The impact of ownership structure and corporate governance on energy intensity: evidence from Indian business groups
ISSN: 0114-0582
Article publication date: 15 April 2022
Issue publication date: 2 August 2022
Abstract
Purpose
Energy efficiency is critical for global sustainability (International Energy Agency, 2019). The purpose of this paper is to examine how agency conflicts arising from pyramidal ownership structures impact the energy intensity (EI) of group-affiliated Indian firms. Group-affiliated firms face unique governance challenges. For instance, parent owners (promoters) may transfer profits from one group-affiliated firm to another firm in which they have greater ownership. The authors hypothesize that such governance issues will lead to underinvestment in energy-saving projects among group firms in which promoters have a low ownership stake, resulting in their greater EI.
Design/methodology/approach
The authors measure EI as the ratio of total energy expense to total sales revenue (EI) and as the industry-adjusted version of this ratio. Group-affiliated Indian firms are divided into high- and low-stake firms based on the sample’s median promoter ownership.
Findings
Results support the authors’ prediction: group firms in which promoters have low ownership are more energy intensive, consistent with these firms being exposed to greater governance challenges and agency conflicts that result in operating inefficiencies and/or underinvestment in energy-saving projects.
Practical implications
Given energy efficiency will be key in addressing climate change, this study could raise awareness among activists, motivate regulators to consider agency problems among group-affiliated firms in emerging markets and may underscore the importance of environmental-related corporate disclosures.
Originality/value
To the best of the authors’ knowledge, this study is the first to identify the significant impact that firm ownership structure and associated governance challenges have on corporate EI.
Keywords
Citation
Jadiyappa, N., Hickman, E. and Saikia, N. (2022), "The impact of ownership structure and corporate governance on energy intensity: evidence from Indian business groups", Pacific Accounting Review, Vol. 34 No. 4, pp. 634-657. https://doi.org/10.1108/PAR-05-2021-0078
Publisher
:Emerald Publishing Limited
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