Search

Purpose: Interest rate derivatives (IRDs) are the essential components of financial risk management and are used across various industry sectors. The objective is to analyze the differences in approach to managing interest rate risks between the Indian corporates that execute IRDs and the ones that do not. Design/methodology/approach: Interest rate fluctuations require Indian corporates to hedge their exposures in foreign currency interest rates. This is all the more true for mid-sized corporates because of their balance sheet exposures. Additionally, they may not have the resources to formulate risk management policies. This paper analyzes data collected from financial statements of a diverse set of companies that use IRD and helps in formulating such a strategy. Findings: The results indicate significant differences for some of the parameters like information asymmetry and agency cost between users and non-users of IRDs. The study further suggests causality between users of derivatives and parameters like size, growth and debt. Research limitations/implications: The study compares users and non-users of IRDs, thereby identifying factors unique to users of IRDs. It also studies causality relations which explain the motivation to do IRDs. Thus, it enables risk managers to use this as a reference point to decide on their strategies. Originality/value: While there are multiple studies across geographies and sectors including commercial banks in India on the usage of interest rate swaps, this study focuses on Indian mid-tier corporates. Furthermore, the study distinguishes between users and non-users based on financial parameters, which in turn would provide a framework for decision-hedging strategies. [ABSTRACT FROM AUTHOR]

This study explores the association between board composition and the financial performance of the companies listed on the BSE-500 Index. The authors also analyse whether financial performance mediates the relation between board composition and executive compensation or not. The authors utilised a sample of 319 non-financial firms from the BSE-500 Index from 2010–11 to 2019–20. This time period was purposely chosen to eliminate the consequences of the 2007–2008 global financial crisis to reduce any uncertainty that may influence the company's financial performance. OLS regression techniques with firm fixed and time effects have been incorporated to test the hypotheses. To address the issues of reverse causation and endogeneity, regression models were employed with one-year lagged values for all predicted variables. In addition to OLS, the GMM technique is also used to validate the findings of the study. The findings show that financial performance fully mediates the link between board composition variables, except gender diversity, and executive compensation. These results suggest that a successful corporate governance system relies on the board's composition and how well it supervises its executives. Thus, the board may devise a fair compensation structure which is linked to financial performance to reduce managerial opportunism. This could help in aligning the interest of managers and shareholders, therefore lowering agency costs and boosting financial performance. Although executives are held accountable for the organisation's growth, sometimes they may act in their interest instead of the shareholders. Therefore, this study contributes to the literature on executive compensation and provides insights into reducing the opportunistic behaviour of managers through compensation design. In the pre-existing literature, limited studies are available that examine the direct or indirect effect of financial performance on the association between board composition and executive compensation among Indian companies. This study adds evidence to the literature on board composition of companies, financial performance, and executive compensation. This study is helpful for executives of the company and regulatory authorities while making decisions regarding board composition and executive compensation. This study encourages future researchers to conduct longitudinal studies with a larger sample and a longer time horizon. [ABSTRACT FROM AUTHOR]

Research regards related party transactions (RPTs) and control-ownership divergence (wedge) as expropriation mechanisms manifesting severe agency conflict in emerging markets. Since corporate governance greatly influences firms' investments and strategic behavior, this study examines how different RPTs and the wedge affect cross-border acquisition (CBA) size and returns. In line with agency theory, opportunistic RPTs like loans/guarantees reduce CBA returns. However, operating RPTs are positively related to returns as the market seems to link these RPTs with benefits to firms. The CBA performance of wedge firms varies with RPT types. While loans/guarantees by wedge firms reduce returns due to combined tunneling incentives, operating RPTs impact returns positively, reflecting more economic benefits in wedge firms. The wedge or RPTs are also positively related to CBA size. But increased tunneling incentives restrain wedge firms that give loans/guarantees from large CBAs. Finally, family firms or large group affiliates that provide loans/guarantees or sustain the wedge reduce returns yet make larger CBAs. Overall, agency costs of expropriation mechanisms depend on RPT types and receive further impetus in family firms or group affiliates with extensive intra-group linkages. [ABSTRACT FROM AUTHOR]

This paper explores the relationship between market concentration, agency cost and firm performance using an unbalanced panel of 1911 publicly listed manufacturing firms in India for the period 2001 to 2020. It classifies firms according to ownership types and evaluates the effects of agency cost and market concentration on performance of firms. The study considers agency costs that result from principal-agent (PA agency costs) as well as from principal-principal conflicts (PP agency cost). Additionally, it shows how the interaction between various concentration indices and agency costs (PP and PA agency prices) affects performance. Using a generalized methods of moments technique to estimate three dynamic models, the study finds that both types of agency costs have a strong negative impact on performance, market concentration has a negative impact but is limited to certain types of firms and the combined effects between concentration and agency cost are strong which shows that an increase in market concentration causes a decline in performance due to an increase in agency cost. Thus, our findings support the prediction that competition acts as a disciplining device to reduce agency costs which in turn helps to reduce managerial slack and improve firm performance. Our study has several policy implications. [ABSTRACT FROM AUTHOR]

We examine how family-ownership influences takeover probability and takeover public announcement abnormal return of Indian publicly traded firms between 2003 and 2019. We find that family ownership has a significantly negative effect on target takeover probability at various levels of family ownership, viz. 20%, 40%, and 51%. Announcement period abnormal returns for target firms are positive at a lower level of family ownership of 20% and negative at a higher level of family ownership of 51%. These results are consistent with the agency cost explanation where family ownership reduces owner-manager agency conflict but exacerbates conflict between majority and minority shareholders. Our results hold for Heckman two-stage model. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this paper is to empirically examine the impact of the bank-appointed directors on the agency costs of debt by using the idiosyncratic risk of stock returns as a measure of agency costs of debt. Design/methodology/approach: We use multivariate panel regression, event study and finally, propensity score matching approaches to test our hypothesis. The robustness of the results is tested for possible endogeneity issues by employing instrumental variable two-stage least square (IV-2SLS) technique. Findings: Consistent with the efficient monitoring hypothesis, we find a negative relationship between the presence of the bank-appointed director and the idiosyncratic volatility of stock returns among Indian firms. This implies that such firms take up less risky investment projects. Originality/value: We contribute to the literature from two aspects. First, to the best of our knowledge, this is the first study that examines the monitoring efficiency of creditors' governance. Hitherto, such examinations are done from the shareholders' perspective. Second, we examine the role of the bank-appointed directors on the board of non-financial firms in an emerging world context and find, contrary to the existing evidence in the US context, active monitoring role played by such directors. [ABSTRACT FROM AUTHOR]

This case study demonstrates how agency cost type 2 may lead to a conflict of interest between the promoters and the financial institutions. Proxy advisory firms further the cause of shareholder activism by addressing the dissonance so caused. They advise shareholders on the stance to be taken at the time of voting on important resolutions to be discussed in the General Body Meeting. This research case study explores how proxy advisory firms are playing an important role in promoting the cause of shareholder activism in the Indian context. It examines the role of a few Indian proxy advisory firms in foiling the attempt of Shriram Transport Finance Company (STFC) to re-appoint an independent director. Shareholder activism is relatively a less explored topic in academic research, especially in India. The authors, through this case study, wish to address this gap. The phenomenon studied in the case pertains to increased attention now being paid to reports of proxy advisory firms. Citing low attendance track record of a director in previous meeting, two Indian proxy advisory firms appealed to financial institutions to oppose the resolution to re-appoint him. Questioning his commitment and ability to devote time to the company affairs, they succeeded in thwarting the attempt of STFC to re-nominate Puneet Bhatia as director. The dilemma addressed in the case pertains to whether attendance in meeting can be a sole criterion for removing an independent director from the board. Secondary research among leading business publications unearthed major developments that have been captured in the case study. The case contributes to increasing the awareness of growing role of proxy advisory firms in India through a real example. [ABSTRACT FROM AUTHOR]

The paper aims to identify the variables contributing to special payouts considering open market repurchase, tender offer repurchases, and special dividends. A multinomial logit model has been used to investigate the choice of payout out of 754 payout announcements made between 2004 and 2017 in India. The study investigates agency cost, shareholder heterogeneity, clientele effect, distribution size, misvaluation, and takeover threat. The MNL results suggest that open market repurchase is chosen when the takeover threat is high, firms are significant, or in case of undervaluation of firms. Tender offer repurchase is preferred in high agency cost, high takeover threat, low shareholder heterogeneity, and undervaluation. The study further investigates the nature of ownership in terms of a business group affiliated and standalone firms. The result of the study suggests the nature of ownership impacts the choice of dividend payout choice. Group affiliated firms are driven by clientele effect and distribution size, and in standalone firms' agency and shareholder heterogeneity holds. The Bayesian approach which is based on the combination of previous information and the current data available is used in the study for MNL. The findings suggest that payout choices of open market repurchase and tender offer repurchase over special dividends are based on misvaluation and shareholder heterogeneity. [ABSTRACT FROM AUTHOR]

The paper examines the relationship between ownership concentrations and tax avoidance for small–medium enterprises (SMEs) in India. With a panel dataset built from small- and medium-sized enterprise surveys over the period between 2013 and 2014, we find that SMEs with concentrated ownership have a negative association with tax avoidance. The result is more pronounced for SMEs headquartered in states/provinces with stronger economic and institutional environment. The results also indicate that for any two SMEs with similar levels of ownership concentration, the SME with higher capital needs is more likely to avoid taxes. [ABSTRACT FROM AUTHOR]

Purpose: Prior literature demonstrates that the effectiveness of bank monitoring decreases when multiple banks are involved, due to a free rider problem, leading to lower firm value. The purpose of this paper is to investigate whether this free rider problem exists in an emerging market context, and whether the relationship between multiple banking relationships and firm value is conditioned on bankers' incentives to monitor. Design/methodology/approach: The authors use multivariate panel regression to examine the hypotheses. The conditioning effect of the incentive to govern (the amount of average bank lending) is modeled using an interaction variable. Based on the result of the Hausman test, the authors employ two-way fixed effects estimator to estimate the coefficients. Findings: First, the negative relationship between multiple banking relationships and firm value holds true among Indian firms. Second, the authors show that this negative relationship is lessened for firms with high average bank debt or higher free cash flows. The analyses suggest that these moderating effects are related to a reduction in the free rider problem rather than a decrease in financial constraints. However, these results are only significant among larger firms. Originality/value: Prior literature has not considered the conditioning impact of the "incentives to govern" when examining the free rider problem, inherent in situations where multiple actors are involved. The authors show in this study that the free rider problem disappears when the incentives to govern are considered in the overall research framework. [ABSTRACT FROM AUTHOR]

This study examines signaling, excess cash flow, substitution, leverage, agency cost, stock and liquidity hypotheses by considering firm-specific parameters to find out their impact on selection between tender offer and open market method while doing buyback. This study is based on the basic premise that the rules and regulations those govern these two methods are completely different and have different objectives. This study takes 430 non-financial buybacks from 1998–1999 to 2017–2018 for analysis and these buybacks segregated in terms of tender offer (176) and open market methods (254). In this study, both univariate and multivariate tests have been employed. T-test and Wilcoxon rank sum test are used for univariate analysis, and logistic regression is used for multivariate analysis. The empirical findings corroborate the evidence that free cash flow hypothesis, leverage hypothesis, agency cost hypothesis and liquidity hypothesis are the prime motivators for choosing of tender offer than open market share repurchase. This study finds that dividend paid and choosing of tender offer are substitutes. The results also support the notion that for correcting short-term undervaluation firms choose tender offer rather than open market methods. This study is the first comprehensive analysis in the Indian context to find out the motivations behind the selection of share repurchase methods. [ABSTRACT FROM AUTHOR]

Purpose: This paper aims to assess the risks and challenges of corporate social responsibility (CSR) management in the Indian-mandated CSR ecosystem from a service purchaser–supplier dualistic perspective and the role management control systems (MCS) and social capital play in managing such risks and challenges. Design/methodology/approach: This study undertook a qualitative approach that involved in-depth interviews of 22 CSR directors, managers or chief executive officers from 13 central public sector enterprises (CPSEs) that had purchased CSR services and nine managers of non-government organisations (NGOs) serving as CSR suppliers. Data analysis was founded on the principal–agent and social capital theoretical perspectives. Findings: A highly bureaucratic, time-pressured mandated environment poses several goal congruence and adverse selection threats to outsourced CSR project arrangements. A mix of formal and informal control mechanisms is critical for enhancing trust or bonding between service purchasers and service providers and enriching bridging capital or access to resources derived from interpersonal connections between NGOs and communities. Practical implications: NGOs and CPSEs may benefit from understanding each other's goals and culture and using appropriate formal and informal MCS for managing CSR expectations and outcomes. Originality/value: Drawing on a unique mandatory CSR regime, this study offers principal–agent and social capital perspectives on CSR programme delivery, highlighting the importance of various formal and informal MCS in lowering agency costs in outsourced CSR relationships. [ABSTRACT FROM AUTHOR]

The dividend payout problem in literature has largely been misspecified. The roles of dividends as signals, agency cost reducers, fixed income providers or even the invariance of dividend payouts are all phenomenon that, based on market conditions, follow from the role of dividends as equalizers of firm value, discounted from a given point in time, across firm's life. In this study, I discuss few problems with prevalent approaches towards solving dividend puzzle in academia, provide justification for the aforementioned hypothesis based on few assumptions, derive a model applicable under ideal conditions and then measure the deviations from the ideal model in two market indices—Nifty 500 (India) and S&P 500 (USA). The results obtained are then compared with the studies already done on these market and the reasons for deviation are discussed. Once the dividend model is derived, all roles of dividend flow automatically from the primary role of dividends and the extent of efficacy of each of the secondary role is based on numerous factors which vary, giving different results across different studies. The empirical investigation gives a view of these different factors at work in the markets. [ABSTRACT FROM AUTHOR]

Audit committees act as an important link in corporate governance mechanisms. As such, SOX Act, 2002, Blue Ribbon Committee's report and Narayana Murthy Committee's report have placed greater emphasis on their role in order to strengthen the functioning of these committees. The rationale behind this is that greater independence of audit committees is necessary for effective functioning and for alleviating weaknesses in corporate governance which, in turn, reduces the agency costs. Research evidence reaffirms this aspect. The objective of this paper is to examine the relationship between the independence of the audit committee, board independence and firm performance of listed firms segmented1 between BSE 100 and BSE 200 indices, for the years 2007 and 2008. The results are in consonance with other research studies indicating that performance of firms which have independent audit committees and greater board independence is higher resulting in premium valuations as measured by Tobin's Q, a proxy for firm performance. [ABSTRACT FROM AUTHOR]