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MBA - CORPORATE GOVERNANCE AND RESPONSIBILITY

Why did it take 10 years to bring Harshad Mehta to justice ? What weaknesses in the financial markets allowed such abuse to succeed

Harshad Mehta 's scam was one which involved huge magnitudes , which is why it probably came into light in the first place . Scams of smaller magnitude are happening almost everyday at the Bombay Stock Exchange but not coming to light . There are many reasons for this . Some of the major reasons are briefly discussed below

The Indian businesses have traditionally being family owned . Owing

to concentration of money in a few hands , most people have concentrated on survival and security due to which the risking loving entrepreneurial skill has not developed much . Being family owned businesses , a lot of insider and sensitive information is often available to the owners and their relatives even though the company is technically a separate legal entity . Given this insider information and the relatively weak legal machinery , it is easy for the insiders to manipulate prices of stocks by large buying or selling

The reason outlined above also gives rise to the herd mentality i .e . if bulk activity is seen on a stock on a particular day in a particular reaction people seem to trust it quickly believing that some one with insider and reliable information is acting upon it . This is what helped Harshad Mehta in pulling off the scam . Further , there are hardly any checks and balances on the end use of loans given...