A REPORT ON

“A STUDY OF CORPORATE GOVERNANCE OF INDIAN BANING INDUSTRY AND

ITS EFFECT ON STOCK RETURN”

By
AADARSH UPADHYAY
ROLL NO : PF2224-B001

Paterson Securities Pvt. Ltd .

A report submitted in partial fulfilment of the
requirements of PGDM Program

Faculty Guide: Company Guide

Prof.Jyoti Nair Mr. Balachandran Venkataraman

(Chief Entrepreneurial Officer)

1
 Acknowledgement
As a management student, it has always been my honest wish to have the opportunity to convey
my thoughts, abilities, attitudes, and talents. A project is one way for a student who wants to
be a manager in the future to express themselves creatively. This initiative has facilitated me
with the opportunity to learn about the practical side of finance. I am thankful to the N.L
Dalmia Institute of Management Studies for including this project as part of the academic
requirements for the Post Graduate Diploma in Management(PGDM) program. I want to
convey my sincere appreciation to the N.L Dalmia Institute of Management Studies for
providing all the necessary resources.
I want to thank Prof. Jyoti Nair for helping me with the project and for her guidance, without
which the project would not have taken shape. She is my institute project guide.
I also appreciate the library team, as well as the teaching and support personnel at N.L Dalmia
Institute of Management Studies, for providing all the required academic content and resources
to help me finish my Project.
In terms of my professional development, this opportunity is a tremendous advancement. To
reach my intended career goals, I will make each exertion to put my recently picked up
aptitudes and information to the most excellent utilize whereas moreover working to progress
them.

2
 Internship Certificate

To Whomever it may concern

This Certificate is awarded to Aadarsh Upadhyay of N.L Dalmia Institute of Management studies &
Research. Who has successfully completed his internship in Derivatives and Market Risk During
April 03,2023 to June 30,2023

During this internship period, he remained involved in his work with determination and sincerity. We
wish him every success in his career.

As a part of the projects, he has completed and submitted the report on “A STUDY OF CORPORATE
GOVERNANCE OF INDIAN BANING INDUSTRY AND ITS EFFECT ON STOCK RETURN”.

___________________
Balachandran Venkataraman, CFA
Derivatives Strategist

3
 CERTIFICATE

This is to certify that the Summer Internship Project Report is submitted in partial fulfilment
for the award of PGDM Program of N. L. Dalmia Institute of Management Studies and
Research. It is a result of the Bonafide research work carried out by Ms. Aadarsh Upadhyay
under my supervision and guidance during Summer Internship of 12 weeks from 5 April
2023 to 30 June 2023
No part of this report has been submitted for award of any other Degree, Diploma,
Fellowship or other similar titles or prizes. The work has also not been published in any
Journals/Magazines.
Date: Place:

Industry Guide
Name of Industry Guide: Mr. Balachandran Venkataraman
Company: Paterson Securities Pvt Ltd
Designation: Chief Entrepreneurial Officer

Signature of the Industry Guide _______________

Faculty Guide
Name of the Internal Faculty Guide: Prof. Dr. Jyoti Nair
Faculty Dept Name: Finance

Signature of the Internal Faculty Guide _________________

4
 Table of Contents
Introduction to the Company................................................................................................................. 4
Executive Summary ................................................................................................................................ 5
Industry Overview .................................................................................................................................. 6
Growth in Deposits in Indian Banks....................................................................................................... 7
Chapter 1: Introduction to Study ............................................................ Error! Bookmark not defined.
1.1 Purpose of the Research .............................................................................................................. 8
1.2 Objective of the Research ............................................................................................................ 8
1.3 Scope of the Research .................................................................................................................. 8
Chapter 2: Research Methodology ........................................................................................................ 9
2.1 Source of Data and Data collection: ............................................................................................ 9
2.2 Statistical Tools & Techniques ...................................................................................................... 9
2.3 Difference between Panel regression with Random effects and Fixed Effect ............................ 9
Chapter 3: Review of Literature ........................................................................................................... 11
Chapter 4: Introduction to Corporate governance .............................................................................. 12
4.1 Component of Corporate Governance....................................................................................... 12
4.2 Agency Theory: ........................................................................................................................... 15
4.3 CEO Duality in the context of Agency Theory............................................................................ 16
Chapter 5: Corporate Governance in Indian banks and its impact on their stock price .................... 17
5.1 Here is the Regression Equation ................................................................................................ 17
5.2 Sample size ................................................................................................................................. 17
Chapter 6 : Empirical Results and Discussion ...................................................................................... 18
6.1Analysis through Random Effects ............................................................................................... 19
6.2Analysis Through Regression with Fixed effect .......................................................................... 21
6.3Analysis Through Arellano Bond Dynamic Panel method ......................................................... 22
Chapter 7: Empirical Analysis and Findings ......................................................................................... 23
7.1 Why Allerano Bond model? ....................................................................................................... 23
7.2 Final Findings .............................................................................................................................. 23
Chapter 8 : Recommendations and Limitations of Study ................................................................... 25
Chapter 9 Conclusion and Implication ................................................................................................. 27
9.1 Conclusion .................................................................................................................................. 27
9.2 Implications ................................................................................................................................ 27
Chapter 10 References and Bibliography ............................................................................................ 29

5
 Introduction to the Company

One of India's first stockbroking companies, Paterson Securities Pvt. Ltd. was founded in 1935
and has long been a respected player in this industry. A division of S.P. HINDUJA BANQUE
PRIVEE SA is the Company.

The company's main business activities include distribution of stocks and insurance products,
securities brokerage in the Indian capital market, portfolio management services (registered
with SEBI) and investment advisory services. Over the years, the group has brought together a
diverse clientele, including top financial institutions, large business entities, high-net-worth
individuals, and large retailers.

Mr. Balachandran Venkataraman is a Senior Corporate Finance Manager and Investment

Professional with more than 38 Years of Experience. He is the Chief Financial Officer of
Paterson Securities Ltd.

Paterson Securities Ltd is the subsidiary of SP Hinduja Banque, Switzerland.

4
 Executive Summary

• The objective of this project is to explore how corporate administration practises in the
Indian banking sector relate to stock price movements. Corporate governance is a key
field of study since it is essential to maintaining accountability, transparency, and
ethical behaviour inside organisations. The framework for this analysis is provided by
the Indian banking sector, a major economic participant in the nation.

• The project begins with an introduction to corporate governance, highlighting its

importance in fostering a healthy business environment. An summary of the Indian
banking business is then provided, encompassing its structure, key players, regulatory
framework, and recent developments, emphasizing its economic significance.

• Subsequently, the project delves into the specific corporate governance rituals and
regulations applicable to banks in India. The role of the board of directors, executive
compensation, audit committees, CEO duality and Women directors are discussed in
detail. Understanding these practices is crucial in evaluating their impact on stock
prices.

• The project explores the affiliation involving corporate governance in Indian companies
and its impact on share prices by reviewing the available literature, research and
empirical evidence. Through this analysis, the project aims to determine how good
corporate governance affects investor sentiment and stock prices.

5
 Industry Overview
Banking sector in India
There are a few diverse sorts of banks in India's keeping money industry, counting open
division, private division, outside, territorial provincial, urban agreeable, and rustic agreeable
banks. There were a add up to of 46 outside banks, 12 open division banks, 22 private division
banks, 56 territorial rustic banks, 1485 urban agreeable banks, and 96,000 country agreeable
banks as of September 2021. The country moreover incorporates a sizable number of ATMs,
with 213,145 in add up to, 47.5% of which were found in provincial and suburban ranges.
Bank's capital increased in all sectors between 2020-2022. In 2022, the total assets of the
banking sector (encompassing PSU and Private companies) will reach US$ 2.67 trillion. Of
this, Total assets of public financial institutions amount to USD 1,594.51 billion and total assets
of private financial institutions amount to USD 9.25 billion.
Bank loaning will nurture at a compound yearly rate (CAGR) of 0.62% from FY2016 to
FY2022. Total credit provided by banks will reach $1,532.31 billion by fiscal year 2022. The
CAGR is 10. 92% of deposits also experienced significant growth during this period, reaching
$2.12 trillion in fiscal 2022. Total Bank deposits are stood at Rs 173.7 trillion.
Credit growth is anticipated to reach 10% in 2022–2023, marking the return to double-digit
growth after an eight-year absence, as per India Ratings & Research . Bank credit are stood at
Rs. 129.26 trillion as of November 4, 2022.
In November 2022, the growth rate for non-food bank credit was 17.6% as opposed to 7.1%
the year before. As per RBI in its announcement on the Sectoral Deployment of Bank loans,
this growth was fuelled by a strong demand for loans from industries, personal, agricultural,
and related activities.

6
 Growth in Deposits in Indian Banks

Banking access has improved over time because of the government's continued efforts to
develop banking and expand banking services to underserved banks rather than in the city.
India's banking system was seen as stable despite the global crisis and public confidence in the
system has increased year on year.
Indian companies benefit from the high savings rate in the country. The increase in savings
combined with the increase in disposable income has done well for Indian banks.

7
 Part 1: Introduction to the Study

1.1 Objective of the Research

• Analyse the share price performance of Indian banks and identify the link between
changes in corporate governance and share prices.
• Examine the impact of key corporate governance, such as board independence, audit
quality, and transparency, on stock prices.

1.2 Objective of the Research

• To evaluate the Indian banking system's corporate governance framework

• To research corporate governance and how it affects Indian banks' stock prices

• Evaluate the level of compliance of banks operating in the Indian banking sector with
banking laws and regulations.

1.3 Scope of the Research

• This research will primarily center on the corporate governance practices implemented
by Indian banks.

• A Study includes sample size of all 30 listed Indian banks

• A specific five -year (2018-2022) time frame is considered for this study.

8
 Chapter 2: Research Methodology

2.1 Source of Data and Data collection:

Research data were gathered from secondary sources.

• The Secondary Research Data have been gathered from different sources such as
Research papers, Government Website such as IBEF and Bloomberg.

2.2 Statistical Tools & Techniques

Descriptive Statistics:
• Analyse the data using descriptive statistics to gain insights into the variables and the
sample characteristics.
Panel Regression Analysis:
• Use random effects or fixed effects to perform a panel regression analysis to explore
the relationship between corporate governance and stock prices.
Statistical Tests:
• Employ appropriate statistical tests to evaluate the significance and robustness of the
results obtained from the panel regression analysis.
Allerano Model:
• “Utilize the Allerano model to tackle potential endogeneity concerns and reverse
causality between corporate governance variables and stock prices”.

• Analyse the results obtained from the Allerano model to assess the relationship between
corporate governance variables and stock prices.

• Compare the findings from the Allerano model with the results obtained from the panel
regression analysis.

2.3 Difference between Panel regression with Random effects and Fixed Effect

9
Concept:
“Random Effects: The random effects model treats regressors as random variables and assumes
that individual effects are unrelated to them”
“Fixed Effects: Fixed effects models control for individual-specific effects by including
individual dummy variables or fixed effects in the regression equation”
Treatment of Effects that are Individualised:
• Random effects models assume that the individual effects are uncorrelated. with the
independent variables. These effects, which are regarded as random, point to
unrecognised individual heterogeneity.

• Fixed Effects: The regression equation in the fixed effects model explicitly takes
individual differences into account. It differentiates out these impacts by taking into
account the time-invariant differences between people and includes individual-specific
dummy variables.
Assumptions
• Random Effects: This model assumes that individual effects are independent of the
regressors and have predetermined distributions.

• Fixed Effects: The fixed effects model presupposes that individual-specific effects are
time-invariant yet linked with the regressors.

Hypothesis Testing:
• Fixed Effects: In the fixed effects model, hypothesis testing is conducted based on
within-group variations, as the fixed effects capture the time-invariant differences
among individuals.

• Random Effects: In random effects models, hypothesis testing is based on random

effects, assuming that individual specific effects are not related to regressors.

10
 Chapter 3: Review of Literature
Many studies have investigated the link between corporate governance and firm performance,
and most have found a positive relationship. However, despite the widespread belief that
good governance improves firm performance, clear evidence for this relationship is lacking
and research findings are inconsistent.
• Professor Priyanka Aggarwal, in her research the effect of Corporate Governance on
the Financial Performance of Businesses, focuses on how corporate governance
influence the financial performance of NIFTY 50 companies.

• The research results of Brown and Caylor (2004) [2] prove that among the key elements
of corporate governance (CGQ), the board of director’s effect is the most important.
The study also found a positive correlation between business adjusted CGQ scores and
financial measures such as shareholder return, income, dividends, and profits.

• Durga Prasad (2010) discovered that corporate governance had a significant effect on
the share price of these publicly traded companies, making it an important predictor of
their share price value.

• According to Uwuigbe from Nigeria's Convent University According to the study, an

audit committee's existence has a positive link with share price while a company's
ownership structure has a negative correlation. According to the report, laws should be
put in place to restrict board members' ownership of shares to maintain the best share
values.

• Professors Arunima Haldar and S.V.D. Nageswara Rao claim to have created the index.
Six essential corporate governance processes, including the Board of Directors, the
Audit Committee, the Board Committees, and Disclosure Practises, are considered
while calculating the index. We can evaluate the evolution of corporate governance in
India thanks to the index's development over a four-year period. Numerous changes
have been made throughout this time that are intended to enhance corporate
governance. This analysis shows that companies that actively pursue governance
reforms are valued more highly in Indian marketplaces.

• According to Dr. Puneeta Goel from Amity University, it is a noteworthy and significant
development for Indian firms that there must be at least one female director on company
boards. By expanding the representation of women on boards, regulators might further
advance gender equality in top management. It is advised that Indian corporations select
more independent directors because of their critical role in the successful
implementation of these changes.

11
 Chapter 4: Introduction to Corporate governance

• In simple terms, corporate governance means how any organisation is managed in a

transparent and fair manner. It is defined by the British Cadbury Council as the process
of running and managing the company. Corporate governance is all about encouraging
transparency, accountability and meeting the needs of stakeholders. It includes
compliance with laws and ethical behaviour, promoting the productive use of resources,
and ensuring responsibility for resource management. The basic elements of corporate
governance are ownership, board of directors and management.

• Recent scandals and failures involving corruption such as Enron, WorldCom and
Satyam have received wide attention in corporate governance. Value creation and
business management are often seen as complementary. Failure to accept and act
ethically can lead to business failure. Prior research on corporate governance and
financial success has produced contradictory and inconclusive results. These articles
study and decompose the effect of corporate governance on firms’ monetary
performance in India.

4.1 Component of Corporate Governance

The Board of the Directors:

• The board of directors is a joint organization consisting of persons appointed or
assigned by the company's shareholders to oversee the management and affairs of the
organization. This board is responsible for important decisions that affect the company's
day-to-day operations, financial performance and long-term goals.

• Usually, the Board of Directors comprises a combination of internal and external

members. Internal members typically encompass the CEO (Chief Executive Officer)
and other high-ranking executives within the organization.
The main duties and responsibilities of the Board of directors are:
• Strategic Oversight: Set the business goals, monitor progress, and make decisions that
corelate with the company’s mission and vision.
• Risk management is the process of identifying and analysing threats to the company's
operations and taking appropriate action to mitigate these threats.
• Financial Management: Monitor company financial performance, approve budgets,
provide financial management and reporting.
• Appointment and supervision: Recruiting, evaluating and replacing, if necessary, the
CEO and other senior executives. Supervising managers and ensuring their
responsibilities.
• “Governance and Compliance: Build and maintain business governance and practices.
Ensuring compliance with laws, regulations and standards of practice”

12
 • Shareholder Communication: Representing the interests of shareholders and
maintaining transparent and effective communication with them.
• Board Committees: Establishing committees (e.g., audit committee, compensation
committee) to focus on specific areas of governance and provide in-depth analysis and
recommendations to the board.
• The board of directors is important for companies to ensure good practice, ensure
accountability, and protect the interests of shareholders and other stakeholders.
Non-Executive director
Members of the board of directors who are not employed full-time in the company are called
non-executive members. Unlike operational managers, who are involved in the day-to-day
management and operations of an organization, non-executive directors provide unbiased
views and ethical decisions on strategy, management, and analysis.
Non-executive members are selected according to their skills, experience and qualifications in
certain areas related to the company's job or business. They often bring a variety of skills and
backgrounds to the board, such as finance, legal or specialized business knowledge. Their
primary role is to provide independent advice and guidance to the board and represent the
interests of shareholders and other stakeholders.
Independent Directors
Independent directors are individuals who serve on a company's board and are chosen
specifically for their impartiality and freedom from financial or personal connections that could
influence their decision-making. They are not part of the company's regular activities and are
carefully selected to avoid any conflicts of interest that could compromise their objectivity.
The primary purpose of independent directors is to offer an unbiased viewpoint within the
board and act as a safeguard against any potential misconduct or mismanagement by the
executive team. They have a responsibility to act in the company's and shareholders' best
interests, providing oversight and ensuring that management remains accountable.
CEO Duality
In the corporate world, dual CEO status (also known as CEO and chairman roles) occurs when
the same person assumes the dual roles of CEO and chairman. This means that the CEO is
responsible for managing, directing, and monitoring the operations of the company as well as
the overall management of the company.

13
Independent directors in Audit committee
The audit committee's independent directors are essential for protecting against risks, fostering
good corporate governance, boosting investor confidence, and maintaining the integrity of
financial reporting. Their impartiality, knowledge, and dedication to serving shareholder
interests are essential for preserving public confidence in the organisation.
Board meetings
Board meetings are formal gatherings where the members of a company's board of directors
convene to discuss and make decisions on important matters related to the organization. These
meetings serve as a platform for board members to collaborate, evaluate performance, set
strategic goals, and provide oversight to ensure the company's success and adherence to
corporate governance principles.
Effective corporate governance relies on the significance of board meetings as they offer a
platform for board members to exercise their supervisory role, make strategic choices, and meet
their obligations to shareholders and stakeholders. Through facilitating open discussions and
informed decision-making, board meetings actively contribute to the overall prosperity and
enduring viability of the company.

Women Directors
Having women directors in corporate governance holds great significance. Their inclusion
brings a range of viewpoints, backgrounds, and expertise to the board, thereby improving
decision-making processes. Women directors contribute to a more equitable and diverse
governance framework, fostering transparency, accountability, and effective risk management.
Moreover, studies indicate that companies with a higher proportion of women on their boards
tend to exhibit stronger financial performance and long-term viability. Hence, the presence of
women directors plays a pivotal role in driving favourable results and advancing corporate
governance standards.

14
4.2 Agency Theory:

• Organization theory is a theory of economics and behaviour that studies the cooperation
between managers and representatives in hierarchical organizations, such as the link
between business owners (managers) and managers (representatives) in the
organization. It focuses on the potential conflict of interest that can arise when one
person or group allows decisions to be made by another person.

• The idea assumes that agents, who have their own objectives and incentives, might not
always behave in the principals' best interests. Due to this conflict of interests, agents
may prioritise their own self-interests or act opportunistically, which can result in
agency costs and less-than-ideal results.

• In the area of corporate governance, agency theory focuses on how the interests of
shareholders (the principals) and management (the agents) are aligned. The
effectiveness of various governance measures, including boards of directors, executive
compensation plans, and shareholder activism, is examined in terms of preventing
agency problems and affirming that managers put the interests of the shareholders first.

15
4.3 CEO Duality in the context of Agency Theory
Why Organisation should not have CEO Duality
• Separation of Powers
• Enhanced Board Independence
• Improved Accountability
• Investor confidence

• The relationship between principals (shareholders) and agents (business executives)

and potential conflicts of interest are explained using the framework of agency theory.
As per agency theory, in the case of CEO duality, dividing the responsibilities of CEO
and Chairman can lessen these conflicts and advance stronger corporate governance.

• By having a distinct CEO and Chairman of the Board, companies can effectively tackle
the agency-related challenges. The existence of an independent Chairman offers
valuable oversight and serves as a counterweight to the CEO's authority. This
segregation of roles guarantees that decisions are made with the shareholders' best
interests in mind, promoting transparency, accountability, and ultimately enhancing
shareholder wealth.

• As per agency theory, the presence of an independent Chairman can mitigate the
potential risks associated with CEO duality. The independent Chairman serves as a
representative of shareholders, actively monitors the CEO's performance, and ensures
that the CEO's actions align with the company's long-term objectives. This segregation
of roles minimizes the likelihood of conflicts of interest and adds an extra level of
governance and supervision

16
Chapter 5: Corporate Governance in Indian banks and its impact on their
stock price

We use a quantitative research method and deductive methods to explore and clarify the
relationship between corporate governance and stock price concurrency.
I looked at board size, CEO duality, independent directors, independent board members, female
executives, board meetings, and percentages of meeting attendees.

5.1 Here is the Regression Equation

Stock Price = β0 + β1 * Board Size + β2 * CEO Duality + β3 * Independent Directors + β4 *

Independent Directors in Audit Committee + β5 * Women Directors + β6 * Board Meeting
Attendance Percentage + β7 * Board Meetings + ε

• Stock Price: Dependent variable representing the price of the stock.

• Board Size: independent variable representing the size of the board.
• CEO Duality: Independent variable indicating the presence or absence of CEO duality.
• Independent board members: An independent variable showing the number of
independent directors.
• Presence of Independent Members in the Audit Committee: It is an independent
variable that indicates whether there is an independent member in the audit committee.
• Women Directors: Independent variable representing the number of women directors
on the board.
• Attendance at Board Meetings: An independent variable represents attendance at board
meetings.
• Board Meetings: Independent variable representing the number of board meetings held.
• β0: Intercept or constant term.
• β1-β7: Coefficients associated with each independent variable, indicating their
respective impact on the stock price.
• ε: Error term accounting for unexplained variation in the stock price.

5.2 Sample size

Sample size for this Research includes all Private and Public banks of India these all are listed
company on the stock market which makes sample size of 30 companies.
Data for all these companies have been collected for Five years from 2018 to 2022.

17
 Chapter 6 : Empirical Results and Discussion

• To investigate the association between corporate governance factors and stock prices in
the Indian banking sector, I did a regression analysis with random effects for this
project. The random effects model allows for heterogeneity between the banks in the
sample and takes into consideration the existence of unobserved individual-specific
effects.

• Regression analysis includes several independent variables related to corporate gover

nance, such as board size, CEO duality, independent directors, independent directors
of audit committee, female directors, board members, and board meetings.
The dependent variable is historical Stock price which represents the market price of
the bank stock.

• I used the random effects model to try to reflect the differences in the link between
corporate governance and stock prices that occur both within and between banks. This
method aids in adjusting for unobserved variables that could affect stock prices as well
as corporate governance procedures.

18
 6.1 Analysis through Random Effects

Last Price Coef Std.err Z P>|z| [95% conf. Interval]

Board Size -0.036665 0.0264233 -1.39 0.165 -0.0884536 0.0151237

NumberofNo
nExecutiveDir
ector -0.004113 0.0188475 -0.22 0.827 -0.0410535 0.0328275

CEO duality -0.0210478 0.073769 -0.29 0.775 -0.1656324 0.1235367

Women
directors 0.0174851 0.0291225 0.6 0.548 -0.0395941 0.0745642
independent ***
directors 0.1074463 0.0322048 3.34 0.001 0.0443261 0.1705666
PctIndepende
ntDirectors -0.0027242 0.0027378 -1 0.32 -0.0080902 0.0026419
no of board
meetings -0.0015361 0.0052428 -0.29 0.77 -0.0118119 0.0087397
Board
Meeting
attendance
Attend -0.0058852 0.0033426 -1.76 0.078 -0.0124366 0.0006662
% OF
INDPENDENT
DIRECTOR IN
AUDIT
COMMITTEE -0.0014234 0.0015089 -0.94 0.345 -0.0043807 0.0015339
Number of
Independent
Directors in
audit *
committee 0.0590512 0.0329824 1.79 0.073 -0.0055931 0.1236955

Findings:
• Board Size: The coefficient of -0.036665 suggests a unassertive relationship with stock
prices, although it is not statistically significant (P>|z| = 0.165). Hence, there is no
strong evidence to support a definite impact of board size on share price.

• CEO Duality: The coefficient of -0.0210478 implies a unassertive relationship with

share price, but it is not statistically significant (P>|z| = 0.775). Therefore, the presence
of CEO duality does not appear to have a severe impact on share price.

19
 • Women Directors: The coefficient of 0.0174851 suggests a definitive relationship, but
it is not statistically significant (P>|z| = 0.548). Consequently, there is insufficient
evidence to conclude that the presence of women directors significantly influences
stock price.

• Independent Directors: According to statistical significance (P<0.001) and positive

coefficient 0.1074463, the number of independent directors has a positive effect on the
stock price.

• Number of Independent Directors in audit committee: The coefficient of 0.0590512

suggests a definitive relationship, but it is marginally not statistically significant (P>|z|
= 0.073). Hence, the number of independent directors in the audit committee may have
a limited impact on stock prices.

The results of the regression study paint a contrasting picture of how corporate governance
factors affect stock prices in the Indian banking sector. While having more independent
directors has a statistically significant beneficial impact on stock prices, other factors including
board size, CEO duality, the presence of women directors, and board meeting factors do not. It
is essential to interpret these results considering the industry and sample that were examined.
To fully comprehend the comp relationship between corporate governance and stock prices,
further investigation and analysis are needed.

20
6.2Analysis Through Regression with Fixed effect

Last price Coef Std. err Z P>|z| [95% Conf. Interval]

Board Size -0.0243 0.0293562 -0.83 0.41 -0.082486 0.0338799
NumberofNonExecutiveDirector -0.00806 0.0207517 -0.39 0.698 -0.0491898 0.0330686
CEO duality -0.0181 0.0778512 -0.23 0.817 -0.1723949 0.1362021
women directors 0.016894 0.0308862 0.55 0.586 -0.0443215 0.0781095
***
0.01
independent directors 0.093715 0.0358879 2.61 0.0225862 0.1648436
no of board meetings -0.00163 0.0055209 -0.3 0.768 -0.0125756 0.009309
Board Meeting attendance
Attend -0.0062 0.00356 -1.74 0.085 -0.0132532 0.0008585
Number of Independent *
Directors In audit committee 0.060714 0.0350053 1.73 0.086 -0.0086652 0.1300935

• Independent Directors’s coefficient is 0.0937149, indicating a statistically meaningful

positive relationship (p = 0.01). This suggests that high number of independent directors
is associated with a significant positive impact on stock prices.

• The coefficient of 0.0607142 for audit committee independent directors is not

significant (p = 0.086), indicating that the characteristics of audit committee
independent directors may have some influence on stock prices.

21
6.3Analysis Through Arellano Bond Dynamic Panel method

Std.
Last Price Coef. error z P>|z| [95% Conf.Interval]
-
Board Size 0.0604 0.0351 -1.72 0.085 -0.1293 0.0084
NumberofNonExecutiveDirector 0.0103 0.0265 0.39 0.698 -0.0416 0.0622
**
CEO duality 0.1063 0.0496 2.14 0.032 0.0091 0.2036
-
women directors 0.0307 0.0522 -0.59 0.557 -0.133 0.0717
***
independent directors 0.1765 0.0347 5.09 0 0.1086 0.2445
-
no of board meetings 0.0045 0.0078 -0.58 0.56 -0.0197 0.0107
-
Board Meeting attendance Attend 0.0096 0.0051 -1.86 0.063 -0.0197 0.0005
Number of Independent Directors in
audit committee 0.0598 0.0662 0.9 0.366 -0.0699 0.1895

Independent Directors
• The coefficient of 0.1765 for independent directors is statistically significant (p <
0.001), which means that the relationship between the number of independent directors
and stock prices is highly likely to be true and not due to random chance. Furthermore,
the positive coefficient indicates that an increase in the number of independent directors
is associated with higher stock prices.

This result shows that independent managers affect stock prices both positively. An
independent director is not affiliated with the company's management or major
shareholders. It increases the purpose, diversity and accountability of the board of
directors in the decision-making processes of companies.
CEO Duality
• The CEO duality coefficient is 0.1063, indicating a significant (p = 0.032) relationship
with stock prices. This means that when the CEO does not have two roles, i.e. the CEO
is not the chairman of the board, there will be a positive impact on the stock price.

• The dual identity of the CEO means that one person simultaneously functions as the
CEO responsible for the operation and management of the company, and also as the
chairman of the board, responsible for the leadership and oversight of the board of
directors. A good result indicates that the absence of this culture in the organization
affects the price of the product.a

22
 Chapter 7: Empirical Analysis and Findings

Final study has been performed by Arellano Bond Model

7.1 Why Arellano Bond model?

• For Final Analysis I have decided to go with Arellano Bond dynamic method Because
Arellano-Bond dynamic panel data models are frequently preferred over regression
models with random effects or fixed effects in specific situations. One of the main
reasons for this preference is that Arellano-Bond models address endogeneity and
dynamic dependencies in the data, which are common issues in panel data analysis.

• Endogeneity is the conceivable association between the error term and the explanatory
factors in a regression model. Endogeneity in panel data analysis might result from
simultaneity, bias from omitted variables, or measurement errors. To deal with
endogeneity, Arellano-Bond models use instrumental variables and the generalised
method of moments (GMM) estimate approach. This model reaches the end of the
endogeneity and provides a robust estimate by using the lagged effect of the explanatory
variable as a tool.

• Dynamic dependencies refer to the presence of lagged values of the dependent variable
or the explanatory variables in the model. In many economic and financial contexts,
variables exhibit a temporal relationship, where their current values are influenced by
past values. Arellano-Bond models capture this dynamic relationship by including
lagged values of the dependent variable and the first-differenced form of the
explanatory variables. This allows for the estimation of dynamic effects and provides
more accurate parameter estimates.

7.2 Final Findings

Significance of Independent Directors:
• The coefficient associated with the number of independent Director is 0.1765, which is
significant (p < 0.001), indicating a positive relationship between the two variables.
This finding suggests that more independent directors on the company's board are
associated with higher share prices.

• Independent members of the board of directors are people who are not related to the
company and are expected to express their impartial and objective opinions in the
decisions they will take. They are often appointed to bring expertise, experience, and
diversity to the board. Their independence from company management and ownership
is believed to improve corporate governance and protect shareholder interests.

23
 • These findings demonstrate the favourable effects independent directors can have on a
company's performance and value to shareholders. However, given that the association
between independent directors and stock prices may vary in other circumstances, it is
crucial to take these findings into account in the context of the particular industry and
sample employed in this study.

Significance of CEO Duality

• The CEO duality coefficient is 0.1063, indicating a positive relationship with stock
price (p = 0.032). This finding suggests that companies whose CEOs do not work as
chairman of the board will have higher stock price.

• When the roles of CEO and chairman are separated, a clear distinction can be made
between the responsibilities of the CEO and the board's oversight and management job.

• By having an independent Chairman, the company may benefit from improved

corporate governance practices, increased accountability, and a more balanced
decision-making process. These factors contribute to higher investor confidence and
positive market valuation for companies with CEO duality.

24
 Chapter 8 : Recommendations and Limitations of Study

Recommendations
Establish a Robust Corporate Governance Framework: It is recommended that the
company establishes a robust corporate governance structure by implementing an effective
framework. This includes the separation of CEO and chairman roles to reduce the risks
associated with dual CEO roles.By having distinct individuals in these roles, a balance of power
and oversight can be achieved, leading to improved governance practices. Furthermore, it is
essential to ensure that the board consists of an adequate number of independent directors.

• These independent directors should possess relevant industry knowledge, financial

expertise, and governance experience. Their inclusion on the board will enhance
transparency, accountability, and bring diverse perspectives to decision-making
processes.

Strengthen Board Independence and Expertise: It is important to prioritize the employment

of independent Director with the necessary qualifications and skills to improve the
performance of the overall Board. Independent managers must have deep knowledge of the
business in which the company operates and must possess financial knowledge and business
management knowledge. Their presence will contribute to effective oversight and decision-
making by bringing objectivity, specialized skills, and diverse viewpoints to the boardroom.

• Regular evaluations of the board's performance should be conducted to assess its

effectiveness and identify areas for improvement. Additionally, encouraging continuous
professional development for directors will ensure they remain up to date with
emerging trends and best practices in governance.

Strengthening Independence and Expertise in the Audit Committee: In addition to the

recommendations previously discussed, greater emphasis should be placed on the structure and
work of the audit committee, particularly the involvement of independent directors.
Limitations
sample size and selection bias.
• This project focuses on only Indian Banking Sector and this analysis does not include
any unlisted companies. So we cannot generalise this result to all sectors . this study is
limited to Banking companies only.

25
Timeframe and Dynamic Nature
• The analysis has been done for Five years only. Changes in corporate governance
practices, regulations, or industry dynamics beyond the analysed period may influence
the observed relationships. Lack of availability of data this research has been limited to
Five year rather than 10 years. Ten-year data would increase its accuracy.
External Validity
• It is vital to note that this project's results and suggestions only apply to all banks that
are listed in India. As a result, care should be used when attempting to extend these
findings to various nations, sectors of the economy, or organisational contexts.

26
 Chapter 9 Conclusion and Implication

9.1 Conclusion

In conclusion, this project examines the relationship between CEO Duality,

independent managers and stock prices in Indian banks using the Arellano-Bond
dynamic panel data model. The analysis provides valuable insight into the importance
of these variables in influencing job performance. The findings highlight the
importance of good corporate governance, separation of CEO and board
responsibilities, and inclusion of independent directors to achieve good results for the
business owner.

By fostering transparency, accountability, and diverse perspectives, companies can

strengthen their governance structures and bolster investor confidence. However, it is
crucial to acknowledge the limitations of this study, including the sample size and the
specific context of Indian banks. Further research and analysis across various industries
and regions are necessary to validate these findings.

Overall, this project highlights the pivotal role of corporate governance in shaping
financial performance. It emphasizes the ongoing evaluation and improvement of
governance mechanisms to ensure managerial actions align with shareholder interests.
By implementing the recommended measures, companies can strive for sustainable
growth, value creation, and long-term success in the ever-evolving business landscape.

9.2 Implications
Practical Example of the Banks were having CEO Duality
• Punjab National Bank (PNB), An Indian bank gives an example where the dual role
of CEO (combining the roles of CEO and chairman) causes serious problems. In 2018,
PNB faced a major fraud case involving billions of dollars’ worth of unauthorized
transactions. Notably, the CEO also held the position of Chairman during this period.
The presence of CEO duality in this instance raised concerns regarding the bank's
internal controls, risk management practices, and overall corporate governance
effectiveness.

Yes Bank, Another Indian company gave another example where the dual CEO role, of
which the CEO is also the chairman, led to a stressful period. Yes Bank encountered
significant financial challenges, including a considerable decline in its stock price and
concerns regarding the quality of its assets. The situation led to regulatory intervention
by the Reserve Bank of India, imposing restrictions on the bank's operations. The
presence of CEO duality in this case raised concerns about the effectiveness of
oversight and the potential concentration of power within the organization.

27
Practical Example of the Banks are having high No of Independent Directors

• State Bank of India (SBI)

SBI has a total of 22 directors, including 15 non-executive directors. SBI has been
consistently performing well in terms of profitability and growth. In the financial year
2022-23, SBI's net profit was ₹38,601 crore, an increase of 19% from the previous year.

• HDFC Bank

There are 18 directors overall in HDFC Bank, including 12 non-executive ones. One of
the biggest private sector banks in India, HDFC Bank has a strong track record of
profitability and expansion. The net profit of HDFC Bank for the fiscal year 2022–23
was 37,196 crore, up 20% over the prior year.

Kotak Mahindra Bank:

“Kotak Mahindra Bank has a total of 18 directors, including 12 non-executive directors.
Kotak Mahindra Bank is one of the largest private sector banks in India and has been
consistently performing well in terms of profitability and growth. In the financial year
2022-23, Kotak Mahindra Bank's net profit was ₹26,903 crore, an increase of 20% from
the previous year”

• Axis Bank

• There are 12 non-executive directors among the 17 total directors of Axis Bank. One
of the biggest private sector banks in India, Axis Bank has a strong track record of
profitability and expansion. Axis Bank's net profit for the fiscal year 2022–23 was
22,924 crore, a rise of 16% over the previous year.

28
 Chapter 10 References and Bibliography

❖ https://www.ibef.org/industry/banking-india

❖ Aggarwal, Priyanka. “Impact of Corporate Governance on Corporate Financial

Performance.” IOSR Journal of Business and Management, vol. 13, no. 3, 2013, pp.

01–05, iosrjournals.org/iosr-jbm/papers/Vol13-issue3/A01330105.pdf,

https://doi.org/10.9790/487x-1330105. Accessed 6 Jan. 2020.

❖ Brown, Lawrence D., and Marcus L. Caylor. “Corporate Governance and Firm

Performance.” Papers.ssrn.com, 7 Dec. 2004,

papers.ssrn.com/sol3/papers.cfm?abstract_id=586423.

❖ Goel, Puneeta. “Implications of Corporate Governance on Financial Performance: An

Analytical Review of Governance and Social Reporting Reforms in India.” Asian

Journal of Sustainability and Social Responsibility, vol. 3, no. 1, 6 Nov. 2018.

Springeropen, ajssr.springeropen.com/articles/10.1186/s41180-018-0020-4,

https://doi.org/10.1186/s41180-018-0020-4.

❖ Haldar, Arunima. “Corporate Governance Index for Listed Indian Companies.” Social

Science Research Network, 2012,

papers.ssrn.com/sol3/papers.cfm?abstract_id=2256089. Accessed 6 July 2023.

❖ Samontaray, Durga. “Event Study View Project Build/Develop a Rubric for

Assessment View Project Impact of Corporate Governance on the Stock Prices of the

Nifty 50 Broad Index Listed Companies.” 2010.

❖ Uwuigbe, OR. “Corporate Governance and Share Price: Evidence from Listed Firms

in Nigeria.” African Research Review, vol. 7, no. 2, 3 May 2013,

https://doi.org/10.4314/afrrev.v7i2.8.

29
30