Niranjan Chipalkatti

External Debt and Capital Flight in the Indian Economy

This paper estimates Indian capital flight at US

The relevance of value‐at‐risk disclosures: evidence from the LTCM crisis

88 billion (in 1997 dollars) over the 1971‐97 period, a sum that is roughly 20% of the US

DEPOSITOR DISCIPLINE, REGULATORY CONTROL, AND A BANKING CRISIS: A STUDY OF INDIAN URBAN COOPERATIVE BANKS

448 billion real external debt disbursed to the country over the same time period. There is also evidence of a strong year-to-year correlation between debt inflows and flight-capital outflows. The paper explores the nature of this association between capital flight and external debt in the Indian economy. An analysis by Boyce (1992, World Development, 20, pp. 335‐349) for the Philippines revealed the presence of contemporaneous bi-directional causality, in other words, a financial revolving door relationship between external debt and capital flight in that economy. The research question addressed by this paper is whether such a financial revolving door relationship exists in India, given its higher level of external indebtedness and lower debt-to-GNP ratio as compared with the Philippines. Utilizing a simultaneous equation model to examine the association between capital flight and external debt in the Indian economy, the paper confirms the existence of a financial revolving door relationship between the two endogenous variables.

A post-reform assessment of the Indian banking sector: profitability, risk and transparency

Purpose – Previous studies have established that the failure of the hedge fund, long-term capital management (LTCM), was associated with significant negative abnormal returns for many US banks, especially around September 2, 1998, when LTCM announced its failure. This study attempts to examine whether bank value-at-risk (VaR) disclosures were used by investors to assess the potential trading loss that a bank could suffer at that time. Design/methodology/approach – This study examines whether there was any association between disclosed VaR and the magnitude of abnormal returns and trading volume surrounding the announcement date. Findings – The results indicate that there was no such association which suggests that investors did not use the VaR information to assess the potential trading losses of exposed banks. Banks that formed part of the LTCM bailout consortium and those with larger amounts of notional derivatives faced the largest negative reaction at the time of the failure announcement. Originality/value – VaR disclosures are costly to prepare and complex to interpret. The study finds no benefits of VaR disclosures to bank investors.

Do public governance and the depth of financial intermediation impact the entrepreneurship?growth relationship?

Urban Cooperative banks in India (UCBs) play an important role in mobilizing resources from lower and middle-income groups and in providing direct finance to small entrepreneurs and traders. Motivated by previous empirical work on depositor disciplining behaviour, this paper examines whether depositors punish weak UCBs by withdrawing deposits during and after a banking crisis. In addition, the paper investigates the impact of tightened prudential standards imposed by the Indian central bank (RBI) on the ratio of investments to loan assets and on the rate of growth of loans. Our sample of 45 UCBs is partitioned into strong and weak banks and subjected to econometric testing. Our analysis reveals that a banking crisis is associated with a contraction in deposits across the sample. However, weak banks appear to be disciplined by depositors during election years. We also find weak support for the contention that banks reduced loans when faced with intensified regulatory scrutiny in the aftermath of a crisis. Copyright 2007 The Authors Journal compilation

Laudato Si' and the Papal View of Ecological Debt: An Empirical Exploration

This paper critically evaluates the performance of Indian banks by examining quantitative data on bank profitability and risk subsequent to the market-oriented reforms in 1991. A bank transparency indicator is also constructed to appraise the performance of Indian banks with respect to the quality of their disclosures. The assessment indicates deteriorating profitability, heightened risk exposure and inadequate transparency of accounting disclosures. The study underscores an urgent need for an improvement in the risk management skills of Indian banks and their supervisors. Such practices may necessitate more rather than less governance in areas of corrective action, financial transparency, and risk management.

Offshore outsourcing and political risk: India in 2004

The literature on entrepreneurship suggests that the impact of entrepreneurial activity on economic growth varies with the stage of economic development of a country. While entrepreneurial activity is positively associated with economic growth in rich countries, it has a negative effect poor countries. Our paper explores this implication by examining the association between entrepreneurial activity and economic growth for a sample of countries. Our econometric investigation suggests inadequate depth and development of the financial sector reduce the growth-enhancing impact of entrepreneurial activities. Surprisingly, the existence of corruption does not impede the beneficial impact of entrepreneurial activity on growth in our data set.

Enhancing Value in IT Services Offshoring: Real Options Matter

In 2015, Pope Francis released his second papal encyclical, Laudato Si’: On Care for Our Common Home (Francis, 2015), the central idea of which is the Holy Father’s concern for the future of our planet, our common home, and to seek sustainable and integral development. The purpose of this article is to critically and empirically examine the specific notion of ecological debt as described in the encyclical (Francis, 2015: 51 and 52), beginning with a historical background on the origins and use of the term. We then touch upon the Pope’s discussion of ecological debt and his indictment of multinational corporations (MNCs) in Laudato Si’, which resonate with the so-called pollution haven hypothesis (PHH) which states that pollutionintensive industries in developed countries relocate their “dirty” industries to developing countries with relatively lax environmental regulations. In a similar vein, we propose that a rise in total greenhouse gases is associated with the resource extraction and commodity export-based activities of MNCs in developing countries where such activities and their resultant pollution are subject to less stringent regulations due to imperatives for economic growth. This creates an ecological debt when commodity exports from developing countries to more developed ones come at the cost of the environment in the former. Our article thus connects Laudato Si’ with PHH, enabling us to empirically examine the Pope’s statement that the “export of raw materials to satisfy markets in the industrialized North has caused harm locally” (Francis, 2015: 51).

Institutional quality, knowledge spillovers and entrepreneurship

The results of the 2004 Indian elections were surprising as the victory of the Congress party was unforeseen by most pre-poll and exit surveys. The unexpected political change, with an associated shift from a centre-right to a centre-left government presented an unanticipated discontinuity in the business environment. We examine whether US companies that had offshored to India faced heightened levels of political risk when election results were announced. A unique contribution of the paper is that we also examine whether US companies that offshored to India in early-2004, faced greater political risk than companies that offshored to the country in 2002 and 2003. Results indicate an increase in political risk as manifested as an increase in systematic risk. Companies that offshored in 2004 faced greater political risk as compared to companies that offshored earlier. Our findings validate the use of a political risk premium when evaluating offshore ITES projects.

Portfolio Flows to Emerging Capital Markets: Do Corporate Transparency and Public Governance Matter?

Abstract In a complex global business environment, more organizations are relying on offshoring to provide critical information technology services (ITS). While there can be substantial cost savings for the offshoring firm, the decision to offshore ITS involves a considerable degree of uncertainty and it is essential to understand the issues and hurdles that will be faced by the offshoring operation. Based on a sample of 189 firms from 34 industries (with most coming from the Asia-Pacific region) that have made at least one offshoring decision, we find that larger market capitalized firms are more likely to outsource offshore than smaller firms. Our results also indicate an initial decrease in downside risk with a diminution in the decline, as offshore intensity increases. We also find some evidence of offshoring’s contribution to growth premia. In considering contingencies to adopt in order to manage downside risk, a real-options framework is discussed. Our findings support the view of offshoring as a dynamic process firms use to create value by leveraging growth options and mitigating risk. By considering the real-options possibilities, the investor gets a better picture of the potential losses and gains which should lead to more prudent IT offshoring investment decisions.