Shareholder Orientation In India
Traditionally, the corporate industrial sector in India was dominated by group companies with close links with the promoter groups: Their funding primarily through institutional borrowings from public development finance institutions like and so on. There was preponderance of loan capital in their financial structure and shareholders equity played a rather marginal role. It was no wonder therefore, that corporate India paid scant attention to shareholders wealth maximization with few exceptions such as Reliance Industries. In the post-90 liberalization era, the goal of shareholders wealth maximization has emerged almost at the center-stage. The main contributory factors have been greater dependence on capital market, (ii) growing importance of institutional investors, (iii) tax concessions incentives to shareholders and (iv) foreign exposure.
With the gradual. decline ill tire significance of the development/public financial term lending institutions over the years and their disappearance from the Indian financial scene recently (as a result cf their conversion/proposed conversion into banks) and the consequent emergence of the capital market as to main source of corporate financing. shareholders’ wealth maximization is emerging as the prime goal of corporate financial management. Secondly, as a result of the institutionalization o( savings. institutional investors such as mutual funds, insurance organisations, foreign institutional investors and so on dominate the structure of the Indian capital market. To cater to the requirements of these institutional investors, corporate are pursuing more shareholder friendly policies as reflected in their efforts to focus on shareholders’ wealth maximization, Thirdly, the abolition of wealth tax on equity shares and other financial assets coupled with tax exemption on dividends in recent years provided an incentive to corporate to enhance share prices and, thus, focus on shareholders wealth. Finally, the family-owned corporate are also undergoing major transformation. The scions of most business families are acquiring higher professional education in India and abroad. With the foreign exposure, they appreciated the importance of shareholders wealth. Thus. shareholder orientation is unmistakably visible in the corporate India