Saumitra N. Bhaduri

Determinants of corporate borrowing: Some evidence from the Indian corporate structure

In contrast to previous empirical work on capital structure, which is mainly confined to the United States and a few other advanced countries, this paper attempts to study the capital structure choice of developing countries through a case study of the Indian corporate sector. The paper shows that the optimal capital structure choice is influenced by factors such as growth, cash flow, size, and product and industry characteristics.

Size, age and firm growth in the Indian manufacturing sector

The conventional wisdom on the relationship of firm growth with its size and age is typically based on the studies in developed economies. In contrast, this study analyses the firm growth patterns for an emerging economy, namely India. It uses a balanced panel of 392 manufacturing firms over the years 1989–1990 to 1992–1993 to explore unobserved heterogeneity among firms. Results indicate that age positively influences growth, which is the opposite of the result obtained in previous studies. The current size negatively impacts growth as in earlier studies. Results also indicate that smaller and older firms grow faster than their counterparts. Size effect is larger in food industry while the age effect is larger in non-metal industry.

Optimal hedge ratio and hedging effectiveness of stock index futures: evidence from India

In a free capital mobile world with increased volatility, the need for an optimal hedge ratio and its effectiveness is warranted to design a better hedging strategy with future contracts. This study analyses four competing time series econometric models with daily data on NSE Stock Index Futures and S&P CNX Nifty Index. The effectiveness of the optimal hedge ratios is examined through the mean returns and the average variance reduction between the hedged and the unhedged positions for 1-, 5-, 10- and 20-day horizons. The results clearly show that the time-varying hedge ratio derived from the multivariate GARCH model has higher mean return and higher average variance reduction across hedged and unhedged positions. Even though not outperforming the GARCH model, the simple OLS-based strategy performs well at shorter time horizons. The potential use of this multivariate GARCH model cannot be sublined because of its estimation complexities. However, from a cost of computation point of view, one can equally consider the simple OLS strategy that performs well at the shorter time horizons.

Investment and Capital Market Imperfections: Some Evidence from a Developing Economy, India

This paper presents a switching regression model of investment decision where the probability of a firm facing financial constraint is endogenously determined. The approach, therefore, obviates the use of a priori criteria to exogenously identify the financially constrained firms, and thereby addresses the potential misclassification problem faced in the existing literature. A sample of 576 Indian manufacturing firms, collected across 15 broad industries is used for this study. The study establishes that financially constrained firms exhibit a much higher investment-cash flow sensitivity than those identified to be unconstrained. It also probes into the possible determinants of financial constraints, and finds empirical support for its hypothesis that young, liquidity constrained and low dividend payout firms are more likely to face financial constraints, when compared to their respective counterparts. This paper also provides some insight into the impact of the ongoing liberalization program on the financial constraints faced by the Indian firms.

Empirical relationship between the dividend and investment decision: do emerging market firms behave differently?

This study provides an emerging economy perspective towards the Miller and Modigliani (1961) separation principle. Applying a panel Granger causality test proposed by Hurlin and Venet (2004) to the dividend and investment data of 265 Indian manufacturing firms for 1992–2004, the M–M hypothesis is rejected and evidence found in favour of the joint determination of financing and investment decisions.

Asymmetric beta in bull and bear market conditions: evidences from India

The significant role played by beta in various aspects of financial decision-making has forced people from small investors to investment bankers to rethink on beta in the era of globalization with ever changing market conditions. Standing on the edge of a free capital mobile world with technological innovations happening in no time, it is imperative to understand the stability of beta in accordance to these changes and also it would augments an efficient investment decisions with additional information on the beta. This study examined the stability of beta for India from a developing country perspective with a series of possible competing definitions of market conditions and alternative model specification. The results strongly validate Fabozzi and Francis (1977) claim of stable beta for individual stocks in all market conditions.

International Equity Market Integration

The Indian stock market is one of the earliest in Asia, being in operation since 1875, but remained largely outside the global integration process until the late 1980s. In this context, international equity market integration is a topic that has been extensively researched, but still holds much interest from an academic and financial standpoint. The paper, using a Logistic Smooth Transition Regression method, estimates not only the extent of correlation between returns but also the pace of integration. The results suggest that there does exist a very small degree of correlation between the Indian markets and other world markets. However, the pace of the integration is insignificant in most of the cases.

Applying approximate entropy (ApEn) to speculative bubble in the stock market

In contrast to the traditional duration dependence test, the article introduces an order statistic known as Approximate Entropy (ApEn) to investigate the presence of speculative bubbles for a cross-country sample. Using ApEn, the article examines four major crashes in the US, Japan, Hong Kong and India. In addition, the article also investigates the 1997 Asian crisis using weekly data for seven major Asian indices which include Hong Kong, Malaysia, Singapore, Korea, Taiwan, Indonesia and Japan. The results confirm that there are strong ‘tell-tale’ signs characterised by low ApEn level during many of these crash events. All the evidences using yearly as well as time series data (both discrete and rolling window analysis) point to a substantially lower level of ApEn during the crash. JEL Classification: G30, G01

Corporate Social Responsibility Around the World—An Overview of Theoretical Framework, and Evolution

The objective of this chapter is to highlight the evolution of the concept of the corporate social responsibility around the world. Specifically, we focus on theoretical framework underpinning the corporate social responsibility. We also review various definitions highlighting some of the most widely used definitions which are exhaustive in nature. We conclude the chapter by providing a summary of various surveys conducted across the world by various agencies to understand the nature of CSR spending from differing perspectives of employees, consumers and management.

Macroeconomic uncertainty and corporate liquidity: the Indian case

Interest in the uncertainties prevailing at the macroeconomic level has always been well known in economic literature. This article analyses the effect of firm level and macroeconomic uncertainty on the decisions of Indian firms with regard to their optimal cash holdings. Using a dynamic panel data model, the study finds strong support for the hypothesis that Indian firms increase their cash holdings with an increase in either form of uncertainty. Also, results for the sub-samples show that middle-aged and middle-sized firms are most affected by variations in macroeconomic uncertainty.