The purpose of this paper is to explore the micro and macro factors affecting liquidity creation by scheduled commercial banks (excluding Regional Rural Bank) in India from 2005…
Abstract
Purpose
The purpose of this paper is to explore the micro and macro factors affecting liquidity creation by scheduled commercial banks (excluding Regional Rural Bank) in India from 2005 to 2018.
Design/methodology/approach
Two measures of liquidity creation, the broad and narrow measures, are constructed using RBI data available on Indian banks. System generalized method of moments has been applied to explore the factors affecting liquidity creation.
Findings
This study finds high level of persistence in liquidity creation in banks. Variation in the broad measure is explained by equity ratio, market share, GDP, gross savings and lending rate, whereas the narrow measure is explained by equity ratio, market share, size and lending rate. The Global Financial Crisis had a negative effect on liquidity creation as per both the measures, and the impact was more severe for the broad measure as compared to the narrow measure.
Research limitations/implications
This study finds a positive correlation between bank value and liquidity creation which suggests that the investors favourably evaluate banks that create more liquidity. This study is confined to India only.
Practical implications
There is a negative influence of capital on liquidity created by banks, which implies a trade-off that exists between financial stability and liquidity creation. Basel III norms impose higher capital and liquidity standards which will have negative implications for liquidity creation.
Originality/value
To the best of authors’ knowledge, this is the first study in the Indian context that focusses on factors affecting liquidity creation in a dynamic framework and determines the relationship between liquidity creation and market value of a bank.
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Priya Malhotra and Pankaj Sinha
Mutual funds are the second most preferred investment option in India and have garnered considerable research interest. The focus of Indian studies thus far has been restricted to…
Abstract
Purpose
Mutual funds are the second most preferred investment option in India and have garnered considerable research interest. The focus of Indian studies thus far has been restricted to the bottom-up approach of investing which rewards a fund manager for picking winner stocks and generates superior returns. While changing portfolio allocation as per varying macro-trends has been instrumental in generating superior returns, it has not been given the desired attention. This study addresses this important research gap.
Design/methodology/approach
The authors analyze the industry selection ability of the fund manager on a robust sample by decomposing alpha into alpha due to industry selection and alpha attributable to stock selection. Alpha estimates are computed on a robust sample of 34 open-ended Indian equity mutual funds for a 10-year duration 2011–2020 using three base models of asset pricing – single-factor, four-factor and five-factor alpha under panel data methodology.
Findings
The study leads us to four major findings. One, industry selection explains more than two-fifth of the alpha both in cross-section and time series of returns; two, industry selection exhibits persistence for more than four quarters across asset pricing model; third, younger funds have level playing when alpha from picking right industries is concerned; four, broad industry allocation continues to explain superior returns as sector allocation undergoes consolidation during ongoing COVID-19 pandemic and funds increase exposure to defensive stocks, consistent with folio allocations as per macroeconomic conditions.
Research limitations/implications
The authors find strong evidence of persistence in the case of alpha attributable to the industry selection component, and the findings are consistent with the persistence results reported in the empirical literature. While some funds excel in stock-picking skills and others excel in picking the right industries, both skills together make for winner funds that attract larger investor flows as investors chase superior performance. The authors also find no evidence of diseconomies of scale in the case of industry allocation alpha generated by the fund managers.
Practical implications
The results suggest a fresh approach for investors while making mutual fund investment decisions; the investors can achieve superior returns by assessing industry selection skills as it tends to provide a more holistic picture concerning a perennial question – why some funds outperform and continue to contribute to investor's wealth?
Social implications
Mutual funds have become a favored investment option for Indian investors more so as a disciplined investment option owing to dismal financial literacy rates. The study throws light on a relatively unaddressed dimension of choosing winner funds. The significance of right sector allocation assumed even more significance with the onset of the pandemic which lends further credence to the findings of the study.
Originality/value
Research has been conducted on secondary data extracted from a well-cited database for Indian mutual funds. Empirical analysis and conclusion drawn are based on authentic statistical analysis and adds to the existing literature.
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Pankaj Sinha and Sandeep Vodwal
The subprime crisis (SPC) (2007–2008) has severely affected the economies across the globe. The Indian economy was also troubled because the SPC led to a sharp reduction in…
Abstract
Purpose
The subprime crisis (SPC) (2007–2008) has severely affected the economies across the globe. The Indian economy was also troubled because the SPC led to a sharp reduction in foreign trade and investment, a rise in the exchange rate volatility and disproportionate foreign-currency reserves. The present paper analyzes the financing pattern of Indian listed companies during the SPC. This study aims to ascertain the impacts of the SPC-2008 on the long-term and short-term financing decisions of Indian listed companies using novel data set and appropriate robust methodology.
Design/methodology/approach
The study uses fixed effect model autoregressive of order 1 (FEM AR (1)) and system generalised method of moments (GMM) methodology on a sample data of 1,032 Indian non-financial listed companies on the Bombay Stock Exchange (BSE) for the period 1999 to 2019 to analyze the financing pattern during the crisis.
Findings
The study finds that the Indian firms opted for de-leveraging, shortening the maturity of debt and short-term borrowing. This significant decline in the leverage and maturity of debt indicates that the companies in India generally followed the “rat race” model of the financing mix in the crisis. After the crisis, the firms have re-leveraged and expanded the maturity of debt up to 90%. This considerable expansion in leverage and maturity implies that the Indian firms are exposed to the “rollover risk.” This re-leverage risk is asymmetrically distributed for manufacturing and services firms. Manufacturing firms are found to be more exposed to this risk. Furthermore, tangibility, free cash flows and the liquidity available within the firms are the compelling elements of the financing decision during the crisis.
Research limitations/implications
The study has not included the private firms and unorganized sectors in India. Moreover, the study has not analyzed disasters such as the Asian liquidity crisis, the information technology (IT) bubble crisis, the euro bond crisis and coronavirus disease 2019 (COVID-19) pandemic.
Practical implications
The study finds that Indian firms are exposed to higher risk during the financial crisis and this risk is further aggravated by the rollover risk. Therefore, investors and creditors should consider these additional risks in the financial decisions and take more precautions. The study suggests that the regulators should make necessary adjustments in lending policy, corporate restructuring and tax policy to deal with the menace of a financial crisis.
Social implications
Indian firms should avoid following the rate race financing model.
Originality/value
This study aims to ascertain the impacts of the SPC-2008 on the long-term and short-term financing decisions of Indian listed companies using novel data set and appropriate robust methodology.
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With the ongoing transformation of the microfinance sector, questions have been raised on the ability of microfinance institutions (MFIs) to perform financially well without…
Abstract
Purpose
With the ongoing transformation of the microfinance sector, questions have been raised on the ability of microfinance institutions (MFIs) to perform financially well without compromising with their social objectives. The current study attempts to analyse the social and financial performance of Indian MFIs with an objective to find the kind of relationship between these two objectives.
Design/methodology/approach
The dynamic framework of simultaneous equations model is used to find the nature of the relationship which exists between social and financial performance of Indian MFIs.
Findings
The study finds that depth of outreach enables MFIs to achieve financial sustainability. On the other hand, financially strong MFI lend more as reflected by an increase in their average loan size.
Research limitations/implications
Many MFIs still receive subsidies to support their operations. Ideally, adjustments should be made to remove the effect of such subsidies on their cost. However, due to non-availability of data, the study fails to make any adjustment for the subsidies.
Practical implications
The presence of a complementary relationship between social and financial performance in the Indian microfinance sector is quite encouraging for the policymakers during the current time when the sector is becoming less dependent on subsidies. However, the recent upsurge in the average loan size requires attention.
Social implications
The findings suggest that MFIs can achieve financial sustainability while targeting poor clients. This indicates that MFIs can perform socially good along with their financial performance.
Originality/value
Such study is vital when the Indian microfinance sector is moving away from subsidies to become self-reliant and commercialised. Few studies have focused on this aspect of Indian microfinance sector.
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Harsh Vardhan, Pankaj Sinha and Madhu Vij
The purpose of this paper is to demonstrate importance of usage of sector indices which provides insight for sector specific investment strategies and direction for suitable…
Abstract
Purpose
The purpose of this paper is to demonstrate importance of usage of sector indices which provides insight for sector specific investment strategies and direction for suitable policy formulation for the Indian industry. It investigates long run, short run and causality relationships between eight identified sector indices and Sensex for the post subprime period.
Design/methodology/approach
The study uses Vector Error Correction Model (VECM) for econometric analysis. It employs Generalized Impulse Response and Variance Decomposition analysis for developed multivariate framework in order to provide information about precise interplay of the sector indices.
Findings
Long-term relationships between sector indices were determined by the usage of VECM indicating minimal benefits from diversifying investments to different sectors. Limited lead – lag short run relationships between sector indices were observed. Banking index played a predominant and integrating role in moving other indices. During this period of recovery; most sectors were protected and provided marginally better returns due to robust Banking policy. Realty and Metal were other significant drivers influencing remaining sectors contemporaneously. The study for the post subprime crisis period helps to understand the importance and behavior of interrelated sector indices and Sensex in the dynamic economic environment.
Practical implications
The study clearly provides direction for sector specific investment strategies and policy formulation.
Originality/value
The study highlights utility and importance of usage of sector indices. No study using sector indices for the Indian economy have been done earlier employing VAR for the post subprime crisis period.
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Pankaj Sinha and Shalini Agnihotri
This paper aims to investigate the effect of non-normality in returns and market capitalization of stock portfolios and stock indices on value at risk and conditional VaR…
Abstract
Purpose
This paper aims to investigate the effect of non-normality in returns and market capitalization of stock portfolios and stock indices on value at risk and conditional VaR estimation. It is a well-documented fact that returns of stocks and stock indices are not normally distributed, as Indian financial markets are more prone to shocks caused by regulatory changes, exchange rate fluctuations, financial instability, political uncertainty and inadequate economic reforms. Further, the relationship of liquidity represented by volume traded of stocks and the market risk calculated by VaR of the firms is studied.
Design/methodology/approach
In this paper, VaR is estimated by fitting empirical distribution of returns, parametric method and by using GARCH(1,1) with Student’s t innovation method.
Findings
It is observed that both the stocks, stock indices and their residuals exhibit non-normality; therefore, conventional methods of VaR calculation are not accurate in real word situation. It is observed that parametric method of VaR calculation is underestimating VaR and CVaR but, VaR estimated by fitting empirical distribution of return and finding out 1-a percentile is giving better results as non-normality in returns is considered. The distributions fitted by the return series are following Logistic, Weibull and Laplace. It is also observed that VaR violations are increasing with decreasing market capitalization. Therefore, we can say that market capitalization also affects accurate VaR calculation. Further, the relationship of liquidity represented by volume traded of stocks and the market risk calculated by VaR of the firms is studied. It is observed that the decrease in liquidity increases the value at risk of the firms.
Research limitations/implications
This methodology can further be extended to other assets’ VaR calculation like foreign exchange rates, commodities and bank loan portfolios, etc.
Practical implications
This finding can help risk managers and mutual fund managers (as they have portfolios of different assets size) in estimating VaR of portfolios with non-normal returns and different market capitalization with precision. VaR is used as tool in setting trading limits at trading desks. Therefore, if VaR is calculated which takes into account non-normality of underlying distribution of return then trading limits can be set with precision. Hence, both risk management and risk measurement through VaR can be enhanced if VaR is calculated with accuracy.
Originality/value
This paper is considering the joint issue of non-normality in returns and effect of market capitalization in VaR estimation.
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Pankaj Raj Sinha, Larry E. Whitman and Don Malzahn
Supply chain design is frequently performed from the perspective of a single supplier‐customer relationship. However, as a supplier provides value to different supply chains, it…
Abstract
Supply chain design is frequently performed from the perspective of a single supplier‐customer relationship. However, as a supplier provides value to different supply chains, it becomes increasingly difficult to optimize each supply chain. Each supply chain has different requirements, procedures, and formats. A member may have requirements placed upon them by one member that contradicts another member. The competitive success of a supplier depends on its ability to participate in different supply chains. This, in turn, affects the competitiveness of each of the other supply chains. This paper presents a generic prescriptive methodology for mitigating risks in an aerospace supply chain and proposes five activities. The methodology provides a mechanism to minimize conflicting objectives. A hypothetical case study is then presented on how the methodology can be applied.
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Shruti Sinha, Pushpendra Priyadarshi and Pankaj Kumar
This study aims to examine the role of psychological empowerment (PE) in mediating the relationship between organizational culture, innovative behaviour and work-related attitude.
Abstract
Purpose
This study aims to examine the role of psychological empowerment (PE) in mediating the relationship between organizational culture, innovative behaviour and work-related attitude.
Design/methodology/approach
Data were collected in two phases from a total sample of 324 middle- and senior-level executives working in India through a completed self-report questionnaire.
Findings
The results show a significant relation between organization culture, PE and work-related outcomes. PE fully mediated the relationship between adaptability and mission culture and innovative behaviour. PE also fully mediated the relationship between consistency and adaptability culture and job satisfaction; adaptability culture and commitment; and involvement culture and turnover intentions.
Research limitations/implications
Cross-sectional design undermines the causal conclusions derived from the findings. Generalizability is limited, as the study was set up in India. The research highlights the role of PE for innovative behaviour and other work-related attitudes.
Originality/value
The study establishes the linkage between organizational culture, PE, work-related attitude and innovative behaviour, thus extending the PE theory.
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Nishit Kumar Sinha, Pankaj Kumar and Pushpendra Priyadarshi
The purpose of this study is to examine the relationship between dispositional mindfulness and financial well-being (FWB) and the mediating role of materialism on this…
Abstract
Purpose
The purpose of this study is to examine the relationship between dispositional mindfulness and financial well-being (FWB) and the mediating role of materialism on this relationship.
Design/methodology/approach
A conceptual framework is provided to support the research hypotheses. A survey with 311 working professionals from India allowed the hypothesized relationship to be tested through regression-based models.
Findings
The findings reveal that the three dimensions of FWB – financial anxiety, current money management stress and perceived financial security – are predicted by mindfulness and materialism even after controlling for several demographic variables. Materialism mediates the relationship between mindfulness and FWB.
Research limitations/implications
The findings are subject to the usual cautions associated with self-reported cross-sectional data. Future research may incorporate mindfulness interventions to establish causal relationships.
Practical implications
The study provides theoretical guidance to the policymakers and the financial institutions, including banks, which may focus on malleable factors beyond merely income to enhance FWB. Mindfulness is not only a trait but also could be cultivated by various physical and online-based mindfulness practices. Banks may integrate tools promoting mindfulness within their interactive web framework in order to stimulate customers' control over their daily spending through enhancing mindful awareness of present financial actions and their impact on the financial future. Thus, organizations may institutionalize such programs within their framework to help their employees cultivate greater FWB. Mindfulness promotes less anxiety related to financial decisions, which may develop customers' value as well as business opportunities for banks.
Originality/value
Unlike other FWB dispositional antecedents, which become relatively stable at the formative stage, mindfulness levels can be enhanced in different age-groups. To our knowledge, this is the first study to empirically establish that mindfulness exerts its beneficial effects on FWB directly, and, through reducing materialistic motives.
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Hybrid journal bearing have long been used in machines requiring large load and high speed capacity operating under wide range of temperatures. Different compensating devices are…
Abstract
Purpose
Hybrid journal bearing have long been used in machines requiring large load and high speed capacity operating under wide range of temperatures. Different compensating devices are used in for efficient operation of bearings. This paper aims to help in selection of optimum compensating device by evaluating the comparative performance of constant flow valve, capillary compensated and slot entry hybrid journal bearing under the combined influence of thermal effects and micropolar nature of lubricant.
Design/methodology/approach
The variation in micropolar parameters and viscosity change due to temperature increase of lubricant are considered in present study. Finite element method is used for combined iterative solution of micropolar Reynolds, energy and conduction equations. Micropolar lubricant is assumed to be governed by two parameters, coupling number and characteristic length. The results in the study are presented for symmetric and asymmetric configurations of hole entry and slot entry non-recessed hybrid journal bearings
Findings
The results indicate that constant flow valve compensated hole entry hybrid journal bearing is the highest performing bearing for the given range of micropolar parameters of lubricant in terms of maximum fluid pressure and dynamic coefficients.
Originality/value
The performance variations of various configurations of hybrid journal bearing are presented in a single paper. The reader can get overview of combined effects of micropolar parameters and viscosity decrease due to temperature increase of the lubricant.