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This paper empirically examines the impact of corporate governance reforms on the financial performance of Indian state-owned enterprises (SOEs) for the period 2003–2011.

The findings indicate that the various corporate governance reforms collectively exhibited a statistically significant positive impact on performance when a difference in difference estimation process is used. However, the performance of SOEs is less than that of publicly listed companies, which is consistent with prior research. When the SOEs are compared with a matched pairing of publicly listed companies of similar size and same industry, their performance was comparable and in many instances superior. This is indicative of the regulatory constraints on competitors and preferential access to resources and markets given to the SOEs. As SOEs move towards a more mixed ownership model with more of them listed on the stock exchange and greater public ownership of shares the corporate governance issues will increase in importance.

The controlled sell down of shares in SOEs presents a need for continuing governance reforms and ongoing research to track progress.

The most striking observation from the study is that changes that were introduced as a corporate governance reform, such greater professionalism in boards, did not gain traction and enhance performance, rather the process of director selection and the concentrated bureaucratic and political interference stymied what was asserted to be conceptually sound reforms.

One cannot mandate honesty.– Veerappa Moily, Chair,Second Administrative Reforms Commission, 2007India did not invent corruption, but it seems to excel in it. Transparency International, (TI) in its September 2007 Corruption Perception Index, placed India 72nd (tying with China and Brazil) with its neighbors Sri Lanka at 94th, Pakistan 138th, and Bangladesh 162nd as among the most corrupt of the 180 nations it surveyed. Denmark, Finland, and New Zealand stood at the top as the least corrupt, while Mynamar and Somalia are ranked at the bottom as the most corrupt. In 2008, India was ranked at 74th (Transparency International, 2007, 2008). In its 2005 study, TI found that as many as 62% of Indians believe corruption is real and in fact had first hand experience of paying bribes (Transparency International, 2005). Three-fourths in the survey also believe that the level of corruption in public services has only increased during 2004–2005. It is estimated that a total of about $5 billion are paid annually as bribes. The police are ranked as the most corrupt, followed by lower judiciary and Land Administration. Yet Suresh Pachauri, the Minister of State for Parliamentary Affairs, Government of India, declared: “Government is fully committed to implement its policy of zero tolerance against corruption. It is moving progressively to eradicate corruption by improving transparency and accountability” (Pachauri, 2008). This is a rather sorry state for a country known as the largest working democracy.

During a press conference at the Imperial Hotel in Delhi on 13 March 2001, the Internet news site, Tehelka.com, showed secret video footage of senior politicians, bureaucrats, and army officers accepting money in a fake defense deal. Two journalists from Tehelka, Anirudha Bahal and Mathew Samuel, posed as arms dealers from a fictitious arms company called West End International to sell nonexistent handheld thermal cameras to senior officials of the Ministry of Defense (MOD) in India. Bahal and Samuel paid bribes to politicians, civil servants, and army officers to procure government contracts. The journalists used three hidden cameras to videotape the corrupt politicians and officials accepting the bribes, with the most dramatic video clip showing the Bharatiya Janata Party (BJP) President, Bangaru Laxman, accepting a wad of currency notes from them. Laxman later claimed that he was not guilty of wrongdoing for accepting Rs. 100,000 (US$2,170) as a donation for the BJP. Describing the episode as “concocted,” he added that he had given the donation to the BJP's treasurer (BBC News, 2001a).