Purpose – Based on the agency theory, the purpose of this paper is to empirically investigate the impact of capital structure choice on firm performance in India as one of the emerging economies. Design/methodology/approach – Fixed effect panel regression model is used to analyse ten years of data (2003-2012) on the sample units, to find the relation between leverage and firm performance after controlling for factors such as size, age, tangibility, growth, liquidity and advertising. Findings – Empirical results suggest that leverage has a negative influence on financial performance of Indian firms, which is in contrast with the assumptions of agency theory as commonly received and accepted in other developed as well as emerging economies. Consequently, postulates of agency theory have to be seen with different perspective in India given the underdeveloped nature of bond markets and dominance of state-owned banks in lending to corporate sector. Practical implications – The findings of the paper will enable the practitioners and analysts to understand as to why, in the bank-dominated debt financing system in India, leverage is negatively associated with firm performance. Originality/value – The results of the study enrich the literature on capital structure and agency costs issues in several ways.
Purpose – The study aims to investigate the relationship between competition and efficiency. Using bank-level data for Indian banks, relationship between competition and efficiency is examined by applying the Granger causality test for the period 1996 to 2011. Design/methodology/approach – Lerner Index is a measure of market power and is applied for estimation of competition. Data envelopment analysis technique is applied for measuring efficiency in the Indian banking system along with the Granger causality test to look at the relationship between competition and efficiency. Findings – Results show an increasing trend for competition for the period 1996 to 2004, and after that there is fall in competitive levels. Granger causality tests show that competition positively effects efficiency and vice-versa. Practical implications – This study gives an insight into the relationship between competition and efficiency, thus providing an alternative view to the structure–conduct–performance paradigm. An efficient banking system can positively impact the growth of an economy and, hence, competition and efficiency are important decision parameters for regulators and could help them in decision-making and policy formulation. Originality/value – This study has covered more than 90 per cent of the banking assets for looking at competition and efficiency in the banking sector. Policymakers can try to improve competitive levels in banking so as to improve efficiency in the banking sector which can further help in developing the investment-savings cycle.
Purpose – This study aims to investigate the persistence ability of accounting variables, namely, abnormal earnings, book value, accruals and cash flows over a period of time and their valuation relevance in Indian scenario. Design/methodology/approach – The study utilizes the generalized version of the Ohlson model which links market prices with abnormal earnings, book value and earning components (accruals and cash flows). Fixed-effect panel data regression is used to analyze six years of data on the sample units to determine the persistence and valuation relevance. Findings – The findings provide evidence on the construct of persistence and value relevance of earnings and book value of equity in the Indian context. The findings further confirm that investors in India are fixated on earnings and fail to attend separately to the cash flow and accrual components of earnings while undertaking their investment decisions. Practical implications – The empirical findings of the study will enable the analysts and investors to understand the relevance and persistence of accounting variables in case of an emerging market like India. Originality/value – The study extends the extant literature on value relevance studies in developed markets to an emerging market like India and enriches it in several ways.
The purpose of the paper is to find out empirically whether an ideal business environment coupled with adequate legal protection provides an enabling mechanism for the minority shareholders to extract dividend from the firms and, as a consequence, whether the equity value of the firms gets impacted by dividend policy.The study (a) employs Tobit model on a sample of FTSE ST companies of Singapore to show the relation between dividend and minority shareholders base and, then (b) sought to explore the relation between equity value and dividend policy in the backdrop of strong legal protection for minority shareholders through OLS and 2 SLS regression models.The study empirically demonstrates a positive relation between the dividend payout and minority shareholders base indicating that, in a civil law origin country with strong corporate governance code ensuring investors protection and property right, the minority shareholders can extract dividend from the firms that, in turn, has a favourable impact on equity valuation.Consistent with the “outcome” and “catering model,” the findings of the study indicate that the overall business environment and legal protection enable minority shareholders to assert their cash flow rights with positive valuation implication.The paper objectively reveals how superior business environment, good governance and property right impact inter‐play between dividend payout, minority shareholders base and valuation of a civil law country.
Purpose – The purpose of this paper is to examine the relative predictive abilities of current earnings (and its components) and cash flows for next period cash flows in case of Shariah-compliant companies in India. Design/methodology/approach – The study uses the list of CRISIL NSE Index (CNX) Nifty Shariah Index companies as its sample for a period of 10 years for conducting the analysis. The study utilizes the cash flow prediction models to examine the relative predictive abilities of current earnings (and its components) and cash flows for next period cash flows. Findings – The study report that contrary to Financial Accounting Standard Board assertion, current cash flows have superior predictive ability of next period cash flows than current aggregate earnings in case of Shariah-compliant companies in India. The results further show that there are no gains from decomposing earnings into accruals and cash flows in predicting future cash flows. There is no increase in explanatory power (measured by adjusted R2) when aggregate earnings are disaggregated into accruals and cash flows to predict next period cash flows. Practical implications – The empirical findings of the study will enable the Shariah compliant investors to understand the role of current earnings (and its components) and cash flows in predicting next period cash flows in case of Shariah-compliant companies in India. Originality/value – To the best of author’s knowledge, this is the first study which examines the relative predictive abilities of current earnings (and its components) and cash flows for next period cash flows in case of Shariah-compliant companies in India.
The Indian banking industry has been suffering from a huge number of nonperforming loans, and the loan asset quality has been deteriorated over the years. This has led to significant capital erosion of many banks in India. The surge in corporate defaults leading to an enormous rise in nonperforming loan assets has been impairing the performance of Indian banking industry in particular and economic growth in general. Hence, it is intuitive to ask what are the determinants of poor asset quality of Indian banks. To answer this question, using a sample of 47 commercial banks over a sample period of 2000 to 2014, our study examines the bank‐, industry‐, and macroeconomic‐specific determinants of asset quality of Indian banks. Our empirical analysis also accommodates the impact of different ownership structures (public and private sector) and the impact of financial crisis while analysing the determinants of poor asset quality of Indian commercial banks. Results reveal that bank‐, industry‐, and macroeconomic‐specific factors are responsible for the burgeoning nonperforming loan assets of Indian commercial banks. The results are qualitatively similar across different ownership structures. The findings suggest that forecasting models for nonperforming assets should also consider macroecomomic‐ and industry‐specific factors along with the bank‐ specific factors.
This article aims to investigate return and volatility spillover among commodity, stock and exchange rate markets. The article further looks into whether there is any change in return and volatility spillover during the crisis and post-crisis periods and whether there is any in the behaviour of spillover changes between agro and non-agro based commodities. The study uses Vector Auto Regression followed along with by Granger causality are to understand the causality of returns. We have performed multivariate volatility model to study the volatility co-movement of different assets. Unidirectional return spillover from the Multi Commodity Exchange (non-agro commodity) to stock indices and exchange rates is found. Stock indices are found to influence exchange rates to return; whereas the only dollar explains the return in stock indices. Equity markets have been found to have a return spillover on NCDEX (agro commodity) during the post-crisis period. However, each asset market is found to have volatility spillover effects on the other asset market. Commodity indices have more spillover effects on stocks.
Banks in India have been gone through structural changes in the last three decades. The prices that bank charge depend on the competitive levels in the banking sector and the risk the assets and liabilities carry in banks’ balance sheet. The traditional Lerner Index indicates competitive levels. However, this measure does not account for the risk, and this study introduces a risk-adjusted Lerner Index for evaluating competition in Indian banking for the period 1996 to 2016. The market power estimated through the adjusted Lerner Index has been declining since 1996, which indicates an improvement in competitive condition for the overall period. Further, as indicated by risk-adjusted Lerner Index, the Indian banking system exerts much less market power and hence are more competitive contrary to what is suggested by traditional Lerner index.
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