Tunnelling practices in IT and real estate sector in India - an empirical investigation
by N.K. Bishnoi; Sunita Godara
International Journal of Corporate Governance (IJCG), Vol. 7, No. 3, 2016

Abstract: Purpose: A comparative analysis of prevalence of tunnelling practices in IT sector and real estate sector in India. Design/Methodology/Approach: The study is based on the assumption that if Related Party Transactions are used for tunnelling purpose by the promoters than it will negatively affects the firm's financial performance and it is more perceptible in real estate sector as compare to IT sector. For the purpose, secondary data related to RPTs and financial performance have been collected for 5 years (from 2010 to 2014). The analysis has been done using random effect panel regression model. Findings: There is a negative impact of related party expenses (RPE) and related party income (RPI) on firms' financial performance in both the sector. Hence, tunnelling is prevalent in both the sectors. Practical implications: Prevalence of tunnelling practices in both the sectors point out the need to look at their governance in a more nuanced manner. The exiting legislations, especially clause 49 of listing agreement, need amendments because they are unable to control such dubious activities. Originality/value: By determining the extent of tunnelling in RPTs, this study provides a comparison of corporate governance practices between IT and real estate sector of India. This has not been researched so far.

Online publication date: Fri, 02-Dec-2016

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