Corporate Governance in India

The Indian corporate governance system has both supported and held back India's ascent to the top ranks of the world's economies. While on paper the country's legal system provides some of the best investor protection in the world, enforcement is a major problem, with overburdened courts and significant corruption. Ownership remains concentrated and family business groups continue to be the dominant business model, with significant pyramiding and evidence of tunneling activity that transfers cash flow and value from minority to controlling shareholders. But for all its shortcomings, Indian corporate governance has taken major steps toward becoming a system capable of inspiring confidence among institutional and, increasingly, foreign investors. The Securities and Exchanges Board of India (SEBI), which was established as part of the comprehensive economic reforms launched in 1991, has made considerable progress in becoming a rigorous regulatory regime that helps ensure transparency and fair practice. And the National Stock Exchange of India, also established as part of the reforms, now functions with enough efficiency and transparency to be generating the third‐largest number of trades in the world, just behind the NASDAQ and NYSE. Among more recent changes, the enactment of Sarbanes—Oxley type measures in 2004—which includes protections for minority shareholders in family‐ or “promoter”‐led businesses—has contributed to recent increases in institutional and foreign stock ownership. And while family‐ and government‐controlled business groups continue to be the rule, India has also seen the rise of successful companies like Infosys that are free of the influence of a dominant family or group and have made the individual shareholder their central governance focus.     

Directed credit,financial development and financial structure: theory and evidence

The recent initiative of the RBI in reviving the policy of directed credit allocation in a period dominated by the neoliberal philosophy necessitates reconsideration of the role of policy-directed credit allocation process on financial development and financial structure of firms. Introducing certain policy parameters, the paper attempts to model how financial development-financial structure interlinkage is influenced by the liberalization policies of the government. The theoretical construct is empirically verified using both aggregated and disaggregated (firm-level) data comprising a panel of 932 Indian manufacturing firms. Findings reveal that following the liberalization measures in the early 1990s, there has been a structural shift in the debt–equity ratio of firms, with equity market activities assuming prominence over time. As regards financial development, it has been observed that the withdrawal of DFIs specialized in term-lending activities in the early 2000s led to a significant increase in the degree of financing constraints faced by the manufacturing firms. This contradicts the basic premise of financial liberalization. The paper argues that under certain conditions, government intervention in the form of directed credit programmes would not only act as an effective instrument in ushering financial development, but also provide important guidelines in ensuring sustainability of institutions.     

Skilled–unskilled wage inequality and offshore outsourcing with asymmetric adjustment costs

We present a model that can capture the effects of offshore outsourcing on the wedge between the wages of skilled and unskilled workers when costs of adjustment are asymmetric. We identify conditions under which offshore outsourcing activities widen the skilled–unskilled wage inequality in the presence of asymmetric adjustment costs. We show how a higher cost of adjustment in the import-competing sector can magnify the offshore outsourcing induced gap between the wages of the skilled and unskilled workers. We also demonstrate the sensitivity of the effects of offshore outsourcing, on the skilled–unskilled wage gap, to asymmetries in the costs of adjustment.     

Industrial product innovation: An international comparison

This paper presents and discusses the data obtained from a study of 500 industrial innovations introduced in major industrialized countries from 1953 to 1973. The trends in industrial innovation of both the country of origin and the country of market introduction are examined based on the data presented.     

Satisficing behavior, Brouwer’s Fixed Point Theorem and Nash Equilibrium

Summary. We show that Nash Equilibrium points can be obtained by using response maps or reply functions that simply use better responses rather than best responses. We demonstrate the existence of a Nash Equilibrium as the fixed point of a better response map and since the better response map is continuous the fixed point can be established by simply using Brouwers fixed point theorem. The proof applies to games with a finite number of strategies as well as to games with a continuum of strategies. In case the games have a continuum of strategies the payoff functions have to be continuous on the action sets and quasi concave on the players action set.Received: 22 September 2003, Revised: 31 March 2004, JEL Classification Numbers: C72, D00, D40. Correspondence to: Robert A. BeckerWe have benefited from comments on an earlier draft made by participants at Indiana Universitys Microeconomics workshop (October 2002) and the Midwest Economic Theory Conference held at the University of Pittsburgh (May 2003). We also thank Roy Gardner for comments on earlier versions. We thank the Associate Editor, Mark Machina, for his detailed comments and suggestions. This project began when Subir Chakrabarti was a visitor in the Department of Economics, Indiana University, Bloomington in the Spring of 2002. He thanks that department for its support.     

Role of Algorithmic and Co-Location Trading on the Speed of Information Adjustments: Evidence from India

We investigate whether increased Algorithmic Trading (AT) intensity caused by the introduction of Co-location trading (CLT) facilities improve the productive efficiency of the Indian stock indices. We measure the change in the speed of information adjustment and change of persistence before and after the introduction of CLT for Indian Indices. We report an improvement in the overall productive efficiency of the leading Indian Indices, Midcap and Smallcap indices being the prominent beneficiaries. Our work contributes to the empirical literature on the ongoing debate on the benefits of AT and its role in improving market efficiency, especially in the emerging markets context.     

Institutional life of intuitive insights: Legitimacy of virtuoso intuitive marketing management

Intuitive insights have been recognized as an integral part of marketing and managerial proficiency. In this article, we expand upon this understanding by theorizing the institutional dimension of intuitive expertise. By developing a theoretical framework with supportive propositions we maintain that for intuitive managerial expertise to be effective it requires legitimization in its inter-organizational contexts. Intuitive insights hence have a significant institutional and social existence, irreducible to cognition. This means that institutional logic may support or contradict efficient cognitive strategies, significantly influencing the performance of marketing management. Managerial implications follow to the fields of marketing management and intuitive decision-making.     

Effect of Business Group Affiliation on Firm Internationalization: The Case of India Under Reforms

The authors investigate how diversified business groups influence the structural reform–firm strategy relations given its effect on strategic choice and its implementation in a large emerging economy: India. By integrating business group, industrial organization, and international business literature, the authors predict considerable differences in the exporting behavior of business group–affiliated firms on the basis of their market competitiveness and governance dynamics. The authors test their predictions empirically with longitudinal data of 6,119 Indian firms over a 21-year period starting from 1991–1992 to 2011–2012 and find support for most of the hypotheses. These findings suggest that knowledge of the heterogeneity within business groups are essential for understanding the response of business group affiliates in light of the progression of reform process in India. This study thus contributes to a more complete conceptual understanding of the strategic responses of promarket reforms of business group affiliates in emerging economies.     

Competitive General Equilibrium with Finite Change and Theory of Policy Making

We visit the non‐equivalence of tariff and quota in higher dimensional finite change trade models when goods outnumber factors of production. Under competitive conditions, exogenous shocks (e.g., exposure to international trade) support the production of only a subset of commodities. If we try to protect some of the vanishing goods, tariff and quota will have different results when a tariff turns out to be a more restrictive policy than a quota, contrary to the conventional wisdom.     

Scale-free distribution as an economic invariant: a theoretical approach

The presence of power laws (scale-free distributions) in widely different economic and social phenomena is well established. Here we focus on three specific cases viz. wealth distribution, firm size distribution and the city size distribution. We present a common framework to explain the origin of this feature in such seemingly unrelated contexts. It is shown that the equilibrium configurations of some general economic mechanisms are consistent with a power law in general and Zipf’s law in particular, in size distribution and it is an attractor under some conditions.