Unmasking the Misuse of Global Depository Receipts – Psychological Analysis of Select Cases

Abstract

Purpose:

The objectives were to Understand the trends in the issue of depository receipts by Indian companies, to identify how some Indian companies have allegedly misused the process of depository receipt issue against the interest of retail investors and get exposure to rules concerning depository receipts in India.

Theoretical framework:

The study's theoretical foundation is based on trends analysis, misuse analysis, and an assessment of the regulatory framework for depository receipts. It also takes into account the various participants' roles in the process.

Design/methodology/approach:

Design, methodology, and approach: The research methodology examines historical data and trends on the issuing of depository receipts by Indian companies in great detail. It entails studying regulatory frameworks, evaluating pertinent literature, and looking into examples of misuse. To obtain data and reach findings, the study uses primary and secondary data sources.

Findings: 

According to the report, Indian corporations have issued significantly less depository receipts in recent years, with no issuances since 2021. The tougher supervision of the Securities Exchange Board of India has contributed to this drop. The study finds instances where businesses secured loans from foreign banks against GDR sales rather than receiving actual proceeds from GDR sales. Due to the selling of the underlying shares as a result of loan defaults, Indian investors suffered financial losses.

Research implications: 

This study shows the necessity for more stringent regulatory procedures and throws light on the misappropriation of depository receipt issuances by some Indian enterprises. To safeguard the interests of retail investors, it emphasises the necessity of establishing openness and accountability in the GDR issuing process.

Practical implications:

The conclusions of this study have applications for Indian regulatory bodies like the Securities Exchange Board of India (SEBI), among others. The report helps regulators create more effective supervision mechanisms by shedding light on the problems and gaps related to the issuance of depository receipts. Additionally, it makes investors more aware of the dangers of financing businesses that abuse the GDR issuing procedure.

Social implications:

This study has important social consequences since it sheds insight on how Indian retail investors are affected by dishonest practises in the issue of depository receipts. The report helps to advance ethical business practises and investor protection by outlining the misuses and their effects. To protect the interests of investors and uphold the integrity of the Indian securities market, it advocates for increased openness, accountability, and regulatory vigilance.

Originality/value:

This study offers novel insights into the fall in the issuing of depository receipts by Indian companies and the alleged abuse of the procedure. By revealing the relationships between numerous parties engaged in fraud, it adds to the body of knowledge on corporate finance and securities markets in India. Regulators, investors, and other market participants can benefit greatly from the study's conclusions and suggestions in comprehending the complexities of GDR issuances and the steps necessary to reduce risks and safeguard investors' interests.