P. K. Jain

Revisiting Flexibility in Organizations: Exploring its Impact on Performance

Today’s knowledge age organizations operate in more turbulent business and regulatory environments and managers need to take proactive stance in creating combating strategies for such environments and to adapt to such external turbulent environments. Incorporation of ‘Flexibility’ in strategic processes of any organization becomes very important at various levels in all the perspectives of the organization. This paper critically highlights the gap in flexibility research that flexibility is not merely related to technology but flexibility is more deeply rooted in strategic management processes of organizations. The paper reviews the developments in different types of flexibility studies such as organizational, technical, operational, strategic, marketing and financial flexibility. The area of flexibility and organization strategy is emerging and needs a lot of attention in order to understand its impact on various management processes within organization leading to enhanced competitiveness and better performance. This paper also emphasizes on how flexibility has evolved as a concept and taken a shape of strategic driver to improve organizational performance.

Stock Returns and Volatility: Evidence from Select Emerging Markets

This paper investigates the behavior of stock returns and volatility in 10 emerging markets and compares them with those of developed markets under different measures of frequency (daily, weekly, monthly and annual) over the period January 1, 2002 to December 31, 2006. The ratios of mean return to volatility for emerging markets are found to be higher than those of developed markets. Sample statistics for stock returns of all emerging and developed markets indicate that return distributions are not normal and return volatility shows clustering. In most cases, GARCH (1, 1) specification is adequate to describe the stock return volatility. The significant lag terms in the mean equation of GARCH specification depend on the frequency of the return data. The presence of leverage effect in volatility behavior is examined using the TAR-GARCH model and the evidence indicates that is not present across all markets under all measures of frequency. Its presence in different markets depends on the measure of frequency of stock return data.

Impact of MoU on financial performance of public sector enterprises in India

Purpose – Memorandum of Understanding (MoU) has been conceived as an instrument to quantify/assess social and commercial obligations/performance of central public sector enterprises (PSEs) in India. The purpose of this paper is to measure the financial performance of the MoU PSEs and to compare their performance with PSEs which have not opted for MoU (referred to as non‐MoU PSEs) over a period of 13 years.Design/methodology/approach – Financial ratio is a well accepted technique to assess financial performance. Accordingly, the financial performance of CPSEs has been assessed on the basis of 15 ratios pertaining to the profitability, efficiency, liquidity and solvency.Findings – The findings suggest that MoU seems to have yielded decisive improvement in the performance of PSEs which have signed MoUs during the period of the study under reference. At the same time, the performance of non‐MoU PSEs is unsatisfactory. In sum, MoU have enhanced not only commercial profitability but also have enhanced operation...

Market Response to the Announcement of Mergers and Acquisitions: An Empirical Study from India

The present article examines the short-run abnormal returns to India based mergers and acquisitions during 2003–2008 by using event study methodology. The present work is based on a sample of 623 mergers and acquisitions. We find that acquisitions by Indian companies significantly create short-term wealth on the announcement day to the shareholders of acquiring companies. Cumulative average abnormal return (CAAR) for Indian companies’ merger and acquisition activities is 2 per cent (significant at 1 per cent) over event window of 11 days (−5, +5). It seems the market perceives the merger and acquisition activities by Indian companies as efficiency enhancing. However, the results indicate presence of high event-induced variance in abnormal return. The present study reports a high event-induced variance in the abnormal return due to the announcement of mergers and acquisition in Indian context.

Informational efficiency of implied volatilities of S&P CNX Nifty index options: A study in Indian securities market

Purpose – The purpose of this paper is to assess the informational efficiency of SP therefore, these are indicative of the violation of efficient market hypothesis in the case of S&P CNX Nifty index options market in India.Practical implications – The fi...

Working Capital Management

Working capital management is concerned with the problems that arise in managing current assets (CA), current liabilities (CL) and the interrelationships that exist between them. Business success heavily depends on the ability of financial executives to manage effectively receivables, inventory and payables. While inadequate working capital has the potential to disrupt production/sales operations of otherwise well-run business enterprises, excessive working capital adversely impacts profitability. Therefore, the firms should strive to maintain adequate amount of working capital to ensure smooth production and sales operations. The importance of efficient working capital management (WCM) is therefore indisputable. This chapter is a modest attempt to gain insight on the working capital management practices of the sample companies.

Innovative Mode of Financing and Abnormal Returns to Shareholders of Indian Acquiring Firms

This chapter seeks to explore the influence of innovative mode of financing such as the combination of cash and stock or the earn-out offers used in the acquisitions. This chapter also looks into whether the short-run performance of domestic and cross-border acquisitions is impacted differently when an innovative mode of payment is used. This chapter examines the abnormal returns to the shareholders of 14 acquiring companies in India during the period 2003–2008. The results indicate that the acquisitions generate statistically significant positive abnormal returns of 5.29 % during the 5-day event window (− 2, + 2) when an innovative method of payment is used as a mode of acquisition. The major finding of disaggregated analysis is that the acquirer experiences higher cumulative average abnormal return (CAAR) in the case of acquisition of a domestic target firm. The acquirer earns more than 10 % CAAR during the 5-day event window (− 2, + 2) when the target firm is domestic. The acquirer earns more than 3 % during the 5-day event window (− 2, + 2) when the target firm is cross-border. The acquisitions financed with a combination of cash and stock or earn-out offers experience positive abnormal returns, could be a signal in support of the investment opportunity and the risk-sharing hypotheses.

Testing the pecking order theory of deficit and surplus firms: Indian evidence

Purpose - – The purpose of this paper is to test whether Indian firms follow the pecking order theory under situations of deficiency as well as surplus. Design/methodology/approach - – The study examines Indian firms included in the Bombay Stock Exchange (BSE) 500 index, covering a time span of ten years (2003-2012). An extended model of pecking order theory is tested for deficit and surplus firms separately. The authors use ordinary least square regressions to test the results. Findings - – The findings indicate that the pecking order theory is an excellent descriptor for deficit firms, but a poor one for surplus firms. Deficit firms frequently issue debt to fill up deficiency requirements but keep their debt ratios in limit. In marked contrast, surplus firms have low debt to equity ratios and only occasionally redeem debt. They tend to retain funds for future expansion and other operational needs. Research limitations/implications - – The study is limited to firms included in the BSE 500 index, but could be extended to others. Future research work could also focus on debt sub-components. Practical implications - – The present study is useful for firms that are considering capital structure decisions and supports finding that deficit and surplus firms behave differently. Originality/value - – This is the first study separately testing the pecking order between deficit and surplus firms in an emerging market.

Impact of Mergers and Acquisitions on Shareholders’ Wealth in the Short Run: An Event Study Approach

Globalization and liberalization have led firms from emerging markets like India to become more aggressive and opt for mergers and acquisitions (M&A) to fight the competitive battle. The present study attempts to evaluate the impact of mergers and acquisitions on the returns in the short run using detailed event study methodology. The notable finding of the research is that a market starts reacting prior to the announcement. The moment the announcement information becomes public, investors start reacting and the stock price jumps high, providing positive abnormal returns (ARs) to the investors. However, post-announcement, a strong correction in the market price of the acquiring company takes place and positive ARs do not sustain.The findings of the study have the following implications for the investors:1. ‘Earlier he sells more he gains’ and ‘issuance of stock for M&A is not good news’. 2. An investor can also earn substantial returns if the shares of the acquiring company are purchased two days prior to the announcement day and sold two days after the announcement day. 3. The announcement of cross-border acquisitions provides much higher returns than that for domestic. In addition, the cumulative abnormal returns (CARs) in the case of cross-border acquisitions are permanent, while in the case of domestic acquisitions they are temporary.4. The announcement of complete acquisitions of the target firm as a wholly-owned subsidiary provides much higher returns than that for partial/majority control acquisitions. In addition, the CARs in the case of complete acquisitions are permanent, while in the case of partial/majority control acquisitions they are temporary. 5. The announcement of acquisitions financed with cash payment provides substantial returns. This research draws the attention of managers to consider cross-border as well as domestic acquisitions as an option to strengthen their competitiveness. They should think of cash as a mode of payment to finance mergers as issuance of shares is bad news. The management may acquire the target firm as a subsidiary and may absorb it with its own operations later on.

Impact of Corporate Governance Score on Abnormal Returns of Mergers and Acquisitions

Abstract The present study attempts to investigate whether differences in the quality of firm level corporate governance influence short-term performance of acquiring firms for a sample of companies by creating a corporate governance index. The study is based on a survey of sample of 155 companies having completed mergers and acquisitions deals announced during January 2003 to December 2008. We document a positive relationship between corporate governance score and short-term abnormal returns by constructing broad corporate governance Index (CGI) for Indian public listed companies. We use a broad, multifactor corporate governance score, which is based on the responses to objective survey questions supplemented with interviews of senior management, directors, CFOs, board members, company secretaries, compliance officers, and investor relation officers. The questionnaire is designed on the basis of major standard qualities relevant to measure the corporate governance. The present study concludes that companies with higher rank for corporate governance score have better short-term performance which is revealed from positive and higher abnormal returns during the event windows.