Nemiraja Jadiyappa, Garima Sisodia, Anto Joseph, Santosh Shrivastsava and Pavana Jyothi
The governing role of bank-appointed directors (BADs) on the boards of non-financial firms has a potential to reduce information asymmetry between the firm and non-bank lenders…
Abstract
Purpose
The governing role of bank-appointed directors (BADs) on the boards of non-financial firms has a potential to reduce information asymmetry between the firm and non-bank lenders. This should increase the confidence of other creditors in firm activities, thus performing the certification role. Therefore, the purpose of this paper is to empirically examine the certification role of BADs.
Design/methodology/approach
The authors test their hypotheses by using a panel of Indian non-financial firms. Our approach involves examining whether there is a significant difference in the number of different debt sources, the dispersion of debt among different debt sources, and leverage for BAD and Non_BAD Firms. The authors use univariate analysis and multivariate regression models to test the difference.
Findings
The authors find that firms with BADs on their board have (1) access to a higher number of different debt sources, (2) debt distributed evenly among different sources and (3) a higher debt ratio. Overall, our study provides supporting evidence for the certification role that BADs play on the boards of non-financial firms.
Originality/value
The authors contribute to the literature in two aspects. First, to the best of our knowledge, this is the only study that examines the effect of the governing role of banks on the lending decisions of non-bank lenders. Second, our study is associated with the growing body of the governance literature in the emerging markets context by examining the interaction of financial policies and governance in an institutional framework, which is very different from that of the developed world.
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Nemiraja Jadiyappa, Bhanu Sireesha, L. Emily Hickman and Pavana Jyothi
Prior literature demonstrates that the effectiveness of bank monitoring decreases when multiple banks are involved, due to a free rider problem, leading to lower firm value. The…
Abstract
Purpose
Prior literature demonstrates that the effectiveness of bank monitoring decreases when multiple banks are involved, due to a free rider problem, leading to lower firm value. The purpose of this paper is to investigate whether this free rider problem exists in an emerging market context, and whether the relationship between multiple banking relationships and firm value is conditioned on bankers’ incentives to monitor.
Design/methodology/approach
The authors use multivariate panel regression to examine the hypotheses. The conditioning effect of the incentive to govern (the amount of average bank lending) is modeled using an interaction variable. Based on the result of the Hausman test, the authors employ two-way fixed effects estimator to estimate the coefficients.
Findings
First, the negative relationship between multiple banking relationships and firm value holds true among Indian firms. Second, the authors show that this negative relationship is lessened for firms with high average bank debt or higher free cash flows. The analyses suggest that these moderating effects are related to a reduction in the free rider problem rather than a decrease in financial constraints. However, these results are only significant among larger firms.
Originality/value
Prior literature has not considered the conditioning impact of the “incentives to govern” when examining the free rider problem, inherent in situations where multiple actors are involved. The authors show in this study that the free rider problem disappears when the incentives to govern are considered in the overall research framework.
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Nemiraja Jadiyappa, Pavana Jyothi, Bhanu Sireesha and Leila Emily Hickman
The purpose of this paper is to examine the effect of CEO gender on the performance of Indian firms and to explain the economic channel for any such effect.
Abstract
Purpose
The purpose of this paper is to examine the effect of CEO gender on the performance of Indian firms and to explain the economic channel for any such effect.
Design/methodology/approach
Using a panel of 100 Indian firms, the authors test whether there is a significant difference in the performance – measured as return on assets (ROA) and return on equity (ROE) – of firms with male vs female CEOs, in both time and space dimensions, using the difference-in-differences approach.
Findings
The average ROA of the sample firms decrease by about 10 percent after a female enters the CEO role. This negative result remains robust in both the time series as well as cross-sectional analyses. The decline is also observed when using ROE to measure performance. Further, the authors show that this negative effect is associated with an increase in agency costs that is observed following the appointment of a female CEO.
Originality/value
Previous studies have produced mixed results regarding the effect of having a female CEO on firm performance, and the research to date has not explored the economic channel through which this effect occurs. In this study, the authors show that the decline in performance observed among Indian firms flows from an increase in agency costs under female management.