Subrata Sarkar

Large Shareholder Activism in Corporate Governance in Developing Countries: Evidence from India

This paper provides evidence on the role of large shareholders in monitoring company value from a developing country, India, whose corporate governance system is a hybrid of the ousider-dominated-market-based systems of the UK and the US and the insider-dominated-bank-based systems of Germany and Japan. The picture of large-shareholder monitoring that emerges from our case study of Indian corporates is a mixed one.

Deregulation, Ownership, and Productivity Growth in the Banking Industry: Evidence from India

This paper analyzes the relationship between deregulation and total factor productivity (TFP) growth in the Indian banking industry using a generalized shadow cost function approach. TFP growth is decomposed into a technological change, a scale, and a miscellaneous component. A disaggregated panel data analysis, using the population of public and private banks over 1985-96 that covers both pre-and post-deregulation periods, indicates that a significant decline in regulatory distortions and the anticipated increase in TFP growth have not yet materialized following deregulation. While private sector banks have improved their performance mainly due to the freedom to expand output, public sector banks have not responded well to the deregulation measures.

Board of Directors and Opportunistic Earnings Management: Evidence from India

Using a sample of 500 large companies over a two-year period, we examine the impact of board characteristics on opportunistic earnings management in India, a large emerging economy. In addition to board independence, we analyze how characteristics that proxy for the “quality” of inside and outside directors affect the role of boards in curbing earnings management. Our results indicate that it is not board independence per se, but rather board quality that is important for earnings management. We find that diligent boards are associated with lower earnings management, while boards that have directors with multiple appointments exhibit higher earnings management. With respect to inside directors, our results indicate that chief executive officer (CEO) duality and presence of controlling shareholders on the board increases earnings management. We also find that domestic institutional owners, one of our key control variables, act as a compensating control mechanism to mitigate the detrimental influence of controlling shareholders on earnings management. Our results complement the existing literature by analyzing the role of the board in reducing earnings management in emerging economies such as India, where the structures of business organizations are different from those in developed markets.

Debt and corporate governance in emerging economies:Evidence from India

We analyze the role of debt in corporate governance with respect to a large emerging economy, India, where debt has been an important source of external finance. Using cross-sectional data on listed manufacturing firms we estimate, simultaneously, the relation between Tobins Q and leverage for three years, 1996, 2000 and 2003. Our analysis indicates that while in the early years of institutional change, debt did not have any disciplinary effect on either standalone or group affiliated firms, the disciplinary effect appeared in the later years as institutions became more market oriented. We also find limited evidence of debt being used as an expropriation mechanism in group firms that are more vulnerable to such expropriation. In general, our results highlight the role of ownership structures and institutions in debt governance.

Schooling, Informal Experience, and Formal Sector Earnings: A Study of Indian Workers

This paper estimates an earnings function for male workers belonging to the Indian corporate sector. The model allows for differential rates of return to schooling and distinguishes tenure from total labor market experience. The rate of return to schooling is found to be low up to the junior level, increases significantly at the secondary and undergraduate levels, but sharply declines at the masters level. Seniority and firm-specific factors are found to be important determinants of earnings. When years of unemployment and informal experience are incorporated, earnings of low-education workers appear to be driven entirely by formal-sector experience. Copyright 1999 by Blackwell Publishing Ltd

Partial privatization and bank performance : evidence from India

Purpose - The purpose of this paper is to examine the impact of partial privatization on performance of state-owned banks using data from the Indian banking industry during the period 1986-2003, and test the hypothesis that privatization leads to improvement in performance even when the government retains controlling stakes. Design/methodology/approach - Employing the technique of stochastic frontier analysis, bank-specific estimates of total factor productivity were obtained, because they can be considered as a measure of performance, along with four accounting measures. Panel regression models were employed to assess the impact of partial privatization on these performance indicators. Findings - Partial privatization was found to result in significant improvement in performance of state-owned banks. This finding is robust to alternative model specifications and different techniques for controlling potential selection bias. Research limitations/implications - The paper focuses on the impact of partial privatization on operational and financial performance of banks. Future work could consider the effects on other aspects such as wages and financial development. Practical implications - The results suggest that faced with political opposition to full privatization, even if the government does not relinquish control, the exposure to market discipline through partial privatization may be an effective way of improving performance of state-owned banks. Originality/value - This is the first work to examine the effects of partial privatization in the context of Indian banks and one of the very few to study this issue for any banking industry.

Corporate social responsibility in India - An Effort to bridge the welfare gap

Drawing on existing theoretical and empirical literature on the rationale behind corporate social responsibility (CSR), this article analyses the potential implications of mandated CSR under the recently enacted Companies Act, 2013 in India on firm incentives, likely responses of corporates that come under the ambit of the law, implications for resource availability and delivery of social goods and the prospects and challenges of implementing mandated CSR. Insights into these issues are drawn by empirically examining the voluntary CSR behaviour of a sample of 500 large companies listed on the Bombay Stock Exchange for the period 2003–2011 that predates the new regulation. The article argues that notwithstanding the potential economic costs that may accompany mandated CSR, the provisions of the new Act are designed thoughtfully to balance the objectives of the corporation and its shareholders, on the one hand, and that of the society and its stakeholders, on the other. However, addressing the challenges of implementation successfully would determine how far the objectives of the new regulations are met.

Deregulation, Ownership and Efficiency in Indian Banking

Absh·act This paper uses a Stochastic Cost Frontier Approach to evaluate the efficiency of the Indian banking system using panel data on public and private sector banks for the period 1986-2000. Efficiency variations in terms of exogenous factors are used to analyze the time behavior of the banking system, especially the changes in etliciency since the initiation of the reforms program in 1992. Ownership characteristics of banks are also incorporated into the analysis to examine if efficiency as well as etliciency changes have differed across ownership groups. Empirical results indicate the presence of cost inefficiency in the Indian banking system, but there is a tendency for inefliciencies to decline over time. The results also indicate that cost inefliciency of banks has increased since the initiation of the reforms, though the reduction in inefliciencies over time continues albeit at a slower rate compared to that observed in the pre-deregulation period. We also find that the private banks are generally more cost-eflicient than public banks, but there are no significant differences in the impact of deregulation on the cost etliciency of these two bank groups. At the individual level, we find marked differences in the elliciency behaviour of different banks with private banks exhibiting much more intra-group volatility in relative efficiency changes between the pre and post deregulation periods compared to that of public banks. JEL Classification : C23, G2 I.

Insider Control, Group Affiliation and Earnings Management in Emerging Economies: Evidence from India

Using a sample of group affiliated and standalone firms for the years 2001-06 from India, a large emerging economy dominated by family business groups and firms with concentrated ownership, we examine the relationship between insider control and opportunistic earnings management with specific focus on the effect of business group affiliation on this relationship. We test the alignment and the entrenchment hypotheses by examining opportunistic earnings management. We further examine if such behavior is influenced by the complexity of ownership structures that are manifested in incomplete and fragmented information about ownership stakes. Our results indicate that a non-linear U-shaped relationship exists between insider control and opportunistic earnings management and that this relationship is stronger for group affiliated firms as compared to that for standalones. Finally, incomplete and fragmented ownership information is found to be strongly related to opportunistic earnings management in group affiliated firms. Our results highlight that both insider control and group affiliation may independently influence agency costs in emerging economies. This in turn calls for policy actions that focus not only on individual firms but on business groups as consolidated identities.

Behavioral Biases, Investor Performance, and Wealth Transfers between Investor Groups

Using a very large and special database that includes the entire universe of orders and trades of Indian investors over eighteen months, the present study makes several new contributions to the existing literature on the role of behavioral biases in stock market performance of investors. We consider the relative e ffects of disposition e ffect and investor overconfidence in a unifi ed framework. The framework also includes other investor-specifi c factors that have been identifi ed in the existing literature as important in explaining investor performance. We also investigate whether the magnitude of the two behavioral biases di ffers among separate categories of investors, including individual investors, non-financial corporations and financial institutions and, importantly, if and how the eff ects of the biases on trading performance vary across di fferent investor categories. Finally, we examine the joint e ffects of investor category and the magnitude of behavioral biases on an investors performance. We find that individual investors suff er from higher disposition coffeficient as well as higher sensitivity of disposition bias to performance than the other investor categories. The results identify disposition bias as a direct channel of wealth transfer between investor categories.