Indira Gandhi Institute of Development Research

About: Indira Gandhi Institute of Development Research is a facility organization based out in Mumbai, Maharashtra, India. It is known for research contribution in the topics: Monetary policy & Inflation. The organization has 307 authors who have published 1021 publications receiving 18848 citations.

Debt and corporate governance in emerging economies: Evidence from India

Abstract: 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. First, we examine the extent to which debt acts as a disciplining device in those corporations where potential for over investment is present. We undertake a comparative evaluation of group-affiliated and non-affiliated companies to see if the governance role of debt is sensitive to ownership and control structures. Second, we examine the role of institutional change in strengthening the disciplining effect or mitigating the expropriating effect of debt. In doing so, we estimate, simultaneously, the relation between Tobin's Q and leverage using a large cross-section of listed manufacturing firms in India for three years, 1996, 2000, and 2003. Our analyses indicate 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 become 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. However, the disciplining effect of debt is found to persist even after controlling for such expropriation possibilities. In general, our results highlight the role of ownership structures and institutions in debt governance.

Declining Trend in Rural Credit Delivery in India: A Trend Break Analysis of Univariate Series

Abstract: The basic analysis in this paper is to test Perron (1989) hypothesis on trend break in univariate series. This paper applies Perron's procedure to the data on rural credit delivery in India and concludes that the hypothesis, which states that most of the macro-economic time series, initially exhibiting unit root process, become trend-stationary if one allow one time trend break in it at some suitable time, does not hold good with this series. Instead, the paper concludes that the unit root in the data persists even after allowing one time trend break, despite the fact that the trend break was found to be statistically significant.

Risk and Asian Exchange Rate Regimes

Abstract: A panel regression gives evidence that more flexibility in Asian exchange rates reduces risk associated with bank borrowing abroad, but deviations from mean exchange rates, and from the renminbi, increase risk. Since the exchange rate regime affects bank behavior and the incentives to hedge, the results broadly support the bank run over the moral hazard view of twin banking and currency crisis. The results suggest that flexibility in exchange rates is required for Asian EMEs, but the flexibility has to be limited, and it depends on more flexibility in the renminbi. This has implications for current global imbalances in reserves and feasible adjustment paths.

Stability and transitions in emerging market policy rules

Abstract: Conditions for stability in an open economy dynamic stochastic general equilibrium model adapted to a dualistic labor market (SOEME) are the same as for a mature economy. But the introduction of monetary policy transmission lags makes it deviate from the Taylor Principle. Under rational expectation a policy rule is unstable, but under adaptive expectations traditional stabilization gives a determinate path, with weights on the objective of less than unity. Estimation of a Taylor rule for India and optimization in the SOEME model itself, all confirm the low weights. The results imply that under rational expectations optimization is better than following a rule. If backward looking-behavior dominates, however, a policy rule can prevent overshooting and instability. Economy-specific rigidities must inform policy design, and the appropriate design will change as the economy develops.

Determinants of Stock Trading Volume: Evidence from Indian Stock Markets

Abstract: This paper examines the determinants of trading volume for individual stocks in the emerging India's stock markets. Our results demonstrate that stock-specific characteristics explain a significant portion of the variation in Indian stock trading volume. We show that weekly turnover, expressed as a percentage of shares outstanding, is significantly related to firm's alpha and beta estimated from OLS market model, the standard deviation of residuals from the OLS market model, average price, size, first order auto covariance of returns, its institutional ownership and whether or not options trade is permitted on this stock. Stock trading volume first increases in the level of institutional ownership, reaching its peak at 33% (47%) respectively for the BSE (NSE) stocks and then decreases. We find the evidence that past price extremes influence investors' trading decisions. We document that trading volume is higher when a stock trades above the highest or below the lowest price attained during a 52 weeks benchmark period and then gradually subsides. This result suggests that behavioral factors affect investors' trading decisions in the Indian equity markets. The compulsory rolling settlement had a significant impact on stock's trading volume. We also saw that across a broad sample of stocks, trading volume for a firm depends on which industry the particular firm belongs.