Effects of foreign ownership on Governance: A case of Indian public listed companies

Owners of a company could be fundamental in evolving and shaping the overall corporate governance culture. There is vast body of literature relating to the impact of foreign ownership on corporate governance, but it is quite meager in the Indian context. The paper fills this gap by examining the impact of foreign ownership on corporate governance using a sample of 200 Indian public listed companies for the period of 2009-2018. Ordinary least squares regression model with spline specification technique which allows for the piecewise linear relationship between two variables is adopted. Further, sensitivity analysis of coefficients of ownership concentration has been performed for various threshold levels to determine the threshold level in the Indian scenario. It is found that the relationship between governance score and foreign ownership is non-linear. It is positive for threshold level before 15% and not later. While prior studies have shown that foreign ownership is related to corporate governance and firm performance, this paper contributes to a new understanding of the threshold level of foreign ownership that could be considered to appraise the behavior of foreign shareholders so as to identify when it positively impacts governance and when not.