Papers by Surajit Bhattacharyya
Social Science Research Network, 2012
In recent times, Indian banks have resorted to mergers and acquisitions (M&A) in the expectation ... more In recent times, Indian banks have resorted to mergers and acquisitions (M&A) in the expectation to reap efficiency gains brought in by such strategies. This paper explores the impact of M&A on technical efficiency of Indian commercial banks during the second decade (2000-2010) of reforms. We use DEA to compute the relative technical efficiency of banks that participated in M&A activities. The technical efficiency is computed under both common and separate frontier with the assumption of constant as well as variable returns to scale. We also compare the postamalgamation efficiency scores of the participating banks with that of a control group comprising of such banks that did not undergo any consolidation since 1991. Our results indicate evidence of efficiency gains for the merging and/or acquiring banks. At the same time there are banks that have experienced deterioration in their post-M&A average efficiency levels. It would be wise for the banks to carefully consider the potential gains as well as threats posed by M&A before venturing into such activities.
RePEc: Research Papers in Economics, Jan 9, 2009
The Law of Proportionate Effect depicts that firm's growth rate is independent of its size; Gibra... more The Law of Proportionate Effect depicts that firm's growth rate is independent of its size; Gibrat (1931). Some of the existing studies support the Gibrat's Law: Hymer and Pashigian (1962), Mansfield (1962), among others. However, Gale (1972), Shepherd (1972) and recently Punnose (2008) report a positive relationship, while Haines (1970) and Evans (1987) observe an inverse relationship between firm size and profitability. Baumol (1959) opined that rate of return increases with firm size. Therefore, the extant empirical research on the firm size-performance relationship provides inconclusive results. Manufacturing firms' data from the Steel and Electrical & Electronics (EE) industries are taken from CMIE Prowess database for the period 2004-05 to 2006-07. Results show that firm size affects current profitability: positively in the Steel and negatively in the other. Some more determinants of firm performance are explored. Retained earnings have negative impact on profitability in Steel but, positive in EE. Bank credit is found negatively significant in both the industries. Market share of firms and industry concentration ratio (CR 4) although inconsistently are the other significant determinants of firms' performance. Firms' market value (Q) is found positively significant for both the industries. This signifies that high market value of firms reflects their goodwill, knowledge stock and prospective investment opportunities which positively influence the firms' performance. The significance of having high brand equity which the corporate firms thrive for becomes apparent. Interestingly, the impact of size is affected by firms' market value: firm size positively affects profitability both in Steel and EE. Furthermore, ineffectiveness of Law of Proportionate Effect is strengthened when tested over the combined data of Steel and EE firms. The short-run dynamism in firm performance is also impacted by presence of Tobin's Q.
Country-Specific Determinants of Intra-Industry Trade in India
Foreign Trade Review, Aug 1, 2019
A distinctive feature of India’s trade liberalization has been a significant rise in the magnitud... more A distinctive feature of India’s trade liberalization has been a significant rise in the magnitude of intra-industry trade (IIT). India’s total IIT is substantially large with high and upper-middle-income group countries and dominated by low vertical IIT. Particularly during the second phase of economic reforms, magnitude of India’s vertical IIT with high-income group of countries had increased; while there had been a marginal decline in horizontal IIT. This article identifies some of the determinants of India’s total IIT as well as vertical and horizontal IIT with her major trading partners from 1990 to 2014. The convergence in the level of economic development between India and her trading partner(s) positively influences total IIT and its two broad forms. Similarity in relative factor endowments and regional trade agreement through South Asian Free Trade Area (SAFTA) is found to promote horizontal IIT. Having a large market size, the distortionary impact of tariff has not been able to dampen the magnitude of India’s IIT. Relative depreciation of trading partner’s real exchange rate enhances India’s imports and inhibits the growth of total and vertical IIT. Geographical distance adversely affects all forms of IIT. JEL Codes: C23, F14
This paper examines selected components of social security system in India and compares them with... more This paper examines selected components of social security system in India and compares them with their OECD counterparts. Historically, the Indian policy makers have viewed the pension system as a welfare measure and therefore, it lacks in financial professionalism, diversification, and in the belief that pension funds can also be treated as an asset. The Indian system is biased towards the organized formal sector as workers in this sector are benefitted with the provisions under various labor laws. Even then the pension provisions in India are way far behind the OECD benchmark. In the unorganized sector, old age income remains mainly confined to voluntary savings. The New Pension System although makes the pension amount an old age asset, is silent on the social security provisions to the poor. The average income earners are not able to replace their pre-retirement earnings with pensions compared to most of the OECD countries. In terms of the gross pension wealth, India is nearer to the OECD average only in the low income category for men. Out of 5% of health care expenditure as a percentage of GDP, government's share in India accounts even less than 1% which is significantly lower than the OECD benchmark.
MPRA Paper, 2009
The Law of Proportionate Effect depicts that firm's growth rate is independent of its size; Gibra... more The Law of Proportionate Effect depicts that firm's growth rate is independent of its size; Gibrat (1931). Some of the existing studies support the Gibrat's Law: Hymer and Pashigian (1962), Mansfield (1962), among others. However, Gale (1972), Shepherd (1972) and recently Punnose (2008) report a positive relationship, while Haines (1970) and Evans (1987) observe an inverse relationship between firm size and profitability. Baumol (1959) opined that rate of return increases with firm size. Therefore, the extant empirical research on the firm size-performance relationship provides inconclusive results. Manufacturing firms' data from the Steel and Electrical & Electronics (EE) industries are taken from CMIE Prowess database for the period 2004-05 to 2006-07. Results show that firm size affects current profitability: positively in the Steel and negatively in the other. Some more determinants of firm performance are explored. Retained earnings have negative impact on profitability in Steel but, positive in EE. Bank credit is found negatively significant in both the industries. Market share of firms and industry concentration ratio (CR 4) although inconsistently are the other significant determinants of firms' performance. Firms' market value (Q) is found positively significant for both the industries. This signifies that high market value of firms reflects their goodwill, knowledge stock and prospective investment opportunities which positively influence the firms' performance. The significance of having high brand equity which the corporate firms thrive for becomes apparent. Interestingly, the impact of size is affected by firms' market value: firm size positively affects profitability both in Steel and EE. Furthermore, ineffectiveness of Law of Proportionate Effect is strengthened when tested over the combined data of Steel and EE firms. The short-run dynamism in firm performance is also impacted by presence of Tobin's Q.
Capital Structure, Process Innovation and Firm Level Output: The Limited Liability Effect under Demand Uncertainty in a Cournot Duopoly
Financial Leverage, Innovation and Cournot Output: Limited Liability Effect Under Demand Uncertainty
The Indian Economic Journal
We address the strategic interdependence among capital structure, firm-level (process) innovation... more We address the strategic interdependence among capital structure, firm-level (process) innovation, and subsequent output decisions. In the backdrop of the limited liability effect, the interlinkage among financial and real variables is established through a three-stage game. The levered duopolist produces higher output and earns a larger profit than its unlevered counterpart. Even the industry output is higher when one of the duopolists is levered. However, if the levered duopolist undertakes investment in (process) innovation, then the debt-financed innovation induced output is larger than the innovation-led output of a completely equity financed firm. The levered innovative firm eventually becomes a monopolist by driving out the unlevered innovative duopolist. JEL Codes: D21, G32, L13, O31
Foreign Trade Review, 2019
A distinctive feature of India’s trade liberalization has been a significant rise in the magnitud... more A distinctive feature of India’s trade liberalization has been a significant rise in the magnitude of intra-industry trade (IIT). India’s total IIT is substantially large with high and upper-middle-income group countries and dominated by low vertical IIT. Particularly during the second phase of economic reforms, magnitude of India’s vertical IIT with high-income group of countries had increased; while there had been a marginal decline in horizontal IIT. This article identifies some of the determinants of India’s total IIT as well as vertical and horizontal IIT with her major trading partners from 1990 to 2014. The convergence in the level of economic development between India and her trading partner(s) positively influences total IIT and its two broad forms. Similarity in relative factor endowments and regional trade agreement through South Asian Free Trade Area (SAFTA) is found to promote horizontal IIT. Having a large market size, the distortionary impact of tariff has not been ab...
The Post-Reform Experience from Mergers and Acquisitions
In recent times, Indian banks have resorted to mergers and acquisitions (M&A) in the expectation ... more In recent times, Indian banks have resorted to mergers and acquisitions (M&A) in the expectation to reap efficiency gains brought in by such consolidation strategies. This paper explores the impact of M&A on technical efficiency of Indian commercial banks during the second decade (2000-2010) of reforms. We use data envelopment analysis (DEA) to compute the technical efficiency of banks that participated in M&A activities. The technical efficiency is computed under both common and separate frontier with the assumption of constant as well as variable returns to scale. We also compare the post-amalgamation efficiency scores of the participating banks with that of a control group comprising of such banks that did not undergo any consolidation since 1991. There have been efficiency gains for the merging and/or acquiring banks. At the same time there are banks that have experienced deterioration in their post-M&A average efficiency levels. It would be wise for the banks to carefully consi...
The paper models alternative investment-accelerator relationships within the neoclassical theory ... more The paper models alternative investment-accelerator relationships within the neoclassical theory of Jorgenson followed by firm level panel data estimation and empirical test for other determinants of corporate investment e.g., internal liquidity, profitability, and firms’ financial strength. Athey and Laumas (1994) claimed that internal liquidity had replaced market demand in Indian firm level investment. Others indicate presence of finance constraints in Indian private sector investment activities; Kumar et al. (2001, 2002). Therefore, in the immediate aftermath of liberalization whether market demand had still not been important when availability of internal liquidity, firms’ profitability and creditworthiness are considered. We consider Indian manufacturing firms in the post-reform period of 1990s. There is significant support for the investment–accelerator relationship. Internal liquidity is relatively more important than profitability when it comes to firms’ investment decision...
Trade in Vertically Differentiated Goods under Duopoly
IO: Theory eJournal, 2021
We explore the possibility of free trade between two countries, differentiated in terms of the ma... more We explore the possibility of free trade between two countries, differentiated in terms of the market size and where each of them has a monopoly firm that produces a vertically differentiated good. The two monopoly firms are involved in intra-industry trade. At autarky, in any one country, only one quality of the good is available. However, strict convexity of the monopolist’s cost function yields the possibility of two different qualities being produced by each of the two firms. In the free trade equilibrium, the foreign firm, as the Stackelberg leader, can devise a predatory strategy and sweeps out the higher-quality product of the domestic firm from the open market. On the contrary, the home firm as price leader can drive the lower quality product out of the market.
Industry dynamics and capital structure choice: Evidence from Indian manufacturing firms
Managerial and Decision Economics, 2021
This paper explores the impact of M&A on technical efficiency of Indian commercial banks during t... more This paper explores the impact of M&A on technical efficiency of Indian commercial banks during the second decade of reforms. We use DEA to compute the relative technical efficiency of banks that participated in M&A activities. The technical efficiency is computed under both 'common' and 'separate' frontier with the assumption of 'constant' as well as 'variable' returns to scale. We also compare the post-amalgamation efficiency scores of the participating banks with that of a control group comprising of such banks that did not undergo any consolidation since 1991. Our results indicate evidence of efficiency gains for the merging and/or acquiring banks. At the same time there are banks that have experienced deterioration in their post-M&A average efficiency levels.
Futures have been recently introduced to cater the needs of investors and fill up the existing ga... more Futures have been recently introduced to cater the needs of investors and fill up the existing gaps in stock market. Studies show that, in the long-run, futures introduction does not have any effect on the spot market; however, in the short-run volatility in the spot market increases; Paudyal et al. (2005). Harris (1989) finds that increased volatility in the spot market is not solely due to the futures introduction. Alexakis (2007) substantiates the stability of indices after futures introduction. This study is set about to understand the impact of stock futures introduction on the Indian spot market. This study makes an initial attempt to capture the same by considering a small sample of 20 scrips, segregated as small and large caps, listed on NSE for the period August 2005 to May 2008. Using Hoadley Options, volatility modeled by GARCH (1, 1) is estimated. Considering both volume and volatility, mixed evidences are witnessed. Futures introduction has some stabilizing effect on la...
Are export earnings from India’s bilateral intra-industry trade with the US and China robust enough?
Purpose This paper aims to explore whether India’s export basket in the bilateral intra-industry ... more Purpose This paper aims to explore whether India’s export basket in the bilateral intra-industry trade (IIT) with two of its top trading partners characterize robust export earnings or not. This is pertinent for two reasons. First, India has a persistent problem of current account deficit for over decades now. Second, whether India’s export diversification strategy by participating in global value chains to improve export share in the world market led to the problem of the fallacy of composition. Design/methodology/approach This study considers bilateral trade data between India-USA and India-China at the HS-6 digit level over the period 1990–2018. The magnitude of total IIT is computed using the Grubel and Lloyd (1971) index. This paper then uses the unit value dispersion criterion to disentangle the magnitude of total IIT into horizontal and vertical IIT. Through a stepwise econometric exercise, this paper explores the attributes of exported goods in the IIT basket in terms of the...
Anti-dumping Initiations in Indian Manufacturing Industries
South Asia Economic Journal, 2015
Anti-dumping as a new protectionist trade policy has evolved as the popular strategy choice for t... more Anti-dumping as a new protectionist trade policy has evolved as the popular strategy choice for the trading nations. Since the Uruguay Round of World Trade Organization (WTO) (1994), India has been a prominent user of it. This article attempts to explore the possible factors that might have triggered off 90 percent cases of anti-dumping by five major Indian manufacturing industries over the period 1997–2011. We construct a balanced panel combining data on anti-dumping initiations from the ‘Global Antidumping Database’ with trade data from the Directorate General of Commercial Intelligence and Statistics (DGCI&S)-India and United Nations Comtrade database at the Indian Trade Classification (ITC) based on Harmonized System (HS) two-digit level. Having count data, the empirical model is estimated initially through a random-effects Poisson regression model followed by a negative binomial model. The number of anti-dumping initiations in India is dependent on the value of imports, the presence of a dominant industry lobby and the retaliatory behaviour by the affected domestic firms, among some others. In fact, we find that in determining the number of anti-dumping initiations the conventional economic and foreign affairs policies take a backseat!
This paper examines selected components of social security system in India and compares them with... more This paper examines selected components of social security system in India and compares them with their OECD counterparts. Historically, the Indian policy makers have viewed the pension system as a welfare measure and therefore, it lacks in financial professionalism, diversification, and in the belief that pension funds can also be treated as an asset. The Indian system is biased towards the organized formal sector as workers in this sector are benefitted with the provisions under various labor laws. Even then the pension provisions in India are way far behind the OECD benchmark. In the unorganized sector, old age income remains mainly confined to voluntary savings. The New Pension System although makes the pension amount an old age asset, is silent on the social security provisions to the poor. The average income earners are not able to replace their pre-retirement earnings with pensions compared to most of the OECD countries. In terms of the gross pension wealth, India is nearer t...
Indian Economic Review
This paper mitigates the gap in the Indian context about the non-consideration of vertical and ho... more This paper mitigates the gap in the Indian context about the non-consideration of vertical and horizontal intra-industry trade (IIT) distinctly in testing empirical hypotheses about industry-level determinants of IIT. Our study indicates that failure to segregate vertical and horizontal IIT from the total IIT possibly leads to potential bias in econometric results. Drawing on annual multilateral trade data encompassing two and half decades of the liberalization period, we find India's IIT outpaced the growth of inter-industry trade over the years and its contribution mainly came from six manufacturing industry groups whose export baskets had been loaded with low vertically differentiated goods. However, horizontal and high vertical IIT have gained some momentum since the end of the last decade. Given the fractional nature of our dependent variable, we initially estimate a (random effects) Tobit model followed by the Exponential Regression of Fractional Response model. The robust econometric findings show that product differentiation has a positive impact only on total IIT. Whereas vertical and horizontal IIT are promoted in industries with concentrated and competitive market structures, respectively. The prevalence of concentrated market structure indicates that (large) Indian firms sustain import competition by specializing in low vertically differentiated goods, as they efficiently adjust to resource reallocation. Keywords Horizontal and vertical IIT • Revealed comparative advantage • Manufacturing industry • (Random effects) Tobit model • Exponential regression of fractional response model JEL Classification F14 • C23
Credit Expansion and Inflation Expectations — Evidence From Post 2007-08 Financial Crisis In The US
SSRN Electronic Journal
SSRN Electronic Journal
The Law of Proportionate Effect depicts that firm's growth rate is independent of its size; Gibra... more The Law of Proportionate Effect depicts that firm's growth rate is independent of its size; Gibrat (1931). Some of the existing studies support the Gibrat's Law: Hymer and Pashigian (1962), Mansfield (1962), among others. However, Gale (1972), Shepherd (1972) and recently Punnose (2008) report a positive relationship, while Haines (1970) and Evans (1987) observe an inverse relationship between firm size and profitability. Baumol (1959) opined that rate of return increases with firm size. Therefore, the extant empirical research on the firm size-performance relationship provides inconclusive results. Manufacturing firms' data from the Steel and Electrical & Electronics (EE) industries are taken from CMIE Prowess database for the period 2004-05 to 2006-07. Results show that firm size affects current profitability: positively in the Steel and negatively in the other. Some more determinants of firm performance are explored. Retained earnings have negative impact on profitability in Steel but, positive in EE. Bank credit is found negatively significant in both the industries. Market share of firms and industry concentration ratio (CR 4) although inconsistently are the other significant determinants of firms' performance. Firms' market value (Q) is found positively significant for both the industries. This signifies that high market value of firms reflects their goodwill, knowledge stock and prospective investment opportunities which positively influence the firms' performance. The significance of having high brand equity which the corporate firms thrive for becomes apparent. Interestingly, the impact of size is affected by firms' market value: firm size positively affects profitability both in Steel and EE. Furthermore, ineffectiveness of Law of Proportionate Effect is strengthened when tested over the combined data of Steel and EE firms. The short-run dynamism in firm performance is also impacted by presence of Tobin's Q.
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Papers by Surajit Bhattacharyya