors Ltd.
Elgi Equipments Ltd.
S Band T International Ltd.
Eurotex Inds. and Exports Ltd.
Sah Petroleum Ltd.
Eveready Inds. Ltd.
Sesa Goa Ltd.
Everest Industries Ltd.
Shipping Corporation of India Ltd.
Exide Industries ltd.
Salora International Pvt. Ltd.
Four Soft Ltd.
Sintex Industries Ltd.
F D C Ltd.
Fame India Ltd.
Sterlite Industries India Ltd.
Finolex Industries Ltd.
Shiva Texyarn Ltd.
Fertilizers and Chemicals Ltd.
Supreme Petrochemical Ltd.
Gas Authority of India Ltd.
Sundaram Brake Lining Ltd.
Gabriel India Ltd.
Tata Consultancy Services Ltd.
Godrej Industries Ltd.
Tata Power Company Ltd.
Grasim Industries Ltd.
Tata Tea Ltd.
GTN Industries Ltd.
Tata Coffee Ltd.
Gujarat Mineral Development Corporation Ltd.
HCC India Ltd.
Tips Industries Ltd.
Hero Honda Motors Ltd.
TTK Prestige Ltd.
HCL Technologies Ltd.
Titan Industries Ltd.
Hind Syntax Ltd.
Thirumalai Chemicals Ltd.
Hitachi home and life solutions India Ltd.
TVS Motor Co. Ltd.
Heritage Foods (I) Ltd.
TV Today Network Ltd.
Hindalco Industries Ltd.
Usha Martin Ltd.
Hindustan Machine Tools Ltd.
Ultratech Cement Ltd.
Hindustan Petroleum Corporation Ltd.
Uttam Galva Steels Ltd.
Hindustan Organic Chemicals Ltd.
Indian Hotels Company Ltd.
United Phosphorous Ltd.
IFGL Refractories Ltd.
Impex Ferro Tech Ltd.
VIP Industries Ltd.
Indian Oil Corporation Ltd.
Vardhman Holdings Ltd.
IFB Agro Industries Ltd.
VST Industries Ltd.
Infosys Technologies Ltd.
IPCA Laboratories Ltd.
India Glycols Ltd.
Wheels India Ltd.
IVRCL Infrastructures and Projects Ltd.
Xpro India Ltd.
Jai Corporation Ltd.
Zee Entertainment Enterprise
Jain Irrigation System Ltd.
Zenith Computers Ltd.
Jaiprakash Associates Ltd.
Zuari Industries Ltd.
3.3 Construction of Corporate Governance Score:
Various researchers have considered alternate measures of Corporate Governance. Some of them have used single measure, while others have used the multiple measures in the form of indices. Some researchers have used board characteristics as an effective measure of Corporate Governance. For instance, Hermalin and Weisbach (19981, 20032) have used board independence, Bhagat, Carey and Elson (1999)3 have used stock ownership of board members and Brickley, Coles and Jarrell (1997)4 have used the occupation of Chairman and CEO positions by the same or two different individuals.
Whereas, Gompers, Ishii and Metrick (2003)5 have constructed a governance measure comprising of an index of 24 Corporate Governance provisions such as, classification of board of directors, measures taken by corporations to discourage unwanted takeover attempts, various lucrative benefits offered to the top executives if they are discharged of duties after the takeover and others, carrying equal weights collected by the Investment Responsibility Research Center. Similarly, Bebchuk, Cohen and Ferrell (2004)6 created an entrenchment index consisting of six provisions in total out of which four include limit to shareholder rights and other two related with potential hostile takeovers.
Both the above studies have used the data compiled by IRRC, while Brown and Caylor (2004)7 applied Institutional Shareholder Services (ISS) data to construct their governance index. This index considered 51Corporate Governance features covering eight Corporate Governance categories: ownership, board of directors, director eduction, executive and director compensation, progressive practices, audit, charter/bylaws, and state of incorporation.
Bhagat and Bolton (2007)8 took multiple indexes in the form of GIM G-Index (constructed from data compiled by Investor Responsibility Research Centre), BCF E-Index (6 provision subset of the G-Index), TCL Benchmark Score (based on whether the board is classified, whether the outside directors constitute a majority on the board, whether the board has an independent chairman or lead director, whether the audit committee consists of only independent directors, whether the board has adopted a formal governance policy, number of directors with more than fifteen years tenure, number of directors who serve on more than four boards, number of old directors, and CEO compensation structure), BC Gov Score (as described by Brown and Caylor), Board independence, Median Director Dollar Value Ownership, Median Director Percent Value Ownership, CEO Chair duality and some alternative governance measures (the percentage of directors who are currently active CEOs, the percentage of directors currently serving on more than four boards, the percentage of directors who have served on the sample firm's board for more than fifteen years, the percentage of old directors, the percentage of women directors, and (6) the percentage of directors not possessing any stock in the sample firm, as governance variables).
But Mohanty (2002)9 has developed nineteen measures of Corporate Governance and combined it into one composite measure by giving higher weightage to the measures relating to the shareholders compared to the other stakeholders. The details of these measures are: Providing valuable and timely information to shareholders, Exceeding projections made at the time of issue of shares, asymmetric treatment of shareholders, quality of earnings, investor grievances, consistent difference between free cash flow to equity and dividends, improvement in credit rating, transfer of wealth from bondholders to shareholders, bondholders' grievances, employee turnover rate, strikes and lockouts, customer satisfaction, timely or deferring payment to suppliers, evasion of duties and taxes, building social infrastructure, producing socially useful products, adopting street children, polluting environment, reneging on commitments made to the society.
In the present study, Corporate Governance Score has been developed on the basis of key characteristics of Standard and Poor's Transparency and Disclosure Benchmark10. Standard and Poor's provides a range of Corporate Governance analyses and services, the crux of which is the Corporate Governance Score. Corporate Governance Scores are based on an assessment of the qualitative aspects of Corporate Governance practices of a company. Information has been collected on the attributes given below from the latest available annual reports of sample companies.
The survey instrument comprising 98 questions in three categories and 12 sub-categories was designed to balance the conflicting requirements of the range of issues analyzed and the tractability of the analysis. Transparency and Disclosure is evaluated by searching company annual reports for the 98 possible attributes broadly divided into the following three broad categories:
1. Ownership structure and investor rights (28 attributes)
2. Financial transparency and information disclosure (35 attributes)
3. Board and management structure and process (35 attributes)
Each question has been evaluated on a binary basis to ensure objectivity, and rankings for the three broad categories and an overall ranking is developed from the answers to individual questions.
3.3.1 Description of 98 Individual Transparency and Disclosure attributes:
(1) Ownership Structure and Investor Rights
a) Transparency of ownership
Description of share classes (1)
Review of shareholders by type (2)
Provide the number of issued and authorized but non-issued ordinary shares (3)
Provide the par value of issued and authorized but non-issued ordinary shares (4)
Provide the number of issued and authorized but non-issued shares of preferred,
non-voting, and other classes (5,6,7)
Provide the par value of issued and authorized but non-issued shares of
preferred, non-voting and other classes (8,9,10)
Disclosure of voting rights for each class of shares (11)
b) Concentration of Ownership
Top 1,3,5, or 10 shareholders disclosed (12,13,14,15)
Shareholders owning more than 10, 5, or 3 percent disclosed (16,17,18)
Disclosure of percentage of cross-ownership of the company (19,20)
c) Voting and Shareholder meeting procedures
Furnishing the calendar of important shareholder dates (21)
Review of shareholder meetings (could be minutes) (22)
Describe procedure for proposals at shareholder meetings (23)
Procedure of convening an extraordinary general meeting of shareholders (24)
Process of shareholders nominating directors to board (25)
Describe the process of putting inquiry to board (26)
Referring to or publishing of Charter or Code of best Corporate Governance
practices in the company's annual report (27)
Publication of the Articles of Association or Charter Articles of Incorporation (28)
(2) Financial Transparency and Information Disclosure
Discussion of corporate strategy (29)
Report of the kind of business it is pursuing in detail (30)
Giving an overview of trends in its industry by the company (31)
Report of the products or services manufactured/provided (32)
Provide the analysis of various segments broken down by business line (33)
Disclosure of the market share of any or all of businesses of company (34)
Reporting of basic earnings forecast of any kind by the company. In detail (35,36)
Disclosure of output in physical terms (37)
Giving an output forecast of any kind by the company (38)
Disclosure of characteristics of assets employed in the company (39)
Disclosure of efficiency indicators by the company (40)
Providing any industry-specific ratios (41)
Disclosing its plans for investment in the coming years (42)
Disclosing details of its investment plans in the coming years (43)
a) Accounting Policy Review
Providing financial information on a quarterly basis (44)
Discussion of company's accounting policy (45)
Disclosure of accounting standards it uses for its accounts (46)
Providing accounts according to the local accounting standards (47)
Providing accounts by the company in alternate internationally recognized
accounting method. Providing each of the balance sheet, income statement, and
cash-flow statement by internationally recognized methods (48,49,50,51)
Furnishing a reconciliation of its domestic accounts to internationally
recognized methods (52)
b) Accounting Policy Details
Disclosure of company's methods of asset valuation (53)
Disclosure of information on method of fixed assets depreciation (54)
Furnishing consolidated financial statements of the company (55)
c) Related Party structure and transactions
Provide a list of associate companies in which it carries a minority stake (56)
Disclosure of ownership structure of company's affiliates (57)
Providing a list/register of related party transactions (58)
Providing a list/register of group transactions (59)
d) Information on Auditors
Disclosure of the name of the company's auditing firm (60)
Reproduction of firm's the auditor's report (61)
Disclosure of amount of audit fees paid to the auditor (62)
Disclosure of any non-audit fees paid to auditors (63)
(3) Structure of Board and Management and its Process
Disclosure of the name of the chairman (64)
Description of the details, vital information, about the chairman (65)
Disclosure of a list of board members (names) (66)
Details about directors (other than name/title) (67)
Details about current employment/position of directors (68)
Furnishing of details about previous employment/positions (69)
Mentioning of the dates of joining of directors on the board (70)
Classification of directors as executive or outside directors (71)
a) Role of the Board
The role of Board at the company disclosed in detail (72)
Disclosure of list of matters reserved for the board (73)
Furnishing of list of board committees (74)
Review of last board meeting (could be minutes) (75)
Mentioning the existence of an audit committee (76)
Disclosure of names on audit committee (77)
Mentioning of remuneration/compensation committee (78)
Names on remuneration/compensation committee (79)
Disclosure of nomination committee (80)
Names on nomination committee (81)
Other internal audit function besides audit committee (82)
Existence of any strategy/investment/finance committee (83)
b) Director training and compensation
Disclose whether they provide director training (84)
Disclose the number of shares in the company held by directors (85)
Discuss decision-making process of directors' pay (86)
Specifics of directors' salaries disclosed (numbers) (87)
Form of directors' salaries disclosed (cash, shares, etc.) (88)
Specifics disclosed on performance-related pay for directors (89)
c) Executive compensation and evaluation
Names of senior managers who are not on the board (90)
Details (background information) of senior managers disclosed (91)
Disclose the numbers of shares held by the senior managers (92)
Disclose the number of shares held by managers in other associated companies (93)
Disclose the process of decision-making of manager's pay not on the board (94)
Numbers of managers' (not on board) salaries disclosed (95)
Form of managers' (not on board) salaries disclosed (96)
Specifics disclosed on performance-related pay for managers (97)
Details of the CEO's contract disclosed (98)
3.4 Measures of Financial Performance:
To measure the impact of Corporate Governance on financial performance different researchers have used different financial measures. Hermalin and Weisbach (1991)11 has taken Tobin's Q as the single measure of financial performance. Bhagat and Black (2002)12 took return on assets, asset turnover and stock returns. Bhagat and Bolton (2007)8 considered annual return, annual return on assets and annual Tobin's Q as performance variables. Brown and Caylor (2004)7 have used six industry-adjusted performance measures as return on equity, net profit margin, sales growth, Tobin's Q, Dividend Yield, Stock Repurchases. Mohanty (2002)9 has used Tobin's Q and stock returns as the measures of financial performance.
Overall, nine measures of financial performance have been taken in the present study. Some are based on accounting profits and accounting ratios while others are related to stock prices of sample companies for the sample period. These are explained below:
i) Return on Net worth:
This is a tool of measuring profitability of a company. It is arrived at using the following formula:
Profit After Tax net of non-recurring item x100
Average Net Worth
Net worth represents the share capital and retained earnings of a company. It is arrived at using the following formula:
Equity Capital+Preference Capital+Reserves and Surplus-Revaluation reserve-Miscellaneous expenses not written off
ii) Return on capital employed:
This is another ratio to measure the profitability of a company. It is arrived at using the following formula:
Profit After Tax net of non-recurring item x100
Average Capital Employed
Capital employed represents the share capital plus reserves and long- term debt of a company. It is arrived at using the following formula:
Equity Capital+Preference Capital+Reserves and Surplus-Revaluation Reserve-Miscellaneous. expenses not written off+Total borrowing- (Bank Borrowing+Short- term commercial paper).
iii) Profit After Tax:
This is the net profit of the company after tax. It is derived by deducting all expenditures from the sum of all source of income including changes in stock. This net profit includes all the regular, prior-period and extraordinary sources of income on the income side. Correspondingly, it includes all kinds of revenue expenses including those for prior-period transactions, extraordinary in nature, cash or non-cash in nature, etc. Expenses also include all indirect and direct taxes.
iv) Return on Assets:
This is another ratio to evaluate the profitability of a company. It is calculated using the following formula:
Profit Before Depreciation, Interest and Tax x 100
v) Risk- Adjusted Excess Return:
This is a market return based measure of financial performance of a company. It is calculated using the following formula:
365 Days Excess Return over Nifty x100
Beta (a measure for Risk)
Beta also known as the systematic risk parameter indicating the volatility of the funds portfolio compared to the benchmark index. Unlike standard deviation, which is also a measure of the risk, beta measures the past volatility of a security relative to something else, usually a benchmark index.
vi) Tobin's q:
This is a measure of the financial performance of a company. It is calculated using the following formula:
(Market Capitalization+Book value of Debt) x 100
Book value of Assets
Market Capitalization is defined as the product of the closing price of shares of a company on that date and the number of outstanding equity shares as on the same date.
vii) Dividend Yield:
It is the return earned by an equity shareholder by way of dividends. It is calculated on the closing price on a given date. It is calculated using the following formula:
Face value of Equity shares x Dividend rate
viii) Net Profit Margin:
This is the profitability margin ratio derived considering into account the profit after tax, which is net of non-recurring item as percentage of gross sales. It is calculated using the following formula:
Profit After Tax net of non-recurring item x100
ix) Earning Per Share:
It is defined as the ratio of the profit after tax net of non-recurring transactions of the company in the 12month period to the number of shares outstanding as on that date.
In order to achieve the objectives stated earlier, the present study conceptualized the following null hypotheses for validation of positive relation between Institutional Holdings, Corporate Governance and firm performance
H01: Institutional/its components Holdings and Corporate Governance score are very closely related in a manner as to depict a positive relationship between the two
H02: Corporate Governance Score and Institutional/its components Holdings are very
closely related in a manner as to depict positive relationship between the two
H03: Institutional/its components Holdings and various measures of firm performance
are very closely related in a manner as to depict positive relationship between
H04: Corporate Governance Score and various measures of firm performance are
very closely related in a manner as to depict positive relationship between the two
3.6 Statistical Tools
Simple linear regression analysis has been used in the present study. It is a pertinent statistical tool for analyzing the relationship between different variables. An attempt has been made to establish the causal effect of one (independent) variable upon another (dependent) variable. Data has been assembled on the variables of interest and regression analysis has been used to see the quantitative effect of the independent variables upon the dependent variables. The study also typically assesses the "statistical significance" at 5 percent level of the estimated relationships, that is, the degree of confidence that the true relationship is close to the estimated relationship.
The hypothesized relationship between any two variables is written as:
Å¶ = ï¡+ï¢X+ ï˜
where Å¶= the estimated value of the Y variable for a selected X value
ï¡ = the constant,
ï¢ = regression co-efficient,
E = the error term.
a = Y-bX (Y-Intercept)
where Ybar is the mean of Y (the dependent variable)
and Xbar is the mean of X (the independent variable)
ï¢= r Sy (slope of the regression line)
Where r is the correlation coefficient
Sy is the standard deviation of Y (the dependent variable)
Sx is the standard deviation of X (the independent variable)
Standard Error of Estimate- It is a measure of the dispersion, or scatter, of the observed values around the line of regression.
Sy..x = âˆšÎ£ (Y- Å¶)2
where Î£ (Y- Å¶)2 = the sum of squared deviations from the regression line
and n-2 = the degree of freedom
t-statistic- It has also been calculated to determine the relative importance of each variable in the regression model at 5% level of significance. This statistic can be positive or negative as the parameter estimate from which it is derived is greater or lesser than the hypothesized true value of the parameter.
t = r âˆšn-2
with n-2 degrees of freedom
Co-efficient of Determination- It has been calculated to see the proportion of variation in the dependent variable explained by the regression model.
R2 = sum of squared estimated errors
sum of squared deviations about mean
It is equal to one minus the ratio of the sum of squared estimated errors (the deviation of the actual value of the dependent variable from the regression line) to the sum of squared deviations about the mean of the dependent variable. Intuitively, the sum of squared deviations about its mean is a measure of the total variation of the dependent variable. The sum of squared deviations about the regression line is a measure of the extent to which the regression fails to explain the dependent variable (a measure of the noise). Hence, the R2 statistic is a measure of the extent to which the total variation of the dependent variable is explained by the regression. The values of R2 ranges from 0 and 1. Small values indicate that the model does not fit the data well whereas; a high value suggests that the regression model explains the variation in the dependent variable well.
Durbin-Watson Statistic- It is calculated to see whether the successive residuals in the regression analysis are auto correlated or independent.
et = difference between the actual value and the fitted value
et-1 = lag in residuals one period
et-et-1 = difference between current residual and residual in the previous period
The value of d is 2 or near 2 indicates no autocorrelation among the residuals.
To find out whether the results are reliable or not Durban/Watson values have been calculated.
3.7 Organization of the Study
The study under consideration has been divided into seven chapters, which are mentioned below:
Chapter I An Introduction
Chapter II Review of Literature
Chapter III Research Methodology
Chapter IV Institutional Holdings and Corporate Governance
Chapter V Institutional Holdings and Firm Performance
Chapter VI Corporate Governance and Firm Performance
Chapter VII Summary and Conclusion
3.8 Limitations of the Study
The conclusions drawn in the present study are of tentative nature, subject to the veracity of the data available. The published annual reports have been taken as the base for constructing Corporate Governance score and for collecting data on other variables too. But these reports show the position on a particular day, which may not prove true for the whole year. But the researcher, with time constraint, has to depend upon these reports because it is not possible to compile the data originated at different times during the period under study.
Corporate Governance Score has been constructed on the basis of information derived from annual reports of only year 2008, therefore, the other limitation of the study. Though it is constructed on the basis of comprehensive attributes but only one score is taken for the study period instead of taking separate scores for individual years as the other variables are taken. This is a maiden attempt on the part of the researcher; therefore, lack of experience may be considered as a stumbling block. This, however, is a mammoth task beyond the reach of an individual researcher.