Phani Bv

Determinants of operational efficiencies in the Indian pharmaceutical industry

Operational efficiencies of a firm play a crucial role in determining the survival and growth of a firm, especially when the industry is going through a dynamic structural transformation owing to external changes. In this paper, we explore the effect of managerial and strategic parameters on the degree of operational efficiency achieved by a firm in the Indian pharmaceutical industry using data envelopment analysis (DEA). During the period 1992–2002, the relaxation of import restrictions and foreign direct investment, along with a major change in the regulatory norms, resulted in increased competition from firms with superior resources in this industry. We use non-parametric DEA models and parametric methods such as regression analysis to determine the factors that have contributed to the internal operational efficiencies of these firms. The findings indicate that domestic firms, most of which are controlled by family-based governance structures, enjoy higher efficiencies than affiliates of multinational pharmaceutical majors. After controlling for firm size and initial efficiency levels, we find that firms with higher levels of innovation through higher R&D investments and older establishments are associated with higher efficiencies, when compared with their less R&D intensive and younger counterparts, respectively.

Economic Value Added - a General Perspective

This paper explains the concept of Economic Value Added (EVA) that is gaining popularity in India. The paper examines whether EVA is a superior performance measure both for corporate reporting and for internal governance. It relied on empirical studies in U.S.A. and other advance economies. It concluded that though EVA does not provide additional information to investors, it can be adapted as a corporate philosophy for motivating and educating employees to differentiate between value creating and value destructing activities. This would lead to direct all efforts in creating shareholder value. The paper brings to attention the dangerous trend of reporting EVA casually that might mislead investors.

The Indian Pharmaceutical Industry - An Overview of Internal Efficiencies using Data Envelopment Analysis

The Indian Pharmaceutical Industry (IPI) will be going through a major shift in its business model, from the year 2005 onwards, as the existing Process Patent regime gives way to the Product Patent regime, in order to comply with the Trade Related Intellectual Property Rights System (TRIPS) agreement. As a result, IPI, comprising of more than 20,000 players, is slowly consolidating with mergers, acquisitions and alliances; and getting ready to adapt to the new environment. In such a dynamic environment it would be imperative to examine whether there are any common firm level factors which aid in the survival and growth of a firm. This assumes crucial importance due to the fact that it is almost impossible for any firm to control the factors which affect the industry as a whole. This is particularly true when the changes are driven due to the process of globalization and not due to any policy changes of individual governments. With this objective, we have used Data Envelopment Analysis (DEA) on a sample of 44 companies that have survived at least the past one-decade, to determine the best practices in the Indian Pharmaceutical Industry. The results of DEA have been analysed along with their Compounded Annual Growth Rate (CAGR) to see if internal efficiencies and growth rate are related in the Indian Pharmaceutical Industry. We have also used regression analysis to see the correlations between various inputs/outputs and the growth rates. Various models of DEA like Constant Returns to Scale (CCR), Variable Returns to Scale (BCC) and Assurance Region (AR) are used to substantiate the results obtained.

Escalation of commitment in entrepreneurship-minded groups

Purpose – The purpose of this paper is to investigate commitment escalation tendencies and magnitude in groups of entrepreneurship-minded decision makers. Design/methodology/approach – The paper uses a software-based management simulation to expose 447 graduate business students in the USA and India to research stimuli under conditions that resemble important aspects of entrepreneurs’ business environment, such as a focus on overall firm performance. Unlike most previous escalation research that studied individuals, the primary unit of analysis is a three-person group. Findings – The paper demonstrates a positive relationship between the groups’ entrepreneurial intentions and escalation magnitude. The paper also finds a direct relationship between sunk costs and subsequent investment amounts, suggesting an additional route through which sunk costs may impact escalation behavior – anchoring and insufficient adjustment. Practical implications – The authors hope that the findings will stimulate further resea...

Quest for efficient option pricing prediction model using machine learning techniques

Prediction of option prices has always been a challenging task. Various models have been used in the past but there has been no effort to point out which model is suited best for predicting option prices. Computational time plays an important role in prediction of option prices since these time series are usually large. It is computationally expensive to employ a traditional statistical model which comprises of two phases namely model identification and prediction. A good fitting model may not always be good for prediction due to high fluctuation in the market. Various non parametric models like Multilayer perceptron (MLP), Radial Basis function (RBF) Neural Network and Support Vector regression (SVR) have been employed in the past. MLP and RBF networks take enormous amount of time since the network is learned after a number of iterations. In this paper, prediction of American stock option prices (both call and put options) for companies belonging to various sectors and also prediction of European option prices of Nifty index futures has been attempted using GRNN which has not been attempted so far in the literature. Comparative performance evaluation of GRNN has been done with Support Vector Regression (SVR), MLP and Black Scholes Model. It has been shown that the performance of GRNN is superior to the well known Black Sholes model and other non parametric models like MLP and RBF both in terms of accuracy and time and it performs at par with SVR.

The Effect of Liberalization of Foreign Direct Investment (FDI) Limits on Domestic Stocks: Evidence from the Indian Banking Sector

Foreign Direct investment (FDI) limits were liberalized in India to allow greater than fifty-one percent ownership of private sector banks in February, 2002. Portfolios of private sector and government owned banks posted significant and large value gains surrounding the announcement, the gains by private sector banks being almost double that by government banks. The analysis shows that the price increase is higher for smaller banks that have less debt, are less efficient, less productive, and burdened with non-performing assets. We conclude the evidence is consistent with the hypothesis that the valuation gains reflect the vulnerability to and premium of potential takeover of the inefficient banks following the liberalization.

Role of Private Equity Exit Strategy, Governance Mechanism and Regulatory Constraint on Performance of Indian IPOs

The performance of Indian initial public offerings (IPO) is influenced by the ownership structure of a firm. As many firms raise the capital in the form of private equity (PE), this work highlights the impact of governance structure of private equity firms, the decision of exit through IPO route on the performance of Indian IPO. In Indian scenario, private equity (PE) backed IPO shows insignificant role in impacting the degree of underpricing of IPO as well as IPO performance. The insignificant ownership stake held by private equity investors as a consequence of regulatory constraint as well as liquidating less ownership stake through IPO is identified as a differentiating characteristic in India. These observed results are contrary to the results reported by Lee & Wahal (2004). On the other hand it supports the grandstanding hypothesis related to private equity firms put forth by Gompers (1996). However, our results show that PE investment in business group affiliated firms’ shows significant negative impact on its long term performance. The overall performance of IPO follows ‘U’ shape curve.

Market Reforms and Industrial Productivity: An Explanation

The recent developments in the new growth theory shows the theoretical link between industrial productivity and market mechanism in terms of private agents’ incentives for investing in research and development and human capital accumulation. Several developing economies, such as India, that had implemented policy reforms towards market mechanism have been experiencing high economic growth. This paper brings out the factors that determine micro level firm level productivity in the context of a developing economy that had undertaken the policy reforms towards a freer market. It econometrically tests a few hypotheses on the basis of firm level panel data for a set of Indian industries. One of the strong results of the paper is that firm level outward orientation of exports and imports contributes significantly and positively to firm level productivity. This finding supports one of the propositions of the new growth theory that developing economies benefit significantly with free trade with developed economies through free flow of new ideas and technologies and externalities.