The Changing Landscape: How the Indian Companies Act 2013 is impacting small-cap firms in India

The Indian Companies Act, 2013 brought along a set of well-defined norms relating to corporate governance to enhance accountability and transparency in corporate affairs. This paper examines the immediate and long-term implications of the implementation of the Indian Companies Act, 2013 on the performance of small firms in India. A new corporate governance score is created, based on the regulations of the Act, for each firm. The sample is divided into compliant and non-compliant firms based on their scores using this new metric prior to the Act. The study finds that firms that complied with the new regulations prior to the enforcement of the Act experienced higher abnormal returns when the new regulations were enacted. Furthermore, firms with higher governance scores also experienced higher long-run returns, post-Act. Governance scores were not significant for non-compliant firms, however. Higher audit fees are associated with better performance. For policymakers, businesses, and investors in India and other economies that have adopted similar reforms, these results have significant practical implementations. This study adds to the ongoing discussion about the value of adopting and complying with good governance practices