Corporate Governance Evidence from Strategic Emphasis: Evidence from India

This study examines how corporate governance influences firms’ strategic emphasis following the adoption of takeover regulations in India. Specifically, it investigates whether a reduction in the threat of hostile takeovers affects the relative emphasis that firms place on short-term value appropriation and long-term value creation. Drawing on agency and stewardship perspectives, the study conceptualises advertising expenditure as an indicator of value appropriation and research and development (R&D) expenditure as an indicator of value creation. Using firm-level data from the Centre for Monitoring Indian Economy Prowess database for Indian firms over the period 2000–2024, this study examines changes in advertising and R&D intensity following the 2011 takeover regulation reform. The analysis employs panel-data techniques, including dynamic estimation, to assess the relationship between takeover-law adoption and firms’ strategic emphasis while accounting for firm- and industry-level characteristics. The findings indicate that weakening the threat of a hostile takeover is associated with greater emphasis on value appropriation, as reflected in advertising expenditure, providing support for the managerial-entrenchment perspective. In contrast, the evidence does not provide consistent support for the shareholder-interest perspective that reduced takeover pressure would encourage greater investment in long-term value creation through R&D. The findings suggest that changes in the corporate control environment can influence how managers allocate resources between immediate market-oriented activities and longer-term investments. The study contributes to the corporate governance literature by providing evidence from an emerging-market context and by highlighting strategic emphasis as an important mechanism through which takeover regulation may shape managerial resource-allocation decisions.