Corporate Governance Of Multinational Non Business Organizations Commerce Essay Example

corporate administration improves firms' access to external funding, resulting in increased investment, higher growth, and more employment opportunities. In countries with the highest quartile of creditor right passage and enforcement, the proportion of private credit to GDP is more than double compared to countries in the lowest quartile (La Porta et al., 1997). Similarly, for equity funding, countries in the highest quartile of stockholder right passage and enforcement have a stock market capitalization to GDP ratio that is approximately four times larger than that of countries in the lowest quartile.

Poor corporate administration has negative effects on the creativity and development of new businesses. On the other hand, good corporate administration reduces the cost of capital by decreasing risk and contributes to higher company valuation, which in turn stimulates real investments (La Porta et al., 2000). Additionally, effective corporate administration mechanisms result in better allocation of resources and higher returns on capital through effective management. Studies have shown that countries with strong equity rights protection have approximately double the return on assets (ROA) compared to countries with weaker protection (Claessens, 2003).

Implementing effective corporate governance practices can reduce the risk of widespread financial crises within a country. Research has shown a negative correlation between the quality of corporate governance and currency depreciation (Johnson et al, 2000). The Asian Crisis of 1997 was primarily caused by poor transparency and corporate governance standards. These financial crises have substantial economic and social consequences, causing significant setbacks in a country's developmental progress. Conversely, adopting good corporate governance practices can foster trust among diverse stakeholders, minimize legal expenses, and greatly enhance social, labor, and external economic aspects such as environmental protection.

Ensuring that

directors act on behalf of the company's shareholders and pass on the profits to them are the main concerns in corporate governance. The joint-stock form of organization thrives on limited liability and widespread ownership, which can result in a lack of effective monitoring of management by the owners. Directors have real control over the company and may not always act in the best interests of the shareholders. These issues are universal in corporate governance. Additionally, the Indian financial sector is characterized by an underdeveloped equity market susceptible to manipulation and dominated by family firms. There is also a history of managing agency systems and a generally high level of corruption. All of these factors contribute to the importance of corporate governance in India.

Corporate administration is the system that governs and manages organizations. It encompasses systems, procedures, controls, accountabilities, and decision-making at the highest level of an organization. The main focus is on how top managers fulfill their duties and exercise their authority while being accountable to stakeholders who have entrusted them with assets and resources. Corporate administration aims to prevent misuse of power by promoting transparency, integrity, and accountability in decision-making processes. This concept applies to both public and private organizations.

The Primary Care Trust (PCT) requires both effective corporate administration and clinical administration in order to achieve its clinical, quality, and fiscal goals. An essential component of effective corporate administration is having the means to ensure the effectiveness of the approach and control, which the NHS refers to as "controls confidence". Risk management serves as the common link between corporate and clinical administration.

Risk direction involves effectively managing potential opportunities and adverse effects, encompassing both

culture and processes.

Purposes and aims of the survey

All countries face similar challenges in corporate governance, regardless of their development status. Traditional economies have additional obstacles due to a lack of institutional memory and experience. The objectives of this study are:

• To examine the corporate governance structure employed by organizations in India
• To analyze the state of corporate governance in India
• To explore the corporate governance structure utilized by organizations in China
• To assess the state of corporate governance in China
• To compare the corporate governance structure between India and China
• To compare the state of corporate governance between India and China

Review of literature

All countries encounter similar challenges in corporate governance, regardless of their development status. Traditional economies face additional hurdles due to a lack of institutional memory and experience.

They also face several challenges that developed economies do not face, such as:
- Establishing a rule-based system of administration
- Battling vested interests
- Leveling pyramid ownership structures that allow insiders to control and siphon off assets from publicly owned houses
- Severing links such as cross shareholdings between banks and corporations
- Establishing property rights systems that clearly and easily identify true owners, even if the state is the owner
- Depoliticizing decision making and establishing firewalls between the government and management in corporatized companies where the state is a dominant shareholder
- Protecting and implementing minority shareholder rights
- Preventing asset stripping after mass denationalization
- Finding active owners and skilled managers among diffuse ownership structures
- Cultivating technical and professional know-how (CIPE, 2002) (By Robert W. McGee, Springer Science, 2009)

There is a growing empirical literature that has started to record important features of corporate governance in India.In

2003, Jayati Sarkar and Subrata Sarkar compared the corporate boards of large companies in India to those in the United States in 1991. They found that the average number of board members in India was 9.46, while in America it was 11.45 (Sarkar;A;Sarkar, 2000). Furthermore, Sarkar, Sarkar, and Sen (2006) discovered that busy independent managers are more likely to engage in income manipulation through discretionary buildups. They also found that holding multiple positions and missing board meetings among independent managers are associated with an increase in discretionary accruals within firms.

Despite having independent managers, the independence of the board does not seem to have an impact on the level of earnings management. However, having a CEO who also chairs the Board and the presence of controlling stockholders as inside managers are associated with more earnings management. Shareholding patterns in India have shown a significant concentration of ownership in the hands of the promoters. In a sample of approximately 2500 listed manufacturing companies in 2002-03, Jayati Sarkar and Subrata Sankar found that promoters held 47.74% of the shares, and they held 50.78% of the shares of group companies and 45.94% of stand-alone firms (Sarkar; A; Sarkar, 2005a). In comparison, the general public in India held 34.60%, 28%, and 38.51% of shares, respectively.

When it comes to the impact of concentrated shareholding on house performance, previous research conducted by the same authors discovered that in the mid-90s (1995-96), holdings above 25% by managers and their relatives were linked to higher company evaluations, while there was no clear effect below that threshold (Sarkar; A; Sarkar, 2000). More recently, using data from 2001 that differentiates between "controlling" insiders and non-controlling groups,

Ekta Selarka found a U-shaped relationship between insider ownership and company value, with the turning point occurring at a higher level, between 45% and 63% (Selarka, 2005). Considering that about two-thirds of the top 500 Indian companies have affiliations with groups, issues related to corporate governance in business groups are naturally very important. The concern over "borrowing," which can be described as "the transfer of assets and profits out of companies for the benefit of those who control them," is significant in business groups with pyramidic ownership structure and inter-firm cash flows (Johnson, LaPorta, Silanes; A; Shleifer, 2000).

According to Marianne Bertrand and her co-authors (Bertrand, Mehta, & Mullainathan, 2002), industry shocks result in a 30% decrease in net income growth for business group companies compared to standalone companies in the same industry. They argue that lower-level companies in the pyramid structure are less affected by industry-specific shocks than those at the top. This means that positive shocks benefit controlling shareholders but harm minority shareholders. However, Bernard Black and Vikramaditya Khanna (2007) question how this logic would make them less sensitive to negative shocks. There is also evidence that business group-affiliated companies outperform standalone companies (Khanna & Palepu, 2000). Raja Kali and Jayati Sarkar suggest that diversified business groups increase opaqueness in fund flows within the group, creating a wider disparity between control and cash flow rights.

A higher level of diversity also aids in burrowing. According to Kali and Sarkar, firms with more ownership opacity and a weaker link between cash flow rights and control than those in a company's core activity tend to be located farther away from the core activity. This analysis is based

on data from 385 business groups in India in 2002-03 and 384 groups in 2003-04. The existence of burrowing incentives explains why value-destroying groups persist in India and why Indian groups occasionally make heavy investments in low-profitability businesses. In a study of over 600 of the largest Indian companies in terms of revenue in 2004, Jayashree Saha found that, even after accounting for other corporate governance features, company performance is negatively correlated with the extent of related party transactions for group companies, but positively correlated for stand-alone companies. This further supports the circumstantial evidence of burrowing and its detrimental effects (Kali & Sarkar, 2007). Two cross-country studies published in 2003 ranked India as one of the worst countries in terms of earnings opacity and management (Bhattacharya, Daouk & Welker, 2003).

Indian accounting standards provide companies with significant flexibility in their financial reporting and differ from International Accounting Standards (IAS), which often makes it challenging to interpret Indian financial statements. According to a 2007 study by Kee-Hong Bae and his co-authors, India ranks below the median in terms of the number of deviations from International Accounting Standards (Bae, Tan & Welker, 2007). The nature of corporate governance can influence a company's capital structure. Debt can function as a disciplinary tool for shareholders or an entrenchment mechanism for controlling insiders when backed by strong financial institutions. Jayati Sarkar and Subrata Sarkar analyzed the relationship between leverage and Tobin's Q in 1996, 2000, and 2003 and concluded that the disciplinary effect has become more pronounced in recent years due to institutions adopting a significantly greater market orientation (Sarkar & Sarkar, 2005).

According to Linda S. Speeding (2004), evidence indicates that

debt is utilized as a means of control in group companies. Corporate governance has gained considerable attention in China, with an emphasis on the potential development of an effective corporate governance system to improve company performance and protect minority shareholders. The establishment of the Chinese stock market took place in the late 1990s.

Statistics from the China Securities Regulatory Commission (CSRC) reveal that in under 15 years, China's stock market has risen to become the eighth largest globally. Presently, there are around 70 million active investor accounts nationwide. The impact of the stock market extends to an estimated 200-300 million Chinese individuals, whether they invest directly or indirectly. Sustaining investor enthusiasm and bolstering market confidence consistently feature as significant subjects in public policy deliberations.

The importance of corporate administration reforms in China has become more urgent due to recent corporate scandals that have damaged investor confidence. Although China's transition from a centrally planned economy to a market-oriented one began about twenty years ago, it is only in the past three years that corporate administration reforms have gained increased attention. One such scandal, the YingGuangXia Chinese Renminbi (RMB) fraud, which amounted to 745 million yuan, was exposed by "Caijing Magazine" in 2001. This discovery brought regulators and public investors' attention to the significance of corporate administration and revealed weaknesses in the country's legal, regulatory, and accounting systems. Since then, corporate administration has received top priority as evidenced by its frequent discussion in speeches by notable figures like China's Prime Minister, the president of the Central Bank, the president of the China Securities Regulatory Commission (CSRC), and various other government officials and scholars.

In just two years, China has made

significant progress in the field of corporate governance. Improving corporate governance is a top priority for all sectors, including government bodies, regulators, mediators, corporations, and investors. Various laws, regulations, ordinances, and standards have been issued by legislators, regulators, and professional institutions to establish a strong foundation for good corporate governance. However, change may take time as the concept of separating ownership and management of a company is still relatively new in China. The progress of corporate governance reform relies on individual companies' efforts to align with global best practices and ongoing national-level initiatives that shape China's corporate governance infrastructure.

Companies can achieve excellent corporate governance independently from the local market's administrative structure. However, external factors significantly impact the country's standards by incentivizing or accepting sound governance practices. The four main areas that make up the corporate governance structure are market infrastructure, legal environment, regulatory environment, and informational infrastructure. While there have been positive developments in the legal and regulatory areas, resulting in some stellar corporate governance codes, guidelines, and listing requirements, effectively implementing and enforcing these rules may prove challenging for many years. Nevertheless, progress has been hindered by inconsistencies and redundancies stemming from different government and market sector groups seeking reform without proper coordination and oversight.

The PRC Company Law, Securities Law, and the Code of Corporate Governance contain regulations and rules to protect the administration of fiscal and capital markets. It is important for publicly traded companies to implement a two-tiered board system. However, there is a lack of clarity regarding the responsibilities and accountability of board members. In practice, an independent and efficient board has failed to recognize that executive assignments and compensation

cannot be simultaneously regulated and implemented.

Selective enforcement is still commonly observed. The research methodology analysis includes two forms of research that are carried out to fulfill the objectives of the study. Primary research involves collecting data from firsthand sources, while secondary research involves collecting secondhand data from various sources.

In the primary research, a quantitative research method will be followed to conduct a detailed analysis of consumers' perception regarding emails and direct mails as marketing mediums in India. Quantitative research offers several advantages, such as generating value-free and unbiased information. It also allows researchers to establish explicit hypotheses, use accurate measures of concepts, employ statistical significance tests, control for other explanatory variables, and provide a clear theoretical context.

Case studies, on the other hand, involve a thorough examination of a single unit, such as an individual, a small group of people, or a single company. They aim to measure and understand how something came to be in its current state.

Historically, research workers have used case studies to investigate and comprehend complex problems, issues, and relationships. However, it is important to note that case studies do not allow for generalization. Findings and theories developed from one case study cannot be assumed to apply to other similar cases. Each case study is unique and may not be representative of other cases. To overcome this limitation, researchers can examine multiple case studies to identify certain characteristics of the phenomenon under study.

The primary purpose of the case-study attack is to implement practical improvements, with any contributions to general knowledge being secondary. The case-study method consists of four steps: determining the current situation, gathering background information on the past and key variables,

testing hypotheses, and analyzing specific evidence for each hypothesis. This step aims to eliminate conflicting possibilities and to gain confidence in important hypotheses.

The culmination of this measure may involve creating an experimental design to more rigorously test the hypotheses, or it may involve taking action to fix the problem. The goal is to ensure that the hypotheses being tested actually work in practice. This could involve making changes or improvements and then rechecking the situation to see the impact of the alteration. Conducting a case study allows for gathering extensive information that can potentially generate useful hypotheses. However, this process can be time-consuming.

It is also ineffective in researching situations that are already well structured and where the important variables have been identified. They lack utility when attempting to make precise decisions or find exact relationships between variables.

Sample size

This study considers the corporate governance practices of Infosys Technologies located in India and iSoftstone technologies located in China.

Secondary Research

Secondary data is the information that was collected in the past for some other purpose. Usually, researchers start their investigation by analyzing a diverse range of already available data, to see if they can make a discovery in the study partially or entirely, without the use of expensive, time-consuming first-hand research.

The following sources of secondary data will be used to research purpose:

• Books
• Diaries and articles
• Newspapers
• Magazines
• Online web portals
• Annual Reports
• Government Agencies

Survey Limitations

• The survey is limited to multinational companies only and does not involve any other type of companies.
• This study focuses on the corporate governance practices of Infosys Technologies located in India and iSoftstone Technologies located in China only.
• It concentrates solely on the corporate governance practices adopted by those companies and does not focus on any other practice.
• It concentrates solely on the corporate governance practices adopted by those companies and does not focus on any other practice.