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Last Updated : Dec 12, 2019 11:54 AM IST | Source: Moneycontrol.com

50 IPOs in FY16, FY17 fail corporate governance test versus listed BSE 100 peers

Multinational companies had the highest score at 63, followed by widely held companies at at 62

Around the world 2019 has been the year of blockbuster initial public offerings (IPOs). Here's a look at the best performers in India.
Around the world 2019 has been the year of blockbuster initial public offerings (IPOs). Here's a look at the best performers in India.
 
 
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Companies that have recently made their stock market debut have worse corporate governance scores than the larger listed ones, according to a report.

Firms that recently had their initial public offering (IPO) had an average score of 54, as against a score of 58 for those listed on the BSE 100, according to Indian Corporate Governance Scorecard.

The median score for all 150 companies was 61. The study was jointly developed by the BSE, the International Finance Corporation (IFC) and Institutional Investor Advisory Services India (IiAS),

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The study, titled “Stability despite headwinds”, analysed 150 BSE-listed companies, of which 50 are IPO companies listed between April 2015 and March 2017.

Only three IPO companies were in the 'good' category, scoring between 60 and 69 – ICICI Prudential Life Insurance, Narayana Hrudalaya and Syngene International. 37 were classified as 'fair' (a score of 50-59), and 10 as 'basic' (a score below 50).

The score factors in treatment of shareholders, disclosures, transparency, and role of the board and stakeholders.

As per the report, issue continue to persist in IPO companies, where there seems to be a need to institutionalise governance practices. “In IPO companies, severe issues were reported by the auditors in some of the companies. As a result, the number of companies in which auditors have raised concerns on the financial statements has increased to 32% from 24% in 2018,” it said.

The same in the case of BSE 100 companies has fallen to 25 percent in 2019 from 35 percent YoY. “The institutionalisation of governance practices has led to greater stability of scores for the larger listed companies,” it noted.

State-run companies have the lowest scores among different promoter groups in the BSE 100. They scored 52, compared to 60 for private promoter-led companies.

“Lack of adequate independent board representation and transparency on issues, including related party transactions, are among the reasons said to be weighing on the governance score of public sector companies,” the study noted.

Multinational companies had the highest score at 63, followed by widely held companies at at 62.

Corporate governance issues

“For Corporate India, the past 12 to 18 months have been difficult. With economic growth slowing, achieving business targets has been stretching managements with a few opting for a short-term fix, reflecting in a lower CG (corporate governance) score,” the report said.

Around 41 percent of the larger listed companies have a well-equipped board with adequate skill sets as against only 26 percent for IPO companies, the report stated, adding that only eight BSE 100 companies and one IPO company disclosed board improvement plans, the report said.

Among the BSE 100 companies, Cipla, Dr Reddy’s Laboratories and Tata Power were included in the 'leadership" category' (a score of above 70).

Does a higher corporate governance score matter?Firms having better governance practices witness tangible returns, the report stated. They score 60 or more on governance, falling under the well-governed category. The study found that such companies outperformed the rest over a two- and three-year period.

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First Published on Dec 12, 2019 11:54 am
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