Does the World Bank have any impact on human development of the poorest countries? Some preliminary evidence from Africa

In an attempt to better understand the impact of the World Bank on human development in poor countries, we use cross-country data on African countries, for the 1990-2002 period, to examine this relationship. The coefficient estimates of our parsimonious fixed-effects models indicate that while loans and grants of the Bank have had a positive impact on some relatively short-term indicators of health and education in an average African country, there is little evidence to suggest that such loans and grants have helped these countries to consolidate on the short-term gains.Development, Health, Education, World Bank, Africa

Impact of M & A on firm performance in India: Implications for concentration of ownership and insider entrenchment

performance. On the one hand, concentration of ownership that, in turn, concentrates management control in the hands of a strategic investor, eliminates agency problems associated with dispersed ownership. On the other hand, it may lead to entrenchment of upper management which may be inconsistent with the objective of profit (or value) maximisation. This paper examines the impact of M & A on profitability of firms in India, where the corporate landscape is dominated by family-owned and group-affiliated businesses, such that alignment of management and ownership coexists with management entrenchment, and draws conclusions about the impact of concentrated ownership and entrenchment of ownermanagers on firm performance. Our results indicate that, during the 1995-2002 period, M & A in India led to deterioration in firm performance. We also find that neither the investors in the equity market nor the debt holders can be relied upon to discipline errant (and entrenched) management. In other words, on balance, negative effects of entrenchment of ownermanagers trumps the positive effects of reduction in owner-vs.-manager agency problems. Our findings are consistent with bulk of the existing literature on family-owned and group affiliated firms in India.http://deepblue.lib.umich.edu/bitstream/2027.42/64396/1/wp907.pd

Are Foreign Banks Bad for Development Even If They Are Efficient? Evidence from the Indian Banking Industry

Most papers on banking focus on profitability and cost efficiency as measures of performance. In doing so, these papers ignore the fact that, unlike in the manufacturing and services sector industries, the long term viability of a bank depends more on its ability to assess credit worthiness of potential borrowers and provide credit, than on static measures of financial performance. At the same time, the political economy of economic growth and economic reforms cannot overlook the impact of ownership and reforms on credit infusion, which is a major determinant of economic growth. Specifically, there is widespread belief that while foreign banks are perhaps more efficient and profitable than domestic banks in emerging markets, these banks are content to ‘cherry pick’ and limit disbursal of loans. Using bank-level data from India, for six years (1995-96 to 2000-01), we show that given a favourable atmosphere involving economic reforms and banking sector liberalisation, as well as time needed to overcome the informational disadvantages vis a vis the domestic banks, foreign banks are willing to be aggressive in credit markets of emerging economies. The policy implication of our paper is that it provides a strong rationale for policy initiatives that encourages entry of foreign banks into emerging markets and the expansion of their activities in these economies.http://deepblue.lib.umich.edu/bitstream/2027.42/40005/3/wp619.pd

How Important is Ownership in a Market with Level Playing Field? The Indian Banking Sector Revisited

It has long been argued that private ownership of firms leads to better firm performance. However, theory as well as empirical evidence suggest that factors like agency problems may not allow privately owned firms to operate more efficiently or perform better that state owned firms. At the same time, it has been argued that competition and hard budget constraints can induce state owned firms to operate efficiently. In India, banking sector reforms were initiated in 1992-93, leading to entry and other forms of deregulation, and a level playing field for all banks. Data for 1995-96 through 2000-01 suggest that by 1999- 00 ownership was no longer a significant determinant of performance; induced by competition, public sector banks were able to eliminate the performance/efficiency gap that existed between them and domestic private sector and foreign banks.http://deepblue.lib.umich.edu/bitstream/2027.42/39955/3/wp569.pd

The Risk Aversion of Banks in Emerging Credit markets: Evidence from India

Using bank-level data from India, for nine years (1995-96 to 2003-04), we examine banks’ behavior in the context of emerging credit markets. Our results indicate that the credit market behavior of banks in emerging markets is determined by past trends, the diversity of the potential pool of borrowers to whom a bank can lend, and regulations regarding treatment of NPA and lending restrictions imposed by the Reserve Bank of India. Finally, we find evidence that suggest that credit disbursal by banks can be facilitated by regulatory and institutional changes that help banks mitigate the problems associated with enforcement of debt covenants and treatment of NPA on the balance sheets. On the basis of these results, we speculate on some possible policy recommendations.http://deepblue.lib.umich.edu/bitstream/2027.42/40160/3/wp774.pd

Earnings Inequality in India: Has the Rise of Caste and Religion Based Politics in India had an Impact?

Since 1989, there has been a sharp increase in the role of caste and religion in determining political fortunes at both state and federal levels in India. As a consequence, significant intercaste and inter-religion differences in earnings have the potential to stall the process of economic reforms. Yet, the patterns and determinants of such differences remain unexplored. We address this lacuna in the literature, and explore the determinants of the differences in inter-caste and inter-religion earnings in India during the 1987-99 period, using the 43rd and 55th rounds of National Sample Survey (NSS). Our results suggest that (a) earnings differences between “upper” castes and SC/ST have declined between 1987 and 1999, (b) over the same period, earnings differences between Muslims and non-Muslims have increased, to the detriment of the former, and (c) inter-caste and inter-religion differences in earnings can be explained largely by corresponding differences in educational endowment and returns on age (and, hence, experience). However, differences in returns on education do not explain inter-caste and interreligion earnings differences to a great extent.http://deepblue.lib.umich.edu/bitstream/2027.42/57199/1/wp819 .pd

Why Transition Paths Differ: Russian and Chinese Enterprise Performance Compared

We use enterprise data to analyse and compare the determinants of enterprise performance in China and Russia. We find that in China, enterprise growth and efficiency is associated with rapid increases in factor inputs including management, as well as TFP, but not greatly associated with ownership or institutional factors. In contrast, sales growth in Russia is not associated with improvements in factor quantity (except for labor) or quality; TFP is not influenced by competition and privatization to outsiders does not enhance company performance relative to insider ownership. The main determinants of TFP are instead demand and institutional factors at a regional level.http://deepblue.lib.umich.edu/bitstream/2027.42/39910/3/wp525.pd

Impact of Derivatives Trading on Emerging Capital Markets: A Note on Expiration Day Effects in India

The impact of expiration of derivatives contracts on the underlying cash market ñ on trading volumes, returns and volatility of returns ñ has been studied in various contexts. We use an AR-GARCH model to analyse the impact of expiration of derivatives contracts on the cash market at the largest stock exchange in India, an important emerging capital market. Our results indicate that trading volumes were significantly higher on expiration days and during the five days leading up to expiration days (“expiration weeks”), compared with nonexpiration days (weeks). We also find significant expiration day effects on daily returns to the market index, and on the volatility of these returns. Finally, our analysis indicates that it might be prudent to undertake analysis of expiration day effects (or other events) using methodologies that model the underlying data generating process, rather than depend on comparison of mean and median alone.http://deepblue.lib.umich.edu/bitstream/2027.42/57243/1/wp863 .pd

“Family” ownership, tunneling and earnings management: A review of the literature

In this review article, we bring together a number of aspects of family firms that are ubiquitous in a number of institutional contexts, often as part of larger business groups. We pay particular attention to the mechanisms by which families retain control over firms, and the incentives of the families in control to expropriate other stakeholders by way of tunnelling. We examine the role of earnings management in facilitating tunnelling, and evidence about the incidence of earnings management in family firms. Our review suggests that while the literature on these aspects of family control is rich, the contexts in which the empirical exercises are undertaken are relatively few, and hence there is considerable opportunity to expand it to other contexts, in particular in the form of cross-country comparisons of the relative impact of agency conflicts and institutions on these issues.http://deepblue.lib.umich.edu/bitstream/2027.42/64422/1/wp954.pd

Is Education the Panacea for Economic Deprivation of Muslims? Evidence from Wage Earners in India, 1987-2004

Few researchers have examined the nature and determinants of earnings differentials among religious groups, and none has been undertaken in the context of conflict-prone multi-religious societies likethe one in India. We address this lacuna in the literature by examining the differences in the average (log) earnings of Hindu and Muslim wage earners in India, during the 1987-2005 period. Our results indicate that education differences between Hindu and Muslim wage earners, especially differences in the proportion of wage earners with tertiary education, are largely responsible for the differences in the average (log) earnings of the two religious groups across the years. By contrast, differences in the returns to education do not explain the aforementioned difference in average (log) earnings. Citing other evidence about persistence of educational achievements across generations, however, we argue that attempts to narrow this gap using quotas for Muslim households at educational institutions might be counterproductive from the point of view of conflict avoidance.