CORPORATE GOVERNANCE INTERNAL CONTROL

May 29th, 2015
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Corporate Governance in IndiaThe 1956 Companies Act as well as other laws governing the functioning of joint-stock companiesand protecting the investors‘ rights built on this foundation. The beginning of corporate developmentsin India were marked by the managing agency system that contributed to the birth of dispersed equityownership but also gave rise to the practice of management enjoying control rights disproportionatelygreater than their stock ownership.

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Corporate Governance in IndiaThe 1956 Companies Act as well as other laws governing the functioning of joint-stock companiesand protecting the investors rights built on this foundation. The beginning of corporate developmentsin India were marked by the managing agency system that contributed to the birth of dispersed equityownership but also gave rise to the practice of management enjoying control rights disproportionatelygreater than their stock ownership. The turn towards socialism in the decades after independencemarked by the 1951 Industries (Development and Regulation) Act as well as the 1956 IndustrialPolicy Resolution put in place a regime and culture of licensing, protection and widespread red-tapethat bred corruption and stilted the growth of the corporate sector.The situation grew from bad to worse in the following decades and corruption, nepotism andinefficiency became the hallmarks of the Indian corporate sector. Exorbitant tax rates encouragedcreative accounting practices and complicated emolument structures to beat the system. In the absenceof a developed stock market, the three all-India development finance institutions (DFIs) theIndustrial Finance Corporation of India, the Industrial Development Bank of India and the IndustrialCredit and Investment Corporation of India together with the state financial corporations became themain providers of long-term credit to companies. Along with the government owned mutual fund, theUnit Trust of India, they

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