Does the presence of institutional investors matter for good governance codes: empirical evidence from Indian banks

Purpose The purpose of this study is to assess how institutional investors (IIs) contribute to improving corporate governance (CG) frameworks in Indian banks. Design/methodology/approach To meet the objective, the study initially analyzes CG practices among Indian banks using the benefit-of-the-doubt (BoD) approach, which is an extension to data envelopment analysis. Furthermore, the study uses an econometric framework based on fractional regression modeling which is supported by a series of robust tests to assess the influence of IIs on the CG practices of Indian banks. Findings The findings of the study suggest that the presence of the IIs is vital for the effective CG framework of Indian banks; in addition, the findings also indicate that influence of IIs on the CG framework becomes more stronger if their involvement in the Indian banks reaches to a certain threshold level. Research limitations/implications The study’s findings highlight the critical need for regulators to foster the active participation of IIs in CG. Policymakers should develop strategies to encourage greater ownership concentration by IIs, formulate specific stewardship codes and mandate governance-related disclosures to elevate the standards of governance in India’s banking sector. Originality/value This study is novel in terms of identifying the impact of IIs on the CG framework in the emerging economy that have weaken legislative frameworks. Moreover, the study also identifies a threshold effect, showing that a substantial presence of IIs encourages Indian banks to adopt greater transparency and improved disclosure practices.