Chapter - 4

Research Methodology

“Corporate Governance encompasses the characteristics of adequate

disclosures, focused approach, absolute compliance, with the laws, professional

Board and ultimately the target of maximizing the shareholders value besides

catering to the creditors, employees, the environment and the society at large.”

– Pankaj R. Patel, Chairman

Zydus Cadila Healthcare Ltd.

4.1 Scope & Significance of the Research Study

This empirical study is basically a step towards understanding the corporate

governance relations and capital markets. Since these two influence the economy in an

integral part, an attempt is made to find out the influencing parameters of corporate

governance and their relation with economic development of India.

The scope of the study is very broad, and the researcher though has tried to touch on

various points, has focused more on the environment of the capital market with

relevance of corporate governance therein. The ever changing dynamics of the capital

market has left nothing to be more surprised of. There are newer surprises and shocks

every sunrise. Though the changing dynamics are not limited to internal or external

factors, the researcher has focused more on the management of corporate governance

practices in a dynamic capital market.

Since corporate governance is the burning concern after the scam of Satyam Computers,

an effort has been made to gauge the right implementation and acquaintance of the

Clause 49. Different studies narrate that there has been gap amid the real picture

depicted in Annual Reports and implementation of laws by SEBI. In order to assess

Corporate Governance norms & guidelines functioning, a study was done for 50 listed

companies of different sectors ranging from FMCG to that of the Information

Technology, and others.

Small and medium sized companies seem to be left out of the study. They are definitely

relevant to the dynamic capital market of India. The apparent reason is that most of

such sized companies are private limited companies and non-listed companies, which

do not partake in disclosures of corporate governance. Since the researcher has focused

on mandatory guidelines, such companies, which do not fall under such compulsions,

are sidelined.

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Three consecutive years’ annual reports (2008-09, 2007-08 and 2006-07) were taken up in

order to have comprehensive information regarding the corporate governance reports

& financial performance of the company.

Sectors considered were:

Pharmaceuticals

Banking

Information Technology

FMCG

BSE Sensex (30 Companies Group)

4.1.1 Grounds for Selecting Pharmaceuticals Sector:

The global pharmaceutical market is growing at a rate of 6% p.a. during 2009 and is

estimated to reach at US$ 725 billion, a pace similar to 2008, according to the IMS Global

Pharmaceutical and Therapy Forecast released by IMS Health. The forecast predicts

global pharmaceutical sales to surpass $820 billion in 2009.

The U.S. pharmaceutical market, the world’s largest, stood at about $312 billion during

2008 and is forecast by IMS Health to decline by at about 1 - 2 percent and reflects the

impact of continuing patent expirations, fewer new product launches and a tighter

economy.

Japan, the world’s second-largest market, is expected to see higher growth of 4 - 5

percent, reaching $84 - $88 billion. The Pharmaceutical markets of China, Brazil, India,

South Korea, Mexico, Turkey and Russia are forecast to grow at a combined 14 - 15

percent pace to $105 - $115 billion.

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US, Japan and Europe constitute about 85% of the global pharmaceutical market and

are growing at a slower rate of about 4% per annum mainly due to loss of exclusivity

and lesser new product approvals.

The top five E.U. countries (France, Germany, Italy, Spain and the United Kingdom) are

forecast to grow 3 - 4 percent next year, reaching sales of $162 - $172 billion.

The Indian pharmaceutical industry grew by 10.2% during the year 2009 and is likely to

grow by 12-13% in 2010 against earlier projections of about 15% due to the global

economic meltdown, according to ORG IMS Research, a joint venture of AC Nielsen

ORG-Marg and IMS Health of UK.

India is the World’s Fourth largest pharmaceutical market in terms of volume and the

15th largest in terms of value (USD 8 billion) (ORG IMS). It is primarily a retail-based

branded generic market with 80% dispensed through pharmaceutical outlets. As in

most emerging economies, acute therapies dominate and account for close to 75% of the

market. The Indian pharmaceutical industry has recorded a CAGR of 13.5% over the

past five years.

In India, population growth, increased healthcare access, medical progress, increasing

affordability and other epidemiology factors are some of the key factors which point to

continuing record growth levels. As per ORG-IMS data base, the estimated size of the

domestic market for FY 2008-09 was Rs. 35,368 crores. In India, currently, the prices of

74 drugs are controlled as per the mandate issued by the Drug Price Control Order,

1995.

Indian companies have been increasingly focusing on Global markets with a view to

expand their geographical reach and their exports have been growing in excess of 20%

in the past few years.

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Limited access to the market (i.e. connectivity and infrastructure), limited availability of

doctors and dispensaries, lack of awareness and low inclination to pay are key hurdles.

The hospital market is expected to become a meaningful opportunity. Pharmaceutical

sales to hospitals are estimated to be at Rs. 25 billion. Currently, around 250 companies

are participating in this market. According to ORG IMS Research, long term prospects

of India's domestic market remain solid with the USD 8 billion market in 2008, expected

to rise to USD 30 billion in 2020, implying a CAGR of 11.6%.

There has been a significant amount of restructuring in the global pharmaceutical

industry, with smaller companies running out of cash and bigger companies merging

with each other. According to ORG-IMS, the Indian pharmaceutical industry is

estimated to touch $30 billion by 2020.

Owing to such explosive opportunities, the pharmaceutical market is alluring for a

deeper study; hence the choice.

Ten Companies taken into consideration for the study undertaken are enumerated as

under:

Table 4.1 Selected Pharmaceutical Companies Sr. No Company Name

1 Cipla Ltd. 2 Aventis Pharma Ltd. 3 Divi's Laboratories Ltd. 4 Dr. Reddys Laboratories Ltd. 5 Glenmark Pharmaceuticals Ltd. 6 GlaxoSmithKline Pharmaceuticals Ltd. 7 Ipca Laboratories Ltd. 8 Sun Pharmaceuticals Industries Ltd. 9 Torrent Pharmaceuticals Ltd.

10 Ranbaxy Laboratories Ltd.

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4.1.2 Grounds for Selecting Banking Sector

The Indian economy faced significant slowdown in growth momentum in 2008-09,

driven by a severe downturn in the global economy on the back of sustained pressure

on the global financial system. For India, estimates of 2008-09 GDP growth range from

6.0%-7.0% against an average growth rate of 8.8% per annum over the period 2003-2008.

Export growth entered into negative territory in the third quarter of the financial year

2008-2009 against a growth rate of around 27% during the same period last year, foreign

inflows are likely to have contracted to USD 16 billion in 2008-09 from almost USD 100

billion in 2007-08.

Services, particularly financial services and trade & transport – have also been impacted

by the cyclical downturn in industry and the external pressure from a tough global

financial environment. The industry expects growth in services to slow down from

10.8% in the fiscal year 2007-2008 to 9.4% in the financial year ended March 31, 2009.

Based on data published by RBI (Reserve Bank of India), at February 27, 2009, the

banking industry accounted for 41.7% of non-food gross bank credit, retail credit

Annual Report 2008-2009.

The Power of Belief for 22.3%

Agriculture and allied activities for 11.9%

Trade for 5.5%

Real estate for 3.6% and other sectors for the balance 15.0%.

Total deposits grew by 19.8% during fiscal 2009 due to a 23.9% growth in time

deposits as demand deposits in the system declined by 0.8%.

The credit-deposit ratio remained within the range of 71.0%-75.5% during fiscal

2009 and was about 72.0% in March 2009.

The last decade has seen many positive developments in the Indian banking sector. The

policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and

related government and financial sector regulatory entities, have made several notable

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efforts to improve regulation in the sector. The sector now compares favourably with

banking sectors in the region on metrics like growth, profitability and non-performing

assets (NPAs).

A few banks have established an outstanding track record of innovation, growth and

value creation. This is reflected in their market valuation. However, improved

regulations, innovation, growth and value creation in the sector remain limited to a

small part of it. The cost of banking intermediation in India is higher and bank

penetration is far lower than in other markets. India’s banking industry must strengthen

itself significantly if it has to support the modern and vibrant economy which India

aspires to be. While the onus for this change lies mainly with bank managements, an

enabling policy and regulatory framework will also be critical to their success.

Indian banks have compared favorably on growth, asset quality and profitability with

other regional banks over the last few years. The banking index has grown at a

compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per

cent growth in the market index for the same period. Policy makers have made some

notable changes in policy and regulation to help strengthen the sector. These changes

include strengthening prudential norms, improving on corporate governance primarily

by increasing board independence and accountability, enhancing the payments system

and integrating regulations between commercial and co-operative banks.

Since the banking industry is considered as crucial as a backbone, it is imperative to

make a study of the banking industry.

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Ten Banks taken into consideration for the study undertaken are enumerated as under:

Table 4.2 Selected Banking Companies Sr. No Company Name

1 Allahabad Bank Ltd. 2 Bank of Rajashthan Ltd. 3 Bank of India Ltd. 4 Bank of Baroda Ltd. 5 Bank of Maharashtra Ltd. 6 ICICI Bank Ltd. 7 Axis Bank Ltd. 8 State Bank of India Ltd. 9 IDBI Bank Ltd.

10 HDFC Bank Ltd.

4.1.3 Grounds for Selecting Information Technology (IT) Sector

The market for software development services is highly competitive and subject to

rapid technological change, regulatory developments and emerging industry standards

that the Group expects will continue. Despite economic recession, collapse of various

large financial institutions, and record losses being reported by large corporate

worldwide, the Group though not immune to these recessionary pressures, is still

expected to grow. According to an independent research agency, the size of the global

telecom services market grew by an estimated 5.7% in 2008, reaching US$ 1.34 trillion. It

is expected that managed services and unified communications will lead to steady

growth during the year. A managed network service, which accounts for 20% of the

business services market, is expected to grow to 30% of the market by 2012.

NASSCOM’s Strategic Review 2008 reports that even during this difficult phase, the

Indian IT-BPO software and services industry aggregated revenues of USD 60 billion in

FY 2008-09 and generated employment for over 2.23 million people. Export figures

reveal that while the US and UK account for nearly 60% and 19%, respectively;

Continental Europe chips in 13%; the Asia Pacific region 8%; with the rest of the world

at 2%.

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According to NASSCOM Strategic Review Report 2009, IDC estimates total spending of

$ 557 billion on IT services in 2008, an increase of 5.5% over last year. Within the IT

services market, outsourcing was the fastest growing segment in 2008, estimated to

have grown by 21%. IDC forecasts worldwide IT services spending of approximately

$672 billion by 2012, reflecting a compound annual growth rate, or CAGR, of 4.8%.

However, Forrester Global IT 2009 Market outlook, predicts that U.S.A. IT purchases

will slow down from 4.05% growth in 2008 to 1.6% growth in 2009.

According to NASSCOM Strategic Review Report 2009, IDC forecasts a cumulative

annual growth rate (CAGR) of over 6.21% in worldwide IT services and IT enabled

services (IT-ITeS) spending and a CAGR of over 18.79% in offshore IT spending, for the

period 2007-12. The combined market for Indian ITITeS exports in fiscal 2009 was

nearly $ 60 billion. According to NASSCOM’s Strategic Review Report 2009, the cost

advantage achievable from outsourcing to India is unlikely to go away due to an

absolute cost advantage vis-à-vis other key markets and the prospect of further

reductions in infrastructure and overhead costs. According to NASSCOM’s Strategic

Review Report 2009, India based centers (both Indian firms as well as MNC owned

captives) have earned more quality certifications than any other country, over 498 India

based centers (both Indian firms as well as MNC owned captives) had acquired quality

certifications with 85 companies certified SEI CMM Level 5.

According to NASSCOM Strategic Review Report 2009, the Indian IT industry

employed nearly 2,230,000 software professionals as of 2008-09, making it one of the

largest employers in the IT services industry. According to the same report, India has

the largest pool of suitable off-shore talent – accounting for over 28% of the suitable

pool available across all offshore destinations.

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According to IDC’s report - India domestic IT/ITeS market top 10 predictions for 2009,

the India domestic IT/ITeS market growth rate will come down from an average of

24.3% recorded during 2003-08 to 16.4% over the next five years. In India, the IT

services market is estimated to account for 34% of the domestic IT industry. The growth

in the IT services market is estimated to be around 14% in US$ terms. The key verticals

driving the growth of the IT services market are Retail, BFSI, Telecom and

Manufacturing.

The BPO Industry in India is just about a decade old. In its early years the industry

concentrated on delivering business processes from India to global companies in

countries like the US & UK. India is also a leading destination for IT enabled services.

The proven track record and client relationships of established Indian IT services

companies, favorable wage differentials, availability of a large, high quality, English

speaking talent pool and a regulatory environment more friendly to investment are

facilitating India’s emergence as a global outsourcing hub. According to NASSCOM

Strategic Review Report 2009, the worldwide BPO market is expected to touch $ 181

billion by 2012, representing a compounded annual growth rate, or CAGR, of 11.9%. IT

Products According to NASSCOM Strategic Review Report 2009, IDC forecasts that

worldwide hardware spending will increase from $570 billion in 2007 to $683 billion in

2012, representing a compounded annual growth rate, or CAGR, of 3.68% According to

NASSCOM Strategic Review Report 2009, the hardware market in India is estimated to

account for 49% of the domestic IT industry, growing at about 3% in 2009. BPO is the

fastest growing segment of the industry, with a 17.5% growth. Additionally, the

engineering, R&D and software products segments showed a 14.4 % growth in 2008-09.

After the scam of Satyam, and the distrust and apprehensiveness of people in general, a

detailed look in the IT sector would be challenging.

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Ten IT Companies taken into consideration for the study undertaken are enumerated as

under:

Table 4.3 Selected IT Companies

Sr. No. Company Name 1 Infosys Technologies Ltd. 2 Tata Consultancy Services Ltd. 3 First Source Solution Ltd. 4 Polaris Software Lab Ltd. 5 Tech Mahindra Ltd. 6 Patni Computer Systems Ltd. 7 Wipro Ltd. 8 Mindtree Ltd. 9 CMC Ltd.

10 MphasiS Ltd.

4.1.4 Grounds for Selecting Fast Moving Consumer Goods (FMCG) Sector

As a consequence of low per-capita income and wide disparities in income distribution,

India has had very low penetration of consumer goods and services. However it is clear

that the economy is changing fundamentally triggered by far reaching changes in socio-

economic variables.

The number of households in rural areas using FMCG products has gone up from 136

mn in 2004 to 143 mn in 2007 implying a CAGR of 1.7%. According to McKinsey, rural

India would become bigger than the total consumer market in countries such as South

Korea or Canada in another twenty years. The growth in the sector was largely value

growth, due to increase in input prices.

The sector benefited from reduction in excise duty. The year 2009 was very volatile and

challenging with inflation falling and with more stable commodity prices seen at the

start of year, the outlook for the coming year looks much more promising. The per

capita income trend still remains high and demonstrates the overall health and strength

of the economy. The Indian Government has attempted to curb the effects of the global

recession through several fiscal and monetary stimulus packages to boost production

and demand across sectors. These include a combination of planned and unplanned

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expenditure, cuts in fuel prices, repo rate and excise duty. With the formation of a stable

Government at the Centre, there is greater expectation of decisive measures being taken

to revive growth helping the Indian economy ride out the global crisis.

Also, the year 2008 witnessed high levels of volatility in commodity prices, essentially

led by petroleum crude. Vegetable fats, chemicals and packaging materials also

reflected this price volatility, causing stress in business planning processes.

The cigarette industry in India continues to operate in an environment of rapidly

escalating challenges, particularly in the areas of taxation and regulations. On an

average, cigarettes account for about 90% of tobacco consumption globally, with an

even higher share of almost 100% in large markets like China. In sharp contrast, in India

consumption of tobacco in cigarette form has steadily declined from 23% of total

tobacco consumption in 1971/72 to less than 15% currently. The structure of the tobacco

industry in India has progressively become even more skewed over time, with the share

of cigarettes declining. This situation has been further aggravated by the extraordinary

increase in the rates of Central Excise Duty (CED) of the order of 140% and 390%

respectively on regular and micro-sized non-filter cigarettes with effect from March

2008.

Today’s generation is moving the FMCG at a jet speed growth. Owing to such rapid

changes, would it be difficult to maintain corporate governance and justify its moral

growth. Hence it would be foolhardy to leave out FMCG as a study.

Ten FMCG Companies taken into consideration for the study undertaken are

enumerated as under:

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Table 4.4 Selected FMCG Companies

Sr. No. Company Name 1 Colgate-Palmolive (India) Ltd. 2 Pidilite Industries Ltd. 3 Britannia Industries Ltd. 4 Nestle India Ltd. 5 ITC Ltd. 6 Hindustan Unilever Ltd. 7 Dabur (India) Ltd. 8 Marico Ltd. 9 Nirma Ltd.

10 Godrej Industries Ltd.

4.1.5 Grounds for Selecting BSE 30 Group Companies

BSE SENSEX, first compiled in 1986, was calculated on a "Market Capitalization-

Weighted" methodology of 30 component stocks representing large, well-established

and financially sound companies across key sectors. The base year of SENSEX was

taken as 1978-79. SENSEX today is widely reported in both domestic and international

markets through print as well as electronic media. It is scientifically designed and is

based on globally accepted construction and review methodology. Since September 1,

2003, SENSEX is being calculated on a free-float market capitalization methodology.

The "free-float market capitalization-weighted" methodology is a widely followed index

construction methodology on which majority of global equity indices are based; all

major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-float

methodology. (www.bseindia.com)

SENSEX - Scrip Selection Criteria

The general guidelines for selection of constituents in SENSEX are as follows:

Listed History: The scrip should have a listing history of at least 3 months at BSE.

Exception may be considered if full market capitalization of a newly listed company

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ranks among top 10 in the list of BSE universe. In case, a company is listed on account of

merger/ demerger/ amalgamation, minimum listing history would not be required.

Trading Frequency: The scrip should have been traded on each and every trading day

in the last three months at BSE.

Final Rank: The scrip should figure in the top 100 companies listed by final rank. The

final rank is arrived at by assigning 75% weightage to the rank on the basis of three-

month average full market capitalization and 25% weightage to the liquidity rank based

on three-month average daily turnover & three-month average impact cost.

Market Capitalization Weightage: The weightage of individual scrip in SENSEX based

on three-month average free-float market capitalization should be at least 0.5% of the

Index.

Industry/Sector Representation: The scrip selection would generally take into account

a balanced representation of the listed companies in the universe of BSE.

Track Record: In the opinion of the BSE Index Committee, the company should have an

acceptable track record.

Table 4.5 SENSEX 30 Companies

Composition revised from 26/05/2010 SENSEX Constituents

Free-Float Adjustment Factor revised from 10/05/10 Code Name Sector Adj. Factor

500410 ACC Ltd. Housing Related 0.55 500103 Bharat Heavy Electricals Ltd. Capital Goods 0.35 532454 Bharti Airtel Ltd. Telecom 0.35 500087 Cipla Ltd. Healthcare 0.65 532868 DLF Ltd. Housing Related 0.25 532286 Jindal Steel & Power Ltd. Metal Products & Mining 0.45 500010 HDFC Finance 0.90 500180 HDFC Bank Ltd. Finance 0.80 500182 Hero Honda Motors Ltd. Transport Equipments 0.50 500440 Hindalco Industries Ltd. Metal Products & Mining 0.70 500696 Hindustan Unilever Ltd. FMCG 0.50 532174 ICICI Bank Ltd. Finance 1.00

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500209 Infosys Technologies Ltd. Information Technology 0.85 500875 ITC Ltd. FMCG 0.70 532532 Jaiprakash Associates Ltd. Housing Related 0.55 500510 Larsen & Toubro Ltd. Capital Goods 0.90 500520 Mahindra & Mahindra Ltd. Transport Equipments 0.75 532500 Maruti Suzuki India Ltd. Transport Equipments 0.50 532555 NTPC Ltd. Power 0.20 500312 ONGC Ltd. Oil & Gas 0.20 532712 Reliance Communications Ltd. Telecom 0.35 500325 Reliance Industries Ltd. Oil & Gas 0.55 500390 Reliance Infrastructure Ltd. Power 0.60 500112 State Bank of India Finance 0.45 500900 Sterlite Industries (India) Ltd. Metal Products & Mining 0.45 532540 Tata Consultancy Services Ltd. Information Technology 0.30 500570 Tata Motors Ltd. Transport Equipments 0.65 500400 Tata Power Company Ltd. Power 0.70 500470 Tata Steel Ltd. Metal Products & Mining 0.70 507685 Wipro Ltd. Information Technology 0.20

It was said that the Sensex was governed by the economy during earlier times; but

today it is the Sensex that rules the economy. They go like hand in glove. Since a large

power is bestowed upon the Sensex in an indirect manner, it is wise to see that the

corporate governance is taken well care of in such turbulent circumstances by BSE30

companies.

The Indian capital market performance is judged and measured by BSE Sensex 30 group

companies which are large, well established, and financially sound companies across

key sectors. Satyam Computers was a part of this elite group, and was replaced by Sun

Pharmaceuticals in June 2009, following a financial scam. Citing this as an example,

there is no bias in the findings. Moreover, the researcher wants to point out that a large

number of the investors were attached with these ‘big’ companies. To provide a suitable

direction to such a huge conglomeration of investors, as regards to good corporate

governance practices followed by their companies, the researcher has taken this sample

selection.

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The Companies taken into consideration for the study undertaken are enumerated as

under:

Table 4.6 Selected BSE30 Group Companies Sr. No. Company Name

1 Oil & Natural Gas Corporation Ltd. 2 NTPC Ltd. 3 Tata Steel Ltd. 4 Larsen & Toubro Ltd. 5 Reliance Infrastructure Ltd. 6 Reliance Communication Ltd. 7 Bharti Airtel Ltd. 8 ACC Ltd. 9 Hindalco Industries Ltd.

10 Maruti Suzuki India Ltd.

4.1.6 Grounds for Selecting Individual Companies:

Though SENSEX (1978-79=100) was serving the purpose of quantifying the price

movements as also reflecting the sensitivity of the market in an effective manner, the

rapid growth of the market necessitated compilation of a new broad-based index series

reflecting the market trends in a more effective manner and providing a better

representation of the increased equity stocks, and their market capitalization. As such,

BSE launched on 27th May 1994, two new index series-BSE-200 and Dollex-200. Equity

shares of 200 selected companies from the specified and non-specified lists of BSE were

considered for inclusion in the sample for `BSE-200'. The selection of companies was

primarily done on the basis of current market capitalization of the listed stocks.

Moreover, the market activity of the companies as reflected by the volumes of turnover

and certain fundamental factors were considered for the final selection of the 200

companies.

The base of company selection is specific (BSE 200) and the sampling done from therein

is random.

100 100

Table 4.7 BSE 200 companies list on sector wise as on 29/03/2009

Sectors BSE 200 Companies Selection of Companies

Agriculture 6 Banks 22 10 Capital Goods 13 Chemical & Petrochemical 3 Consumer Durables 2 Diversified 9 Finance 12 FMCG 10 10 Pharmaceuticals (Healthcare) 14 10 Housing Related 18 Information Technology 12 10 Media & Publishing 3 Metal, Metal Products & Mining 18 Miscellaneous 2 Oil & Gas 16 Power 14 Telecom 6 Textile 1 Tourism 1 Transport Equipments 12 Transport Services 6 Total Companies 200 40 BSE 30 Group Companies (included in BSE 200 companies) 30 10 Total Selected Companies 50

The sample taken by the researcher within each sector is a representative of the

population of companies within that sector. The researcher has taken the sample from

BSE 200 companies. The BSE 200 companies have proven themselves to be a compass

for the direction of growth of the capital market.

At the time of this study, as may be seen from the table above, there were 22 companies

in the banking sector, of which the researcher has taken a random of 10 companies,

consisting of 6 nationalized banks and 4 private banks. Similarly, the sector of FMCG

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102

had only 10 companies, and hence the researcher has taken them all. The sector of

pharmaceutical (health care) has a total of 14 companies of which the researcher has

taken a random of 10 companies. The sector of I.T. has a total of 12 companies of which

the researcher has taken a random of 10 companies. So here the base is a selective

sample from BSE 200 companies, which are the market movers and indicators. In

addition to this sample, the researcher has taken 10 companies from BSE 30 group

companies, which are very much a part of the BSE 200 companies.

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Table 4.8 Select companies – Demographics

Sr. No. Company Name Sector

Sales 2008-2009

(in Rs. Crores)

Profit before Tax 2008-09 (in Rs. Crores)

Year of Establishm

ent

Location of Registered

Office

No. of employees

(0 - Not Available) State / UT

1 Allahabad Bank Banking 8507 868 1865 Kolkata 20457 West Bengal 2 Bank of Rajasthan Ltd Banking 1507 173 1943 Udaipur 4075 Rajasthan 3 Bank of India Ltd. Banking 19493 3084 1906 Mumbai 40155 Maharashtra 4 Bank of Baroda Ltd. Banking 18393 3343 1908 Baroda 38063 Gujarat 5 Bank of Maharashtra Ltd. Banking 4794 515 1935 Pune 13631 Maharashtra 6 ICICI Bank Ltd. Banking 64153 4127 1994 Vadodara 0 Gujarat 7 Axis Bank Ltd. Banking 13732 1815 1994 Ahmedabad 0 Gujarat 8 State Bank of India Ltd. Banking 76479 9121 1955 Mumbai 205896 Maharashtra 9 IDBI Bank Ltd. Banking 13347 767 1964 Mumbai 10201 Maharashtra

10 HDFC Bank Ltd. Banking 19751 2245 1994 Mumbai 52687 Maharashtra 11 Oil & Natural Gas Corporation Ltd. BSE 30 63968 23981 1947 New Delhi 33035 Delhi 12 NTPC Ltd. BSE 30 47647 9307 1975 New Delhi 24713 Delhi 13 Tata Steel Ltd. BSE 30 26624 7316 1908 Mumbai 34918 Maharashtra 14 Larsen & Toubro Ltd. BSE 30 41072 4360 1945 Mumbai 37357 Maharashtra 15 Reliance Infrastructure Ltd. BSE 30 14055 1337 1988 Mumbai 7304 Maharashtra 16 Reliance Communication Ltd. BSE 30 22948 6197 2002 Mumbai 37150 Maharashtra 17 Bharti Airtel Ltd. BSE 30 37352 8591 1995 New Delhi 0 Delhi 18 ACC Ltd. BSE 30 8597 1737 1935 Mumbai 0 Maharashtra 19 Hindalco Industries Ltd. BSE 30 66313 485 1958 Mumbai 19800 Maharashtra 20 Maruti Suzuki India Ltd. BSE 30 23308 1705 1981 New Delhi 7159 Delhi 21 Colgate-Palmolive (India) Ltd FMCG 1789 349 1937 Mumbai 0 Maharashtra 22 Pidilite Industries Ltd. FMCG 2133 128 1959 Mumbai 4138 Maharashtra 23 Britannia Industries Ltd FMCG 3460 196 1892 Kolkata 0 West Bengal 24 Nestle India Ltd. FMCG 4358 773 1912 New Delhi 4709 Delhi 25 ITC Ltd. FMCG 24364 4985 1910 Kolkata 26000 West Bengal 26 Hindustan Unilever Ltd. FMCG 21059 3035 1933 Mumbai 15000 Maharashtra

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Sr. No. Company Name Sector

Sales 2008-2009

(in Rs. Crores)

Profit before Tax 2008-09 (in Rs. Crores)

Year of Establishm

ent

Location of Registered

Office

No. of employees

(0 - Not Available) State / UT

27 Dabur India Ltd. FMCG 2852 445 1884 New Delhi 0 Delhi 28 Marico Ltd. FMCG 2401 245 1988 Mumbai 934 Maharashtra 29 Nirma Ltd. FMCG 4899 216 1980 Ahmedabad 0 Gujarat 30 Godrej Industries Ltd. FMCG 3362 131 1999 Mumbai 0 Maharashtra 31 Infosys Technologies Ltd. IT 21693 6907 1981 Bangalore 105453 Karnataka 32 Tata Consultancy Services Ltd. IT 21948 5140 1968 Mumbai 143000 Maharashtra 33 First source solutions Ltd. IT 599 13 2001 Mumbai 21750 Maharashtra 34 Polaris Software Lab Ltd. IT 1378 151 1993 Chennai 10500 Tamil Nadu 35 Tech Mahindra Ltd. IT 4358 1091 1986 Mumbai 24972 Maharashtra 36 Patni Computer Systems Ltd. IT 3248 478 1978 Pune 14894 Maharashtra 37 Wipro Ltd. IT 21027 3548 1945 Bangalore 95000 Karnataka 38 Mindtree Ltd. IT 1249 60 1999 Bangalore 6091 Karnataka 39 CMC Ltd IT 968 144 1975 Hyderabad 3600 Andhra Pradesh 40 MphasiS Ltd. IT 4264 973 2000 Bangalore 34000 Karnataka 41 Cipla Ltd. Pharmaceuticals 5326 897 1935 Mumbai 0 Maharashtra 42 Aventis Pharma Ltd. Pharmaceuticals 1076 260 1956 Mumbai 2000 Maharashtra 43 Divis Laboratories Ltd. Pharmaceuticals 1202 448 1990 Hyderabad 0 Andhra Pradesh 44 Dr Reddys Laboratories Ltd. Pharmaceuticals 4297 729 1984 Hyderabad 11600 Andhra Pradesh 45 Glenmark Pharmaceuticals Ltd. Pharmaceuticals 2290 269 1977 Mumbai 0 Maharashtra 46 Glaxosmithkline Pharma Ltd. Pharmaceuticals 1815 701 1924 Mumbai 4006 Maharashtra 47 Ipca Laboratories Ltd. Pharmaceuticals 1326 118 1949 Mumbai 6269 Maharashtra 48 Sun Pharmaceuticals Industries Ltd Pharmaceuticals 4481 1949 1983 Vadodara 8000 Gujarat 49 Torrent Pharmaceuticals Ltd Pharmaceuticals 1188 191 1973 Ahmedabad 5636 Gujarat 50 Ranbaxy Laboratories Ltd. Pharmaceuticals 4503 -1619 1961 Mohali 12000 Punjab

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The table 4.8 reflects the demographics of the companies like sales, Profit before Tax,

year of establishment, industry category, number of employees, etc. The researcher has

not taken samples on the basis of such demographics, instead has focused on the basic

pie, BSE 200 companies, from where the samples are taken. As seen earlier, BSE 200

companies form a base from which random samples were taken, as stated above.

4.2 Research Design

This empirical study revolving around the corporate governance parameters, capital

markets and effects on economic development is designed for explorative and

descriptive designs in mind. Study, initially was explorative where more secondary

data was used to study the relations. Many parameters were studied and information

from different sources was collected to justify the objectives of the study.

Although initially the research was explorative, but on later stages it turned to into a

descriptive research as the study turned to finding the relations and more insights into

the parameters of Corporate Governance Index and companies stand on that. The

researcher found out the relations at different stages to align the research questions.

4.3 Sources of Data

Data Collection being one of the major parts of the research, the researcher tried to

cover this section from all different angles. The researcher collected data from both

primary sources as well as secondary sources.

For primary data collection, questionnaire was designed for Company Secretaries. This

structured questionnaire was designed as to suffice the objective of the study and get

more in-depth into the Company Secretaries stand and their suggestions to bring

changes in Corporate Governance rules & guidelines.

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The 100 Company Secretaries, who were contacted, worked with an approximate of

3800 companies inclusive of listed and non- listed companies, giving an average of 38

companies per company secretary (According to rule, One Company Secretary can

practice maximum 80 companies). Thus, a considerable number of companies are dealt

with by the 100 company secretaries in India. The 100 company secretaries

(respondents) are well known and of high repute enjoying a vast corporate network

across the country. So it would not be wrong in stating that the 100 company

secretaries located in Ahmedabad would be a representative part of India. Through the

questionnaire, the researcher has also tried to gauge the perceptions of Company

Secretaries on Corporate Governance and its different components based on their

experience. This may be considered as one of the limitations of this study in context to

geographic locations for primary data collection.

For secondary sources, annual reports were studied and specific checklist

(questionnaire) was made to have streamlined information about the companies. Along

with annual reports and other research papers, the researcher attended various

conferences and Faculty Development Programme on Corporate Governance arranged

by Indian Institute of Management, Bangalore.

Since, the study involved data regarding companies three years financial performance,

a checklist of information needed was also prepared. This checklist included

information ranging from board of directors to meetings and even disclosures practices.

Moreover, a financial performance of the company and data available for the same was

also aligned creating a spectrum of information available to do statistical analysis.

4.4 Instrument

A Questionnaire (Appendix 1) was used as an instrument for collecting primary

data. Looking to the nature of study the questionnaire was structured, non-

disguised and mainly contained closed ended questions.

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The data collected was both qualitative and quantitative in nature. The

questionnaire was pre-tested among some selected company secretaries and this

forms the major part of the pilot survey stage. Even some changes were executed at

this time to form the final questionnaire. The researcher has personally executed the

questionnaire in Ahmedabad City.

Moreover, a checklist of information (Appendix 2) needed for collecting secondary

data was made and filled by the researcher personally.

4.5 Population

Population basically constitutes of all listed companies in India. Population for

Company Secretaries in Ahmedabad is 589.

4.6 Sample Units

Listed Companies and Company secretaries form the sampled units.

4.7 Sampling Method

The sampling plan is divided into two fragments as the sample was collected from

two different sample units:

Convenient Sampling for selection of Company Secretaries was done. No

specific criteria were mentioned for their selection except that they needed to

be Company Secretaries and to practice to the good number of companies.

Stratified random sampling was preferred for companies study where

companies of different sectors were selected and their by annual reports were

studied. Strata were made for the sectors considered for the study and random

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sampling among the companies for specific sector was done on the base of BSE

200.

4.8 Sample Size

The study was divided into two major elements where sample size varied

accordingly.

50 companies & their three annual reports (06-07 to 08-09) were studied.

Later, 100 company secretaries were surveyed to get more insights into the

subject.

4.9 Pilot phase

Five different companies studied to have the information and checked whether

information is available as a whole or not.

Moreover 8 different Company Secretaries were surveyed at the time of pilot

phase of second element.

4.10 Analysis

The collected data was edited, coded, tabulated, grouped and organized according

to the requirement of the study. Tool specifically used for the analysis was SPSS 16

and SPSS 17. Analysis was specifically done by studying descriptive of the each and

every question. Further statistical methods like Chi-Square, Cross tabulation,

ANOVA, Co-relation and t-Test on basis of some parameters was used in order to

justify the need of information.

One-way analysis of variance (ANOVA) tests allow determining if one given factor,

such as transparency disclosure, has a significant effect on corporate governance index

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across any of the sectors under study. A significant p-value resulting from a 1-way

ANOVA test would indicate that a corporate governance index is differentially

expressed in at least one of the Sectors analyzed. If there were more than two groups

being analyzed, the researcher has used the One-way analysis of variance (ANOVA)

tests to show whether the corporate governance is followed similarly across the sectors

as well as within the sectors.

One sample t-tests can be used to determine if the mean of a sample is different from a

particular value. The researcher has used the one sample t-tests to compare the sample

mean with the population mean (a specified mean level) and made a statistical decision

as to whether or not the sample mean is different from the population. The researcher

has also tested if sample mean exceeds or does not exceed the specified mean level. A

significant p-value resulting from One sample t-tests has indicated whether the

parameter under study gives significant impact or not.

Chi-square test for independence is applied when two categorical variables provides

from a single population. It is used to determine whether there is a significant

association between the two variables. It also explains the dependency of one variable

on other. The researcher has used the Chi-square test for independence to show how

one variable affects the other variable under study. The researcher has also studied how

the corporate governance is affected by the various variables for one or more

parameters using the same test.

Also, charts and plots were used to depict better picture of information sorted from

the survey.

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