Indian Journal of Accounting: Global Impact Factor 0.782

RNI No.
: MPENG01246/12/1/2014-TC
ISSN-0972-1479(Print) | ISSN-2395-6127 (Online)
Regd. No. : 429/68-69
Indian Journal of
Accounting
Global Impact Factor 0.782
(Indexed in COSMOS Foundation & Electronic Journal Library EZB, Germany)
Vol.XLVIII (2) December, 2016

EDITORIAL BOARD - IJA
CHIEF EDITOR
PROFESSOR (DR.) S. S. MODI
Former Head
Department of Accountancy and Business Statistics
Faculty of Commerce
University of Rajasthan, Jaipur, Rajasthan (India)
EDITORS
Dr. Daksha Pratap Sinh Chauhan Dr. M. C. Sharma
Professor, Head & Dean Professor, Head & Dean
Saurashtra University, Rajkot University of Rajasthan, Jaipur
ASSOCIATE EDITORS
Prof. Jitendra K. Sharma CMA Dr. B.L. Gupta Dr. Ashok Agrawal
GGD SD College, Palwal, Haryana University of Rajasthan, Jaipur University of Rajasthan, Jaipur
Dr. Pushpendra Misra Dr. Vinod K. Bhatnagar Dr. R. K. Tailor

DSMNR University, Lucknow Prestige Institute of Mgt., Gwalior IIS University, Jaipur
ADVISORY CUM REVIEWERS BOARD

Prof. B. Banerjee Prof. N. M. Khandelwal Prof. K.R.Sharma
Ex- President IAA, Kolkata Ex- President IAA, Ajmer Ex-President IAA, Udaipur
Prof. Nageshwar Rao Prof. Pratap Sinh Chauhan Prof. R. K. Gupta
Ex- President IAA & VC Ex-President IAA & VC V.C. Maharaja Agrasen University
Uttarakhand Open University, Dehradun Saurashtra University, Rajkot Himachal Pradesh
Prof. D. Prabhakara Rao Prof. B. Mohan Prof. K. Eresi
Ex- President IAA, Visakhapatnam Ex- President IAA, Tirupati Ex-President IAA, Bangalore
Prof. M. B. Shukla Prof. Ranjan K. Bal Prof. B.S. Rajpurohit

Ex- President IAA, Varanasi Ex-President IAA, Bhubaneswar Ex- President IAA, Jodhpur
Prof. Harish Oza Prof. G. L. Dave Prof. K.V. Achalapati

Ex- President IAA, Ahmedabad Ex- President IAA, Jodhpur Ex-President IAA, Hyderabad
Prof. K. Sasi Kumar Prof. B. Ramesh Prof. Umesh Holani

Ex- President IAA, Thiuvananthapuram Ex- President IAA, Goa Ex- President IAA, Gwalior
Prof. Arvind Kumar Prof. Karmajeet Singh Prof. Rajendra P.Srivastava

President IAA, Lucknow Panjab University, Chandigarh Director-CARAT, USA
Prof. K.S. Thakur Prof. H. K. Singh Prof. M. Raju

Jiwaji University, Gwalior Banaras Hindu University, Varanasi Bangalore University, Bengaluru
Prof. G. Soral Prof. Ram Milan Prof. Prashant Kumar

M.L.S.U., Udaipur Lucknow University, Lucknow Varanasi
Prof. M. Ramachandra Gowda Prof. J.K. Jain Prof. Govind Pareek

Bangalore University, Bengaluru H.S.Gaur University, Sagar University of Rajasthan, Jaipur
Prof. Sanjay Bhayani Prof. Arindam Gupta Prof. S. K. Khatik

Saurashtra University, Rajkot Vidya Sagar University, Midnapur Barkatullah University, Bhopal
Indian Journal of Accounting (IJA) 1
ISSN : 0972-1479 (Print) 2395-6127 (Online) Vol. XLVIII (2), December, 2016, pp. 1-6
INDIAN ACCOUNTING ASSOCIATION
PAST PRESIDENTS
S. No. Name and Affiliation Place
1. Shri Raghunath Rai (Late), Chartered Accountant Varanasi
2. Dr. SN Sen (Late), University of Calcutta Kolkata
3. Prof. SK Raj Bhandari (Late), BHU Varanasi
4. Dr. GD Roy (Late), University of Calcutta Kolkata
5. Prof. MC Bhandari (Late), Chartered Accountant Kolkata
6. Prof. KS Mathur (Late), University of Rajasthan Jaipur
7. Dr. R Rajagopalan (Late), Former Addl. Secretary, Govt. of India New Delhi
8. Prof. LS Porwal, University of Delhi Delhi
9. Prof. HC Mehrotra (Late), Agra University Agra
10. Shri SM Dugar, Ex-Member, Company Law Board, Govt. of India New Delhi
11. Prof. SP Gupta (Late), Rohilkhand University Bareilly
12. Prof. Sukumar Bhattacharya (Late), Chartered Accountant Kolkata
13. Prof. Dool Singh (Late), Kurukshetra University Kurukshetra
14. Prof. MC Khandelwal, Formerly of University of Rajasthan Jaipur
15. Prof. B Banerjee, Formerly of University of Calcutta Kolkata
16. Prof. Chote Lal, Formerly of BHU Varanasi
17. Prof. NM Khandelwal, Formerly of MDS University Ajmer
18. Prof. UL Gupta, (Late), Formerly of JNV University Jodhpur
19. Prof. KR Sharma, Formerly of MLS University Udaipur
20. Prof. Bhagwathi Prasad (Late), Formerly of Karnataka University Dharwar
21. Prof. Nageswar Rao, VC, Uttarakhand Open University Haldwani
22. Prof. B Ramesh, Goa University Goa
23. Prof. K Eresi, Bangalore University Bangalore
24. Prof. Sugan C Jain, Formerly of University of Rajasthan Jaipur
25. Dr. NM Singhvi, Formerly of MDS University Ajmer
26. Prof. B Mohan, Sri Venkateswara University Tirupati
27. Prof. BS Rajpurohit, Formerly VC of JNV University Jodhpur
28. Prof. MB Shukla, MG Kashi Vidyapeeth Varanasi
29. Prof. Ranjan K Bal, Utkal University Bhubaneswar
30. Prof. KV Achalapathy, Osmania University Hyderabad
31. Prof. Shirin Rathore, Formerly of University of Delhi Delhi
32. Prof. GL Dave, Formerly of JNV University Jodhpur
33. Prof. HS Oza, Formerly of School of Commerce, Gujarat University Ahmedabad
34. Prof. Umesh Holani, Jiwaji University Gwalior
35. Prof. K Sasi Kumar, University of Kerala Thiruvananthapuram
36. Prof. SS Modi, Formerly of University of Rajasthan Jaipur
37. Prof. Pratapsinh Chauhan, VC, Saurashtra University Rajkot
38. Prof. D Prabhakar Rao, Formerly of Andhra University Visakhapatnam
PAST CHIEF EDITORS OF IJA
1. Prof. B Banerjee, Formerly of University of Calcutta Kolkata
2. Prof. KR Sharma, Formerly of MLS University Udaipur
3. Prof. Nageswar Rao, VC, Uttarakhand Open University Haldwani
4. Prof. HS Oza, Formerly of School of Commerce, Gujarat University Ahmedabad
5. Prof. Umesh Holani, Jiwaji University Gwalior

Indian Journal of Accounting (IJA) i
President’s Message
Dear Members,
Greetings!
I'd first like to wish you all a Happy New Year, 2017 and thank each of you for giving me an
opportunity to serve the Indian Accounting Association (IAA) as a President.
Today, IAA is one of the most influential associations in the world of Accounting and Finance globally.
This is because of the dedicated efforts of our Past Presidents, EC members, office bearers, Branch
Chairpersons as well as Secretaries and the members at large. As a Life Member of IAA, I am well aware
of their contribution over the last two decades. Inaugurated on February 14, 1970, the Association crossed
several milestones over a period of time like building a wide network of branches across the country and
gathering a huge corpus of funds including crores of rupees, all under the dynamic leadership of Prof. D.
Prabhakara Rao as the General Secretary. The strength of this Association is its ever-growing
membership of around 5000 resourceful members as of now. By 2020, when the Association would
complete fifty years, this number is likely to cross 12,000.
With rapid growth in the economy, careers in the field of Accounting and Finance have gained
tremendous popularity as one of the most prestigious career options. IAA is an excellent family of
members from academic organisations, professional bodies as well as Government departments, teeming
with ideas and enthusiasm to affect sustainable policies in the financial frontiers of nation building. The
academic institutions help in providing the much needed support in the domain of teaching and
research. The professional bodies are accredited with applied knowledge in the ever changing legal and
behavioral framework for better governance. This association strives to bridge the gap between theory
and practicality, while focusing on the emerging developments in the financial markets across the globe.
Hence, IAA is proficient in fostering confidence of various stakeholders by disseminating high quality of
research findings in different All India Conferences and International Seminars.
At the 39th All India Accounting conference of IAA held at Bangalore University, resourceful
presentations and lively discussions took place in various technical sessions. The first Technical Session
was about ‘GST and its Implications’; the second pertaining to the ‘Ethical Issues in Accounting’ and the
third Technical Session revolved around ‘IFRS and their Implications’. An International Seminar on
Accounting Education and Research was also held in the same.
ii Indian Journal of Accounting (IJA) Vol. XLVIII (2), December, 2016
Topics of burning interest will be focused at in the 40th All India Accounting Conference, to be held at
Mohanlal Sukhadia University, Udaipur. These would include ‘Demonetization: Issues and Challenges
with special reference to accounting and finance’ in the first Technical Session, ‘Accounting for Local
Government’ in the second Technical Session and ‘Cloud Computing and Accounting’ in the third
Technical Session. This would be followed by another International Seminar on Accounting Education
and Research.
We request the members of the Association to attend same in large numbers and contribute to accounting
research paper presentations. I seek your suggestions for any improvement required for the IAA
constitution amendment.
On behalf of all of us, I congratulate our Past Presidents, Prof. Nageshwar Rao for occupying the coveted
position of Vice-Chancellor of Uttarakhand Open University and Prof. Pratap Sinh Chauhan on attaining
the prestigious Vice-Chancellorship of Saurashtra University. I would also like to take this opportunity to
congratulate our other IAA members who have also been appointed as Vice-Chancellors in various other
Universities.
I acknowledge the strong support of Prof. Gabriel Simon Thattil, Prof Sanjay Bhayani and Prof S.S Modi
as General Secretary, Treasurer and Chief Editor, respectively. Moreover, I would like to express
admiration for the laudable efforts put by Prof. Sanjay Bhayani in creating an impressive website for the
Association also.
Looking forward to a warm reunion at the 40th All India Accounting Conference, being held at Mohanlal
Sukhadia University, Udaipur, with Prof. G. Soral as the Conference Secretary.
January 1, 2017
Best regards,
Prof. Arvind Kumar
President: IAA &
Dean Faculty of Commerce
University of Lucknow, Lucknow.
Editorial: Message from the Chief Editor
Dear friends and colleagues,

It is a tremendous honor for me to be elected as the Chief Editor of such a prestigious and well-regarded
journal i.e. Indian Journal of Accounting (IJA). I am grateful to the Indian Accounting Association
(IAA) for giving me this opportunity to shape the premiere publication forum in my field. The journal
provides a forum for new advances in the field of accounting research and practice that spans a wide
swath of topics. I express my sincere thanks to all the former Chief Editors of IJA for leading the
journal for forty eight long years.
It is now my pleasant duty to lead the journal along with my younger and most energetic colleagues
Prof. (Dr.) Daksha Pratap Sinh Chauhan and Prof. (Dr.) M.C. Sharma as the Editors and we cordially
welcome the new members of the Editorial Board and look forward to an excellent collaboration with
the new and continuing members of the Editorial Board. Together, we will work hard to enhance the
quality of papers, reduce the turnaround time for manuscripts, provide fair reviews and smoothen the
editorial management process. We wish to take the journal in a direction where it encompasses all the
emerging areas, reflecting the research oriented approach, which is an essential link between academic
research and professional practice in the field of accounting. Our main objective will be to strengthen
the boundaries of the journal, to strengthen the reviewer database, and to motivate potential authors to
contribute to the journal. In parallel, we all should join hands in preventing plagiarism, duplicate
articles and unreliable research. I invite the authors to submit original and first-hand articles, which
will help to achieve our goal of obtaining higher Global Impact Factor for the journal to maintain the
relevance of the journal in a highly competitive field. We are looking forward to work with you all
closely to enhance the reputation of the journal and promote scholarly development of research in the
field of accounting fraternity.
I would also like to thank the members of the Advisory and Editorial Boards whose excellence and
international recognition is crucial for the credibility and quality of the IJA. I am delighted to welcome
you to Volume XLVIII (2) of the journal.
Finally, I thank my editorial team, technical team, authors and well wishers, who are promoting this
journal. With these words, I conclude and promise that the standards will be maintained.
Prof. (Dr.) SS Modi

Chief Editor
Indian Journal of Accounting
A Journal of Indian Accounting Association
i
ISSN :0972-1479 (Print) 2395-6127 (Online) Global Impact Factor .785
INDIAN JOURNAL OF ACCOUNTING

(A JOURNAL OF INDIAN ACCOUNTING ASSOCIATION)
(Indexed in COSMOS Foundation & Electronic Journal Library EZB, Germany)
Volume XLVIII (2) December, 2016
CONTENTS
S. No. Title of the Research Paper Page No.
1. Accounting Education in India: A Comparative Analysis 01-06

Prof. K. V. Achalapathi & M. Janakiram
2. An Impact of IFRS on the Value Relevance of Financial Statements: A Study 07-17

of Selected Indian Listed Company
Dr. Shilpa Vardia, Dr. Nisha Kalra & Prof. G. Soral
3. Performance Appraisal of HPCL Through Free Cash Flow 18-24

Dr. S. K. Khatik & Dr. Amit Kumar Nag
4. Contributing Factors to the Cost of Faculty Attrition in Technical Institutions 25-31

N. Malati & Prakash Sharma
5. Discretionary Accruals and Earnings Management by Oil Companies in India 32-36

Gnyana Ranjan Bal
6. Benefits and Shortcomings of Ethics Education: An Empirical Analysis of 37-49

Perception of Accounting Students and Faculty Members in India
Dr. Ajay Kumar Singh & Dr. Sakshi Vasudeva
7. Insider Trading and Bank Merger Announcements in India: Testing the 50-66
Validity of Information Leakage Hypothesis
Dr. Sony Kuriakose, Prof. M S Senam Raju & Prof. N V Narasimham
ii
8. Impact of Crude Oil Prices in China, India and USA on the Gold Prices 67-72
Prof. Guntur Anjana Raju & Shripad Marathe
9. Impact of Financial Leverage on Firm's Performance and Valuation: A Panel 73-80

Data Analysis
Dr. Amit Kumar Singh & Preeti Bansal
10. Exploring Financial Risk Management and Volatility Index in the Indian 81-86
Stock Market: A Study
Dr. Nenavath Sreenu
11. Disclosure Pattern of Six Capitals’ Under <IR> Framework: Selected South 87-101
African’s Companies
Monika Soni & Dr. Shurveer S. Bhanawat
12. An Empirical Analysis of Price Sensitivity with respect to Declaration of 102-116

Dividend of Indian Companies
Dr. Soheli Ghose & Mudit Gupta
13. New Economic Reforms and Indian Capital Market: An Analytical Study 117-125
Dr. Anshuja Tiwari & Parray Firdous Ahmad
14. Fixed Assets Utilization in Selected Manufacturing Industries in India: An 126-132

Empirical Study
Dr. Santimoy Patra
15. Impact of Profitability on the Share Price: A Study on Computer Software 133-136
Training Companies in India
Dr. Bhaskar Biswas

ACCOUNTING EDUCATION IN INDIA: A COMPARATIVE ANALYSIS
Prof. K. V. Achalapathi∗
M. Janakiram∗∗
ABSTRACT
The expectations of stake holders have become an important component in accounting system giving birth to
prescriptive accounting system. Hence, the curriculum of accounting also must have undergone change from
descriptive model to a prescriptive model. Internationally European accounting system has moved towards
prescriptive accounting system by adopting International Financial Reporting Standards (IFRS). While the
accounting system in USA is rule based like in India, European system of accounting is principles based. In India
Joint stock companies must follow the schedule 3 of Companies act 1956, revised in 2013. It also gives a prescribed
format in financial reporting. Since, most of the students at Under Graduate (U.G.) level look for jobs in corporate
field, the B.Com syllabus mostly focuses on “how” part of financial reporting and in accordance with the
Companies Act.
In view of the above it is felt necessary that the accounting curriculum in most of the state Universities as
well as in private Universities need be examined with the above theoretical frame work. This paper attempts:
• To examine the relevance of the accounting curriculum in different Universities in the context of changing
dimensions of stake holders and technology.
• To examine the pedagogy planned in State as well as Private Universities in the light of Choice Based Credit
System (CBCS).
• To examine the evaluation system planned in terms of Choice Based Credit System (CBCS).
KEYWORDS: CBCS, IFRS, Accounting System, Prescriptive Model, Accounting Standards.
_______________
Introduction
Accounting education in India is as old as of CHANAKYA age. “Accounting” comes from the
word “Accountability” i.e., Answerability. Most of the Accounting in traditional system was maintained
by Munchies in India focusing on receivables & payables of a firm. The Double entry book keeping
system borrowed from western countries, innovated by Luka Pacioli in 15th century also follows the
descriptive method of accounting. Most of the traditional Indian universities were following descriptive
accounting system till 20th century. Whereas 21st century influenced by the information technology
revolution is facing a challenge from global stake holders.
Hence, the expectations of stake holders have become an important component in accounting
system giving birth to prescriptive accounting system. Hence, the curriculum of accounting also must
∗
Retired Professor, Department of Commerce, Osmania University, Presently Director, Dhanvanthari Institute of
Science and Technology, Hyderabad.
∗∗
Vice-Principal, Badruka College of Commerce & Arts, Kachiguda, Hyderabad.
2 Indian Journal of Accounting (IJA) Vol. XLVIII (2), December, 2016
have undergone change from descriptive model to a prescriptive model. Internationally European
accounting system has moved towards prescriptive accounting system by adopting International
Financial Reporting Standards (IFRS). While the accounting system in USA is rule based like in India,
European system of accounting is principles based (Achalapathi 2016). In India Joint stock companies
must follow the schedule 3 of Companies act 1956, revised in 2013. It also gives a prescribed format in
financial reporting. Since, most of the students at Under Graduate (U.G.) level look for jobs in corporate
field, the B.Com syllabus mostly focuses on “how” part of financial reporting and in accordance with the
Companies Act. In view of the above, it is felt necessary that the accounting curriculum in most of the state
Universities as well as in private Universities need to be examined with the above theoretical frame work.
The purposes of this paper are three:
• To examine the relevance of the accounting curriculum in different Universities in the context of
changing dimensions of stake holders and technology.
• To examine the pedagogy planned in State as well as Private Universities in the light of Choice
Based Credit System (CBCS).
• To examine the evaluation system planned in terms of Choice Based Credit System (CBCS).
Methodology
In order to examine the relevance of the curriculum in different universities, an attempt is made to
download the curricula of different universities in India from the websites of respective universities. As
per the University Grants Commission, Ministry of Human Resource Development, Government of India
website, there are 759 universities, of which 350 are State Universities, 47 are Central Universities, 239 are
Private Universities, whereas, 123 are deemed to be Universities. Since, the deemed to be universities
stand on a different footing in terms of extended version of a Private College; it is felt that they don’t fit
into the comparative analysis. Hence, 123 Deemed Universities are not included in the analysis. Out of
636 State, Central & Private Universities 10 per cent of them are selected in sample for a detailed analysis,
this works out to 64 universities. To have the appropriate weightage of the size of the states it is ensured
that 10 per cent of the Universities in each state are included in the list. In the process, websites of few
universities did not have the data required. Accordingly, 7 Universities were eliminated from list for
want of appropriate information.
Ultimately, 57 Universities covering 25 states, including 43 State Universities, 2 Central
Universities and 12 Private Universities are selected for analysis.
A comparative analysis is made keeping the theoretical frame work of moving from descriptive to
prescriptive model of accounting system as a parameter.
The paper is conveniently arranged in 3 sections.
Section I: Relevance of the accounting curricula in different universities.
Section II: Pedagogy planning in different universities.
Section III: Evaluation system planned in different universities
Section I: Relevance of Accounting Curricula in Different Universities
As observed earlier, accounting curriculum should cover the Why & How part of accounting
systems, so that, students get absorbed in corporate field as a supplementary to the professionals like
Chartered Accountants & Cost Accountants.
Accordingly, lead is taken always by Institute of Chartered Accounts of India in revising the
curriculum in accordance with the expectations of global stake holders and in line with changes in
Information Technology Sector. It is observed that the Integrated Proficiency Competence Course (IPCC)
syllabus is updated with the introduction of “Accounting Standards” both at National Level and
International Level (website of ICAI & ICMA)(2).
Prof. K. V. Achalapathi & M. Janakiram : Accounting Education in India: A Comparative Analysis 3
An attempt is made to examine the curriculum of all the universities selected in the sample. At
first, importance given to Accounting in the commerce curricula by universities in India is examined and
presented in Table I.
Table I: Statement showing the Importance Given to “Accounting” in
Commerce Curriculum by Universities in India
S. No. of Universities
Weightage Given Total
No. State University Central University Private University
1 Less than 10% - - 1 1
2 Between 10% - 20% 15 1 4 20
3 Between 20% - 30% 16 1 4 21
4 Between 30% - 40% 11 0 2 13
5 More than 40% 1 0 1 2
Total 57
Source: Websites of respective universities
It can be observed in Table I that majority of the universities (41) gave a weightage more than 10%
and less than 30% to “accounting” in commerce curriculum. It is observed that 31 state universities both
the Central Universities selected, and 8 private universities are giving weightage of more than 10% but
less than 30% importance in the total number of papers offered in Commerce course. It is also observed
that 11 state universities and 2 private universities out of 57 selected gave importance to “accounting” in
commerce curriculum more 30% but less than 40%. In fact, one private university and one state
university have prescribed curriculum by having weightage to accounting more than 40%. Most the
students give highest importance to the subject of “accounting” as relatively it will have large number of
modules in every semester. Within the “accounting” subjects, Titles of different papers are picked up
from different universities and they are grouped.
Table II: Statement Showing the Titles of Accounting Papers Offered in Different Universities
No. of Titles Selected by Different
S.
Title / List of Accounting Papers Kind of Universities Total
No.
State Central Private
1 FA - I & II / Principles of A/c ing /Fund. Of A/c ing 43 2 12 57
2 Corporate A/c ing/Company A/c ing/FA-III & IV 37 2 9 48
3 Cost Accounting 30 2 4 36
4 Mgt. Accounting 22 2 6 30
5 Advanced Accounting 19 1 4 24
6 Cost & Mgt. Accounting 8 1 6 15
7 International Accounting / A.S. 5 0 1 6
8 Fin. Statement Reports 5 0 0 5
9 Other titles 11 0 2 13
Source: Websites of respective universities
Table II explains a group of accounting papers offered in different universities. For example in
some universities they called FA I & II, in another universities the title is “Principles of Accounting” or
“Fundamentals of Accounting”. These papers reflect the first level of accounting imparted to the student
at the first or second level of semesters. In fact, it lays the foundation for accounting. It is observed that 43
state universities, 2 central universities and 12 private universities are offering this level of accounting to
every student who joins in B.Com.
The next importance is gained by the paper titled “Corporate Accounting / Company Accounting
FA-III and FA-IV”. It is offered in 37 State Universities, 2 Central Universities and 9 Private Universities
covering total 48 out of 57 Universities. “Cost Accounting & Management Accounting” also assumed
importance in more than 30 Universities.
It can be observed from Table-II that “International Accounting / Accounting Standards” as one of
the titles of “accounting” papers, in states as well as private universities, do not find place in most of the
universities either in Government or in Private sector. There are hardly 5 state universities out of 57 sample
universities selected where this paper finds place. This reflects that IFRS or Ind-AS do not find place in the
curricula in most of universities in India. Hence the relevance of “accounting” curricula in different
universities is not significant in the context of expectations of global stake holders and changing technology.
Though a detailed analysis is not made in this paper, a glance at curricula of deemed universities suggest
that they have updated their curriculum in accordance with the expectations of the global stake holders. It is
also observed that curricula of different universities have been stressing on “how part” of accounting that
too on rule based accounting rather than the principles based. Hence, it does not meet the expectation of
global stake holders at all. The students who get graduated through this curriculum will not be able to
maintain accounts in accordance with the international accounting standards. The “why” part of the
accounting is totally missing in many Universities in India. Advanced Accounting, Corporate Accounting,
Cost Accounting and Management Accounting are most common titles in most of the universities in
Central, State as well as Private sector. It is also observed that the “Computerized Accounting” is not a part
of curricula in majority number of universities. It can therefore be concluded that accounting curriculum at
present in India is not relevant to the changing Information Technology (IT) and not in accordance with
expectations of global stake holders.
Section – II: Pedagogy Planning Under Different Universities
In section I, a comparative analysis of different universities in designing the curricula in
“Accounting” field is examined in terms of its relative importance in Commerce course and the titles of
“Accounting” modules at different levels. While the curricula takes care of the content that needs to be
imparted to the students, the way in which it is delivered matters in increasing the employability of the
students. Hence, the subsequent paragraphs are catered to the pedagogy expected and the pedagogy
being executed in different universities. While the western universities focus on learning models (student
centric model) Indian system focuses on teaching centric model.
In most of the colleges in different universities the teacher is a substitute for hard work. Hence,
attending the classes regularly, noting down the points in a lecture and reproducing them in the
examination has been accepted as a norm in Indian system. Hence, the students are more or less
examination oriented. A teacher who trains well for the examination is considered to be the popular
teacher. However, based on the western experience and on the basis of brain storming sessions by experts at
policy making bodies, Ministry of Human Resource Development (MHRD) through UGC is planning to
move the Indian system towards the learner model. The success of the learner model depends upon the
motivation levels of students and determination of the students and ultimately placement of the students in
employment field. The “think tank” of UGC opined that the student should be given full freedom to choose
the subject of his choice to study, timing of his evaluation and the choice of the institution to get himself
graduated. Hence, the Choice Based Credit systems are recommended to be implemented in different
universities. An attempt is made in this paper to examine whether the pedagogy system is moving from
teacher centric to the learning model or not in different universities.
As the UGC made it mandatory for all universities to move to Choice Based Credit System
(CBCS), most of the universities are in the process of modifying their curriculum. It is observed that by
the time the websites are downloaded, 8 out of 57 universities selected for study have moved towards
CBCS. Even in those universities, the faculty at delivery levels (college level) are not clear about the
significance as well as the procedural part of CBCS system. The teachers are accustomed to award marks
individually rather than the grading system. Most of the “Accounting” teachers are still following the
Prof. K. V. Achalapathi & M. Janakiram : Accounting Education in India: A Comparative Analysis 5
teacher centric model only. That is the reason why they are finding that the teaching time allotted for the
subject to be insufficient and the students are becoming indifferent in attending to the classes.
Thanks to the Information Technology, the students who are trying to learn the solutions for the
probable questions in “Accounting” through internet information. Since, the exit of the student from the
institution is more dependent on end examination; the teacher is not assuming the importance in the
transition period of moving from teacher centric to learning model. In western models including the
African and Middle East countries, the teacher assumes high importance in assessing the student as well.
The pedagogy can improve only when teaching in the class moves from information transfer to activity
based. Hence, “Accounting” teachers need to plan “activities” for the student in the class including case
studies, group discussions, and problem solving and data interpretation.
It is observed that private universities like ICFAI University, KL University, and Amity
University have taken lead in transforming the pedagogy from teacher centric to the learning model. To
some extent, Central universities which do not have colleges affiliated to it are also making a beginning.
However, out of 57 universities all the 43 state universities are lagging behind in implementing
pedagogy in this line (learning model). Most of the state universities in India face the challenge of
numbers. Till, 2014, Osmania University was having more than 1000 affiliated colleges under its control.
In the name of uniformity, standardization of any pedagogical system sets with low performing college
rather than with high performing college. That means to adapt the system to suit the low performing
college; standards are diluted in the name of uniformity even for a well performing college.
Section-III: Evaluation System Planned in Different Universities
The evaluation system in universities must be able to assure the employer organizations that its
grading system is reliable. In other words, a student graded well by the university should perform well
in the jobs at least, that are related to the subjects learnt by the student in the universities. Universities
which ensure standards in evaluation of a student and take care that a successful exit of a student from
the university is restricted to merit alone, will survive long. It is observed that the universities include
state universities as well as Private Universities are making exit of a student easy, assuming no
responsibility of placements. By observing the evaluation system planning in different universities, it can
be said that semester system is likely to make things worse with the introduction of internal assessment
at under graduate level. Many universities have not even recorded in their websites that it is necessary to
obtain minimum 40 per cent marks in the end of semester examination. That means a candidate who gets
20 out of 20 in internals and another 20 out of 80 in the end semester exam would also pass in the exam.
It is necessary to ensure minimum marks in end semester to prevent the deterioration of standards. In
western model, a teacher is the final authority to grade the students and it is also necessary for a teacher
to fit the performance of the students in a class in accordance with normal curve. (3)
GRAPH
Poor - 10
12
Failure - 2 Excellent - 6
Average
30 Above
Average
Middle Majority
F D C B A
For example, in a class of 60 students only 6 students (10%) should get A grade, about 12 students
may get B grade (20%), about 10 students may get poor grade, with one or two failures, remaining
should be (middle majority) placed in C grade. While a student will be given a chance to see the
manuscript and seek clarification from the teacher about the grade he got, he/she cannot force the
teacher to modify the grade. The maximum a student can protest is, writing his comment on grading
system of the teacher in the feed-back. The teacher recommendation has high value for an employer for
Job / placement and for further studies in western countries where learning model is followed. A lot
need to be done in Indian university system to move to this level. Based on the information collected
from a selected 57 universities in India analysis is made in respect of curricula designing, curricula
execution and evaluation. Taking the theoretical frame work presented in the first paragraph as a
parameter, following conclusions are drawn.
Conclusions
• ‘Accounting’ curricula in Indian universities is observed to be far from relevance in terms of
changing information technology and in terms of expectations of global stake holders.
• ‘Accounting’ teaching in India mostly is teacher centric while attempts are being made by the
UGC to move towards learning model by introduction of the semester system, it is still in nuts
and bolts.
• Though efforts are being made to move towards continuous evaluation system, the arbitrary way
of conducting internal assessments through objective type of tests, assessment of a student by the
teacher is hardly objective.
Practical exposure to interactive sessions with corporate, participation of industry in curriculum
making, execution and evaluation might improve the situation. Let us hope for the best.
References
Achalapathi V.K., “Implications of IFRS for corporate reporting practices in India”, Vrinda
publishing house, Hyderabad, 2016.
Personal experience of the author at Addis Ababa University in Africa (during 1998 – 01) & in
Muscat College, Sultanate Oman in Middle East countries (during 2010-12).
www.icai.org, icma.org

AN IMPACT OF IFRS ON THE VALUE RELEVANCE OF

FINANCIAL STATEMENTS:
A STUDY OF SELECTED INDIAN LISTED COMPANY
Dr. Shilpa Vardia∗

Dr. Nisha Kalra∗∗
Prof. G. Soral∗∗∗
ABSTRACT
Value Relevance is being defined as the ability of information disclosed by financial statements to capture and
summarize firm value. Value relevance can be measured through the statistical relations between information
presented by financial statement and stock market value or returns. The purpose of this study is to examine the effect of
mandatory adoption of International Financial Reporting Standards on the value relevance of earning and book value
of equity in selected companies in Indian Stock Market. This paper investigates whether the adoption of IFRS increases
the value relevance of accounting information for firm listed on the Indian Stock Exchange. Ohlson model framework
has been adopted to explore relationships among the market value of equity and two main financial reporting variables
namely the Book value of Equity per share (Represent balance sheet) and Earning per share (Represent Income
Statement). This study investigate the value relevance of accounting information in pre and post financial periods of
International Financial Reporting standards (IFRS) for Indian listed firm from 2011 to 2016. Market value is related
to book value and Earning per share by using Ohlson model. Over all book value is value relevant is determine market
value or prices. The results of this shows that value relevance of accounting information system has improved in the
post IFRS period considering book value while improvement has not been observed in value relevance of earning. In
this paper attempt also has been made to access the different opinion of the preparers of financial statements, investors
and external users including academicians regarding the adoption of IFRS and found there is no significance
relationship between the adoption the IFRS and value relevance of accounting information. As far as value relevance
performance indicators are concerned there is a significant effect of value relevance performance indicators on
companies that have adopted IFRS in India within the scope of survey considered.
KEYWORDS: Value Relevance, Earning Per Share, Book Value of Equity, IFRS, Ohlson Model.
_______________
Introduction
International Accounting Community is in the process of synchronizing accounting standards
across the globe. International Financial Reporting Standards (IFRS) is a single set of accounting
standards, developed and maintained by the IASB ( International Accounting Standard Board) with the
∗
Assistant Professor, Department of Accountancy and Statistics, University College of Commerce &
Management Studies, Mohanlal Sukhadia University, Udaipur, Rajasthan.
∗∗
Lecturer, University College of Commerce and Management Studies, Mohanlal Sukhadia University,
Udaipur, Rajasthan.
∗∗∗
Dean, University College of Commerce & Management Studies, Mohanlal Sukhadia University, Udaipur,
Rajasthan.
intention of these standards being capable of applied on a globally consistent basis—by developed,
emerging and developing economies—thus providing investors and other users of financial statements
with the ability to compare the financial performance of publicly listed companies with their
international peers on a like-for-like basis. IASB (2009)1 states its mission as “to develop, in the public
interest, a single set of high quality, understandable and international financial reporting standards
(IFRSs) for general purpose financial statements” in order to achieve its goal: “to provide the world’s
integrating capital markets with a common language for financial reporting”. Thus, IASB has
continuously developed the set of standards with two major concerns, maintaining comprehension and
nurturing enforcement, which will become the key for worldwide accounting and financial reporting
harmonization. India cannot afford to insulate itself from the developments and modifications taking
place worldwide. Indian Government has recently issued new Indian Accounting Standards (Ind. AS)
which are converged with IFRS. In phased manner, the companies registered in India will be required to
present their annual accounts according to new norms with effect from April, 2016. This development
has been described as the most significant event in the history of financial reporting in India. IFRS are
considered to be of higher quality than the corresponding national standards. Thus comparability of
financial information would be enhanced resulting in the attraction of foreign investors. IFRS are now
mandated for use by more than 100 countries, including the European Union and by more than two-
thirds of the G20 countries.
Review of Literature
The purpose of this review is to identify the key concepts, characteristics and ideas explaining the
IFRS adoption in different countries, their experience with it. The summary of previous studies would also
be useful to understand the different approaches that have been carried out by researchers to identify
various variables and their interrelationship in explaining the value relevance as well as impact of transition
to IFRS in different countries. World is becoming more global day by day and growing number of
multinational companies have brought forth the issue of harmonization of accounting standards of all the
countries so that corporate reporting may be made global. So this literature review will probe into the
question of the relevance of the traditional practices of accounting and the relevant emerging issues.
• Vafaei and Taylor (2011) took a sample of 150 randomly selected firms listed on three Stock
Exchanges (i.e. London, Hong Kong and Singapore) for the year of adoption of IFRSs (2005). His
study investigates whether the quality of accounting figures (earnings per share and book value of
equity) has improved as a result of adoption of IFRSs in UK, Hong Kong and Singapore. With
regards to value relevance, results indicate no improvement in the value relevance of accounting
figures as a result of adoption of IFRSs within the sampled countries. Additionally, results indicate
that the extent of adjustments made and the costs of transition incurred in UK for first-time adoption
of IFRSs are greater than the adjustments made and the costs incurred in Hong Kong and Singapore.
• Horton and Serafeim (2010) in their study of 297 firms listed on London Stock Exchange and their
IFRS reconciliation documents tried to found market reaction to, and the value-relevance of,
information contained in the mandatory transitional reconciliation disclosure documents required
by IFRS compared to the accounting information disclosed under the UK GAAP in a sample of firms
listed on London Stock Exchange. Results of this study indicate that the market reacts negatively to
firms disclosing lower earnings under IFRS relative to UK GAAP. Additionally, with regards to
value relevance, results indicate that reconciliation adjustments in respect of earnings (but not in
respect of owners’ equity) are value relevant. Finally, it is concluded that IFRS appears to reveal
timely value relevant information.
Dr. Shilpa Vardia, Dr. Nisha Kalra & Prof. G. Soral : An Impact of IFRS on the Value Relevance ..... 9
• Guenther, Gegenfurtner, Kaserer, and Achleitner (2009) took a sample of German firms and
studied the impact of adoption of IFRS (both mandatory and voluntary) on earning management
and value relevance. The conclusion of their study is that earnings management decreases for
voluntary but not for mandatory IFRS adopters. Concerning the value relevance of accounting
quality, they find no significant improvement for voluntary and mandatory adopters in the post-
adoption period.
• Lopes and Viana (2008) analyze the total population of listed companies (44) on the Portuguese
stock exchange that had to provide reconciliation statement for the transition to IFRS. They provide
narrative discussion of transition related disclosures provided by the Portuguese companies but
focus less on the quantitative aspect of the subject matter. They report that more companies were
affected positively with regard to shareholder equity and net profit than negatively.
• Hung and Subramanyam (2007) investigated the effects of adopting IAS on some key financial
measures namely: return on equity, asset turnover, leverage, book-to market ratios and earnings-
to-price ratios for a sample of 80 German firms that adopted IASs for the first time during 1998-
2002. They found that total assets and book value of equity are significantly larger under IASs
than under German GAAP and that cross-sectional variation in book value and net income are
significantly higher under IASs than under German GAAP.
• Gjerde, Knivsfla and Saettem (2007) investigated to find out whether the association between
IFRS accounting numbers and stock market values is stronger than those reported under
Norwegian GAAP (NGAAP). In their study they took a sample of 145 firms listed on Oslo Stock
Exchange. The firms reported financial statement in accordance to NGAAP in 2004 and restated
those reports when adopted IFRS in 2005. Results of the study provide little evidence of increased
value relevance after adoption of IFRS when comparing and evaluating two regimes separately.
In contrast, when changes in the accounting numbers from NGAAP to IFRS are examined, the
results indicate that reconcilement adjustments to IFRS are marginally value relevant, which is
due to increased relevance of the balance sheet and the normalized net income.
• Agca and Aktas (2007) investigated whether adopting IFRSs in Turkey has an impact on some key
financial ratios for Turkish listed firms on the Istanbul Stock Exchange. They examined twelve
financial indicators, namely, current ratio, acid-test ratio, cash ratio, inventory turnover,
receivables turnover, total liability ratio, long term liability ratio, profit margin, return on assets,
return on equity and equity factor. They found that only the change in the ratios of cash ratio and
asset turnover are statistically significant.
• Callao et al. (2007) used a sample of 26 listed companies in Spain and examine the impact
reported in the reconciliation statement of those companies as well as the change in their book to
market ratio. They find inter alia that long term and total liabilities increased whilst debtor and
shareholder equity decreased.
• Schiebel (2007) examined the value relevance of IFRSs and German GAAP on companies listed
on the Frankfurt Stock Exchange and publishing exclusively either IFRSs or German GAAP
consolidated financial reports over the period 2000-2004.The study concluded that German GAAP
is significantly more value relevant statistically than IFRSs.
• Lin and Paananem (2007) examined the characteristics of accounting numbers using a sample of
German companies reporting under IASs 2000-2002, and IFRSs 2003-2004 and 2005-2006. They
investigated the change in accounting quality during these time periods as IASB revises and
issues new standards. Contrary to expectations, they found a significant decrease in association
between earnings, and equity book value and the share price, which indicates a decrease in value
relevance of both earnings and book value of equity in the IFRSs periods in general.
• Ahmed and Goodwin (2006) investigated the effect of AIFRSs on 1378 listed Australian firms
over 2004 and 2005. This study uses the reconciliations provided in the notes to financial
statements to measure the effects of AIFRS on Australian listed firms. Additionally, this study
examines the accounting quality of AIFRS earnings and book values compared to earnings and
book values prepared under AGAAP (the metric for measurement of accounting quality is value
relevance). Results of this study indicate that AIFRS adjustments increase mean and median
earnings and decrease mean and median equity. Additionally, results do not provide evidence
supporting AIFRS earnings and book value as being more value relevant than those of AGAAP.
• HCMC (2006) examined the transition to IFRS in Greek. This study discusses the differences
between Greek GAAP and IFRS. Author found that on average, under IFRS, shareholders’ equity
was 2.44% higher and profit after tax 6.16% higher. The strongest impact on shareholders’ equity
was caused by adjustments to tangible assets, deferred tax assets and liabilities, and intangible
assets. The most frequent adjustments were recognition of deferred tax assets and liabilities, de
recognition of start-up costs capitalized as intangible assets and recognition of pension liabilities.
• Aisbitt (2006) focuses on the FTSE 100 listed companies’ transition to IFRS in 2005 by using the
2004 reconciliation statements. She finds that, for UK companies, there was no overall significant
effect on shareholders’ equity, but that the effect varies for different companies, with no apparent
industry effects.
• Zhang and Qu (2006) investigated changes in the value relevance of earning and book value as
well as the factor associated with those change for U.S. firm 1953 to 1996 using the residual
income valuation approach. He developed three measures of value relevance variation measures,
portfolio return measures and valuation lag measures. Result for variation measures indicate that
the value relevance of book value and earning decline over time.
• Jermakowicz (2004) focused his study on the adoption of IFRS by listed companies in Belgium.
The study used qualitative part, i.e. a survey of the views of people engaged with the issues
relating to the transition to IFRS in the 20 most traded listed firms; and a quantitative part, the
impact in the reconciliation statements of three early IFRS adopters. She concludes that a
relatively large negative (positive) impact is revealed for two (one) companies both on
shareholders’ equity and net income when reconciling Belgian GAAP with IFRS.
• Street and Grey (2001) examined the extent of IAS compliance among 279 firms from 32
countries. They used the financial statements and footnotes of 1998 accounts to analysis
compliance level. The finding shows significant IAS non-compliance especially in the case of IAS
disclosure requirements. They used methods of weighted and unweighted disclosure index to
measure compliance. They find different significant associations under each method between the
dependent variable (compliance score) and a number of independent variables. This study used
both methods of disclosure index and tests the significance of the differences in the compliance
scores identified. Additionally it explored the implications of the application of both methods
with regards to the factor appearing to explain compliance with IFRS mandatory disclosures.
Research Gap
Summary of past studies indicate that there are plethora of opportunities to study the IFRS
convergence in Indian context as results of adoption of IFRS by different countries have been varied. There
is a need to examine the effect of mandatory adoption of International Financial Reporting Standards on the
value relevance of earning and book value of equity in Indian Stock Market. There is also a need for an
empirical study based on opinion of respondents to determine the perception of users of financial
statements of quoted firm in India.
Research Objectives
IFRSs have promised to provide more accurate and transparent financial statements and hence to
be more value-relevant to investors than local Accounting Standards used. This study will basically try to
explore the impact of transition to IFRS in Indian settings. In broad terms, this research attempts to
makes a contribution to knowledge by adding a single country study to the growing literature on
implementation of IFRS in different cultural and regulatory context which will be relevant not only to
academics but also to regulators and standard settings authorities Based on the identified research gap,
the present study is undertaken to attain the following objectives:
• To find out impact of transition to IFRS on financial statements.
• To examine the value relevance of accounting information and observe the changes in value
relevance after adoption of IFRS.
• To access the different opinion of the preparers of financial statements, investors and external
users including academicians regarding the adoption of IFRS.
Research Hypothesis
H01 : There is no significance effect of value relevance of book value of equity and earnings per
share after the adoption of IFRS.
H02 : There is no significant relationship between the adoption of IFRS and value relevance of
accounting information.
H03 : There is no significance effect of value relevance performance indicators of the companies
that have adopted IFRS in India.
Research Methodology
This study evaluates both primary and secondary data, so research methodology also divided in
two parts:
• On the Basis of Secondary Data
First part of this study is based on the secondary data which include websites, books, and
journals. The secondary source of accounting data used in this study is as indicated in table 1 :
Table 1 : Sources of Data
S. No. Figures Sources
1 Share price Indian Stock Exchange
2 Book value of Equity Consolidated balance sheet/consolidated financial position (online version)
per share
3 Earning per share Consolidated profit & loss/consolidated income statements ( online version)
This study evaluates the effect of IFRS adoption in India on financial reporting quality among
listed companies which adopted IFRS on 1st April 2011.For this purpose twelve Indian companies
selected as sample which is from different six sectors such as automobile, pharmacy, cement, power, IT,
metal & mining each sector include two companies. List of sample companies are as follows:
Table 2 : Sample Profile
Industrial Sector Name of Company
Automobile Tata Motors Hero Motors
Pharmaceutical Cipla
Dr. Reddy Cipla
Cement ACC Ambuja Cement
Power BHEL NTPC
Information Technology Infosys Wipro
Metal and Mining Sesa Goa Coal India
To evaluate the effect of IFRS adoption in India, on financial reporting quality among listed
companies through value relevance test using a relative and incremental research design, this study
adopts ohlson model framework which provide a link between share price and two accounting variables
but with a modification to capture the effect of the IFRS adoption. Book value of equity and earnings per
share are two accounting variable that are used in this study. Share price constitute the dependent
variable. Book value of equity and earnings per share constitute the independent variables.
This study adopt the adjusted coefficient of determination (adj. R2) as the unit to measure the
value relevance of book value and earning using least square regression, two metrics for value relevance
will be examined.
The first value relevance metrics will be basic on the explanatory power from a regression of the
share price on the book value of equity and earnings per share.
i. SPit =ao+ a1 BVPSi, t + a2 EPSi, t + ∑e i,t……i
The following second equation show the relationship between price of share and earnings per share
ii. SPit =ao+ a1EPSi,t +∑ei,t………..ii
The following third equation show the relationship between price of share and book value per share
iii. SPit =ao+ a1BVPSi,t +∑ei,t…….iii
Equation focuses on extend to which share price can be relatively explained by earning per share
and book value per share. The model is analysed on pre and post IFRS data. Pre include ( 1a, 2a, 3a) and
post ( 1b, 2b, 3b) IFRS eras.
The second value relevance metrics will determine whether the financial statements prepared pre
and post the mandatory adoption of IFRS are incrementally more or less value relevant. Value relevance
will be estimated based on following equation:
iv. SPi,t = ao + a1BVPSi,t + a2 EPSi,t + a3P +a4P×BV PSi,t+ a5 P × EPSi,t + ∑eI,t……..iv
To assess whether book value per share and earnings per share all incrementally value relevant in
the post IFRS adoption period co-efficient a4 and a5 have to be positively and significantly from zero as
determined by two tailed test. This indicates that the equity value of companies becomes more sensitive
to reported earning under IFRS than under the previous Indian AS. This will imply the earning reported
by Indian companies have become more informative to equity investor in determining the value of firm
following IFRS adoption.
• On the Basis of Responses
In second part of this study primary data are used. For this study adopted a survey research
design method to ensure that the researcher cover a larger population aimed at obtaining a subjective
opinion of responds. Primary method of data collection was adopted to determine the perception of
preparer and users of financial statements. Preparers included chartered accountants and company
secretary of companies who are responsible for preparation of financial statement. They are selected as
respondents due to their experience in IFRS and can act on behalf of shareholder.
The users of financial statement included investors, represented as investment analysis is picked
as respondent for the fact that they are major users of financial statements. Purposive sampling technique
was adopted as the population was grouped into two category of preparers and users of annual report. A
sample of 216 respondents was selected. The instrument used was as a survey questionnaire on a 5 point
likert scale. Total number of 102 questionnaire sent to prepares out of which 88 returns by prepares
representing 79%, for the users 104 questionnaire sent to users out of which 92 returned by users ,
representing 88%.
Analysis & Discussion
Analysis has been done on two sections, viz. on the basis of secondary data and on the basis of
responses.
A. On The basis of Secondary Data
a. Descriptive Study
The following table 3 and 4 gives the descriptive study about Earning per share, Book value per
share and Market price per share in pre and post IFRS period.
Table 3 : Descriptive Statistics of Earning Per Share, Book Value Per Share
and Market Price Per Share in Pre IFRS Period
Particulars N Minimum Maximum Mean Std. Deviation
Earnings per share pre IFRS 12 -0.85 1.69 0.55 0.72
Book Value per share pre IFRS 12 1.27 12.03 6.67 3.42
Market price per share pre IFRS 12 0.55 17.80 6.35 5.23
Table-3 depicts the general characteristics of the earning per share, book value per share and
market share price pre IFRS, the earning per share ranged from 0.85 to 1.69 with a mean of 0.55 and S.D.
of 0.72, the book value of equity per share ranged from 1.27 to 12.03 with a mean 6.67 and a S.D. 3.43
while the market price has minimum of 0.55 and maximum 17.80 with the mean of 6.35 and S.D. of 5.32.
Table 4 : Descriptive Statistics of Earning Per Share, Book Value Per Share
and Market Price Per Share Post IFRS
Particulars N Minimum Maximum Mean Std. Deviation
Earnings per share pre IFRS 12 -0.59 3.19 1.31 1.13
Book Value per share pre IFRS 12 0.10 16.09 8.22 4.41
Market price per share pre IFRS 12 0.50 27.40 8.928 8.26
In table 4, the post IFRS earning per share gives a minimum of 0.59 and a maximum 3.19, book
value of equity ranged from 0.10 to 16.09 with a mean 8.22 and standard deviation of 4.41. The share
price shows a range between 0.50 and 27.40 with a mean of 8.92 and S.D. of 8.26. It should be noted that
most of data does not follow normal distribution, there are large difference between minimum and
maximum value mean and S.D. also differ noticeably. However the mean of equity per share, show an
increase from pre adoption to the post adoption period. This may indicate a growing economic and
capital market between pre and post IFRS period.
b. Regression Model
a) Relative Value Relevance
H01 : There is no significance effect of value relevance of book value of equity and earnings per
share after the adoption of IFRS
Table 5 and 6 show the results of the Regression for pre and post IFRS period. Model 1a and 1b
reveal an increase in adjusted R2 between the pre IFRS and post IFRS period from 60.3% to 77.9%. This
implies that the book value of equity per share and earning reported under IFRS explain more about
share price as compared to the account being reported under Indian AS. This implies that the value
relevance of IFRS is significantly high compared to the Indian AS. The coefficient of earning per share
increased considerably from 0.348 to 0.670 and book value decreased from0.631 to 0.250 respectively.
This suggest that the market participants have changed the way in which they price their share and these
accounting variables may now be relevant or irrelevant.
Table 5 : Value Relevance of Earning and Book Value for All Companies for Pre IFRS Period
Regression Coefficient
Model Adjusted R2 F-Values
EPS BVPS
1a 0.348 0.631 0.603 26.917
2a 0.628 - 0.367 14.338
3a - 0.785 0.598 35.284
Table 6 :Value Relevance of Earning and Book Value for All Companies for Post IFRS Period
Regression Coefficient
Model Adjusted R2 F-Values
EPS BVPS
1b 0.670 0.250 0.779 41.576
2b 0.879 - 0.762 74.644
3b - 0.791 0.609 36.756
The model 2a, 2b,3a and 3b examine the univariate regression model regression result for the two
accounting variable separately. The model for pre and post IFRS reveal that book value and earning do
not significantly relate with the share price. However the adjusted R2 36.7 percent for pre IFRS and 76.2
percent for post IFRS. The book value of equity is 59.8 percent for the pre IFRS period. The coefficient of
earning per share increased considerably from 0.628 to 0.879 and book value of equity also increased
from0.785 to 0.791. This shows a considerable improvement during the post IFRS periods. The
explanatory power of earning per share and book value of equity is higher for post IFRS period.
b) Incremental Value Relevance
Table 7 : Incremental Value Relevance of Earning & Book Values
for all Companies for Post IFRS Period
Regression Coefficient Adjusted
Model-4 EPS BVPS P P x BVPS P x EPS F-Value
R2
0.375 0.552 0.004 -0.352 1.347 0.757 29.668
4
(2.31) (4.82) (-0.80) (1.545)
Table 7 represent the coefficient, adjusted R2 and f value of model 4, the adjusted R2 is 75.7% .
The coefficient of EPS and BVPS are 0.375 and 0.552 respectively. The coefficient for interactive variables
P x EPS and P x BVPS are 1.347 and -0.352respectively. The coefficient of P x BVPS is negative while P x
EPS is positive. This result suggests the book value of equity were relevant in pre IFRS and this relevance
decreased in post IFRS period. Earnings per share were also relevant in the pre IFRS period and the
relevance increased in the post IFRS period. The result indicate that the equity value of companies is not
more sensitive of share price under IFRS than under the previous Indian AS while earning per share is
more sensitive. This may also imply that earning reported by Indian companies have become more
informative to equity investor in determining the value of firm following IFRS adoption.
B. On the Basis of Responses
Find out that the adoption of IFRS by India yielded positive result in relation to the value
relevance of accounting information on companies that adopted in India. To effect of adoption of IFRS on
value relevance of accounting information lead to the following hypothesis:
Ho2 : There is no significant relationship between IFRS adoption and Value Relevance of Accounting
Information.
Table 8 : IFRS Adoption and Value Relevance of Accounting Information
Particulars Variable 1 Variable 2
Mean 17.20 18.80
Variance 0.48 0.48
Pearson Correlation -1
Hypothesized Mean Difference 0
Df 2
t Stat -2
P(T<=t) one-tail 0.09175171
t Critical one-tail 2.91998558
P(T<=t) two-tail 0.183503419
t Critical two-tail 4.30265273
The finding also revealed that the p value of t statistics is less than the test of significance at 5%. This
implies the significant effect of variables. The overall test of significance revealed p value less than test of
significance at 5% so null hypothesis is rejected and conclude that there is significance relationship between
the adoption the IFRS and value relevance of accounting information within the scope of survey considered.
Ho3 : There is no significant affect of Value Relevance Performance Indicators on companies that
have adopted IFRS in India.
Table 9
Particulars Variable 1 Variable 2
Mean 1.75 18.46
Variance 8.5 0.13
Observations 3 3
Pearson Correlation 1
Hypothesized Mean Difference 0
Df 2
t Stat -2.3E
P(T<=t) one-tail 7.2E
t Critical one-tail 2.9E
P(T<=t) two-tail 1.4 E
t Critical two-tail 4.3 E
The result of finding from the above table is based on the responses of the respondents on 5 point
linkert scale opinion for test questions as regard prepares and users of financial statements respectively.
For testing the significant difference of two variables that is first IFRS adoption and second variable is
value relevance as prepare perspective Pearson correlation test has been used at two degree of freedom.
For testing the significant affect of Value Relevance Performance Indicators on companies that have
adopted IFRS in India two variables are tested on the basis of users perspective person correlation used
as statistical tool. The finding revealed that p value of t statistics less than the test of significance at 5%. It,
therefore, show the significant effect of variable. The overall test of significance revealed that the p value
against is calculated value is less than 0.05. On the basis of above result null hypothesis H02 is rejected
and conclude that there is a significant effect of value relevance performance indicators on companies
that have adopted IFRS in India within the scope of survey considered.
Conclusion
On the basis of above result it could therefore be concluded that the adoption of IFRS positively and
significantly improved the quality of accounting information in the area of value relevance. This study also
investigated the value relevance of financial information of Indian Listed Companies. The overall result on
accounting presented in this study indicated that earning per share, book value of equity and share price of
companies have significantly improved following IFRS adoption. In this paper we attempted to access the
different opinion of the preparers of financial statements, investors and external users including
academicians regarding the adoption of IFRS and found there is no significance relationship between the
adoption the IFRS and value relevance of accounting information. As far as value relevance performance
indicators are concern there is a significant effect of value relevance performance indicators on companies
that have adopted IFRS in India within the scope of survey considered. The study has further suggested
that earning per share and book value of equity share are relevant in determining the value of share in
Indian Listed Companies in post IFRS era result. This study also indicated that earning per share
Incremental Value Relevant during post IFRS period. Also this study examines the effect of IFRS adoption
on reported earning and book value of equity. Accounting number other than equity and book value of
equity such as net assets, cash flow might be considered for future research.
References
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Aisbitt, S., (2006).‘Assessing the effect of the transition to IFRS on equity: the case of the FTSE 100’,
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Appendix
Questionnaire
A. The Relationship Between IFRS Adoption and Value Relevance of Accounting Information
S. Strongly Strongly
Test Questions Agree Neutral Disagree
No. Agree Disagree
1 IFRS adoption enhances positive
contribution to the increase of
value relevance of accounting
information
2 IFRS increases the quality of
Financial statements coupled
with strengthening corporate
entities in capital market
3 IFRS adoption has significant
effect on value relevance
variables
B. The Effect of Value Relevance on Companies that Adopted IFRS
4 Value relevance of accounting
information has significant effect
on share price and other
performance indicators.
5 Value relevance of accounting
information helps to predict
future earnings, assess the
usefulness and quality of
financial statements.
6 The increase in value relevance
of accounting information
enhances economic development
of quoted companies that
adopted IFRS in India.

PERFORMANCE APPRAISAL OF HPCL THROUGH FREE CASH FLOW
Dr. S. K. Khatik ∗
Dr. Amit Kumar Nag∗∗
ABSTRACT
The present research work makes an assessment of the Free Cash Flow position of the HPCL. This study helps to
reveal the causes of cash inflows and cash outflows made by the company and make a detailed analysis of its impact on the
performance of the company so that fruitful suggestions could be given to improve its performance in future. Cash is the
vital input needed to keep business running on a continuous basis. Management of cash involves cash planning,
evaluation of cash benefits, sound procedures and practices and finally organization of cash inflows and outflows. Since,
Free Cash Flow is a tool for scientific evaluation of the performance of any business concern; the same has been used in the
present research study. The study tries to examine the impact of Free Cash Flow and its different variables on company’s
performance. The data was collected from the annual reports of HPCL covering the period of ten years starting from 2005-
06 to 2014-15 and the data analysis was conducted by using one sample t-test.
KEYWORDS: Free Cash Flow, Free Cash Flow to Equity and to the Firm, Performance Appraisal.
JEL Code : G12, L65 & M41
_______________
Introduction
Free Cash Flow measures, surplus of operating cash a company has after paying off its capital
expenditures and dividends. Free cash flow helps a company to identify opportunities that are helpful in
improving shareholders value like developing new products, increasing dividends, paying off company’s
debt or by buy back of its stock. An increase in free cash flow indicates sustainable growth in the company’s
earnings, whereas a continuous decrease in free cash flow is an indicator of problems ahead of the company
owing which a company may have to resort to internal funding of their operations and growth. A
temporary negative or falling free cash flow is however not consider as a trouble provider since it can be
because of heavy capital expenditure incurred for launching a new product which will help in future
growth as well as increasing future free cash flow. It is imperative to identify the reasons for the increase or
decrease in free cash flow. Free cash flow is a significant measure to judge a company’s growth potential. It
is the management of the company which decides how to reinvest the excess cash in the business in order to
enhance the earning potentials or to use it for the benefit of its investors. In order to grow, a company must
have sufficient cash to reinvest in the business. If it is not so, then the company will not be in a position to
increase its earnings per share. In the absence of sufficient cash flow even most profitable companies suffers
∗
Professor and Head, Department of Commerce, Former Dean, Faculty of Commerce and Chairman, Board
of Studies, Barkatullah University, Bhopal, M.P.
∗∗
Associate Professor, Department of Commerce, The Bhopal School of Social Sciences (BSSS), Bhopal, M.P.
Dr. S.K.Khatik & Dr. Amit Kumar Nag : Performance Appraisal of HPCL through Free Cash Flow 19
financial problems. The managers who are dealing with the cash flows of the company should judicially
reinvest the excess cash for the benefit of its investors, in order to enhance the earnings growth potential as
well as should try to increase cash flows when the company is having deficit or decreasing cash flows.
Hartely, W.C.F and Meltzer, Y.L., (1967) opinioned that ‘ Cash forecast is used as a method to predict
future cash flow because it deals with the estimation of cash flow (i.e., cash inflows and cash out flows) at
different stages and offers the management an advance notice to take appropriate and timely action’.
Orgler, Y. E., (1970) stated that ‘the various collection and disbursement methods can be
employed to improve cash management efficiently since it constitutes two sides of the same coin’. Both
collections and disbursements exercise a joint impact on the overall efficiency of cash management.
Rama Moorthy (1978) stated that ‘deposit float as the sum of cheques written by the customers
that are not yet usable by the firm ‘. He further stated that in India deposit float can assume sizeable
opportunities as cheques normally take a longer time to get realized than in most countries.
Bottan S.E., (2000) stated that ‘Cash is an oil to lubricate the ever turning wheels of business: without
it, the process grinds to a stop”. He further stated that ‘Cash shortage is not cost free; it involves cost whether it
is expected or unexpected shortage. The expenses incurred as a result of shortage are called short costs.
Justification of the Study
Adequate availability of cash is essential to meet the business needs. Since, it is necessary in daily
business operations and is productive, the cash owned by an enterprise at any time should be carefully
regulated1. Prophecy of cash requirement of a concern is necessary for managing its cash flows, for
getting short term borrowings and to meet cash payments. Appropriate cash planning will allow the
concern to predict its cash surplus or deficit for any planning period and the surplus cash if any should
be invested in short term marketable securities, in order to earn profits. Therefore, an effort has been
made in this paper to make a comprehensive study of the HPCL in respect of its Free Cash Flow.
Period of the Study
The present study covers a period of ten years from 2005-06 to 2014-15. To judge the free cash
flow position of HPCL based on the various aspects, a period of 10 years is considered to be long enough
to study whether sufficient Free Cash Flow was available to equity as well as to the firm.
Objective of the Study
This study has the following objectives:
• To study the concept of Free Cash Flow.
• To examine the Free Cash Flow to Equity of HPCL.
• To analyze the Free Cash Flow to Firm of HPCL.
• To know the impact of free cash flow on the performance of HPCL.
Hypothesis of the Study
Ho1 : There is no significant difference in the Free Cash Flow to Equity of HPCL during the study period.
Ho2 : There is no significant difference in the Free Cash Flow to Firm of HPCL during the study period.
Methodology
For the study, statistical data has been collected from the annual reports published by HPCL. The
statistical techniques like percentage, averages, coefficient of variation, t-test have also been applied.
Limitations of the Study
As the report is mainly based on secondary data; the following limitations are expected to be part
of the required study:
1 Accountants Handbook (1970), New York: A Ronald Press Publications; John Wiley & Sons, Section 10, p.9.
• The performances of HPCL have been shown for just last ten years, ending 2015. Hence, any
uneven trend before or beyond the set period will be the limitations of the study.
• This analysis is based on only monetary information, analysis of the non monetary factors are
ignored.
• As per the requirement of the study some data have been grouped and sub grouped.
Analysis of Impact of Free Cash Flow on the Performance of HPCL
Free Cash Flow analysis of the HPCL has been done with the help of information in the cash flow
analysis. Various elements such as Free Cash Flow, Free Cash Flow to Equity and Free Cash Flow to the
Firm have been applied for judging the performance of the company.
• Free Cash Flow
Free Cash Flow is helpful in gauging a company’s cash flow beyond what is necessary to grow at
the normal current rate. In order to exist, develop and grow it is imperative for organization to make
capital expenditures and free cash flow considers these expenditures. Free cash flow enables a company
to have financial flexibility and in making investments beyond the planned ones. The formula for the
calculation of Free Cash Flow is:
Free Cash Flow = Cash Flow from Operations - Capital Expenditures
Where, Cash Flow from Operating Activities (CFO) indicates the inflow of cash from its ongoing
and regular activities, i.e., from manufacturing and selling of goods or from providing a service. Cash
Flow from Operating Activities (CFO) will never include long term capital expenditure or the investment
cost. It is also known as Operating Cash Flow or Net Cash flow from Operating Activities and is
therefore calculated as:
Cash Flow from Operating Activities (CFO) = EBIT + Depreciation - Taxes
And Capital Expenditure incorporates the expenditure incurred by a company to acquire assets or
to upgrade physical assets and such outflows are made by the company to increase or to maintain the
scope of its operations.
Table 1: Statement Showing Free Cash Flow
(Rs. In Crores)
Cash Flow From
Year Capital Expenditures Free Cash Flow
Operations
2005-06 604.59 5626.08 -5021.49
2006-07 3787.51 8952.07 -5164.56
2007-08 -1729.93 7683.86 -9413.79
2008-09 5840.76 18233.67 -12392.91
2009-10 3281.40 7079.38 -3797.98
2010-11 1002.42 5424.39 -4421.97
2011-12 2226.26 4565.13 -2338.87
2012-13 895.55 4607.45 -3711.90
2013-14 8807.56 4298.49 4509.07
2014-15 17841.09 4190.98 13650.11
Mean 4255.72 7066.15 -2810.43
Standard Deviation 5330.24 4020.55 6891.96
COV % 125.25 56.90 -245.23
Growth 2850.94 -25.51 -371.83
Average Annual Growth % 285.09 -2.55 -37.18
Source: Compiled from the annual reports of HPCL. (From 2006 - 2015)
Interpretation
Table 1, shows that the Free Cash Flow was lowest in the year 2008-2009 when it was –Rs.12392.91
cores which then increased to Rs.-3797.98 crores in the year 2009-2010. The Free Cash Flow was highest in
the year 2014-2015 when it was Rs.13650.11 crores. Except for 2013-14 and 2014-15 the Free Cash Flow
was negative throughout the study period. The overall average of Free Cash Flow for the whole period of
study was Rs.-2810.43 crores. The standard deviation of the Free Cash Flow was 6891.96 with coefficient
of variation as -245.23%. The overall growth of the Free Cash Flow during the period of the study was -
371.83%, with average annual growth of -37.18 %.
• Free Cash Flow to Equity
Free Cash Flow to Equity is basically the adjusted Free Cash Flow for Debt Cash Flows since
shareholders or the stakeholders are the sole claimants of the residual of the company. Basically, free
cash flow to equity comprises of Net Income, Capital Expenditures, Working Capital and Debt. The Net
Income can be identified from the Income statement, Capital Expenditure can be identified from the Cash
Flow from Investing Activities section of the Cash Flow Statement, Working Capital Can also be
identified from the Cash Flow Statement under the Cash Flow from Operating Activities Section, and
Debt or Net borrowings can again be identified from the Cash Flow Statement under the Cash Flow from
Financing Activities Section. Free Cash Flow to Equity is used to identify whether repurchases of Stock
or payment of dividend are made from Free Cash Flow to Equity or from any other forms of financing. If
the amount of Dividend paid or the amount paid for the buyback of shares is less than the amount of
Free Cash Flow to Equity, it indicates that the company made funding with either the debt or with the
existing Capital. The Free Cash Flow to Equity is:
Free Cash Flow to Equity = Cash Flow from Operations - Capital Expenditures + Net Borrowings
Table 2: Statement Showing Free Cash Flow to Equity
(Rs. In Crores)
Cash Flow From Capital Net Free Cash Flow to
Year
Operations Expenditures Borrowings Equity
2005-06 604.59 5626.08 4311.21 -710.28
2006-07 3787.51 8952.07 3836.88 -1327.68
2007-08 -1729.93 7683.86 6099.84 -3313.95
2008-09 5840.76 18233.67 5602.52 -6790.39
2009-10 3281.40 7079.38 -978.05 -4776.03
2010-11 1002.42 5424.39 3040.80 -1381.17
2011-12 2226.26 4565.13 3691.66 1352.79
2012-13 895.55 4607.45 3707.16 -4.74
2013-14 8807.56 4298.49 -4203.56 305.51
2014-15 17841.09 4190.98 -12380.74 1269.37
Mean 4255.72 7066.15 1272.77 -1537.66
Standard Deviation 5330.24 4020.55 5424.32 2529.19
COV % 125.25 56.90 426.18 -164.48
Growth 2850.94 -25.51 -387.18 -278.71
Average Annual Growth % 285.09 -2.55 -38.72 -27.87
Interpretation
As per table no.2, the Free Cash Flow to Equity was highest in the 2011-12 when it was Rs.1352.79
crores and was lowest in the year 2008-2009 when it was Rs.-6790.39 crores. The Free Cash Flow showed
a decreasing trend from the year 2005-2006 to 2008-2009 and then increased to Rs.-4776.03 crores in the
year 2009-2010, but still was negative, which further increased and reached its highest in the year 2011-
12. The overall average of Free Cash Flow to Equity for the whole period of study was Rs.-1537.66 crores.
The standard deviation of the Free Cash Flow to Equity was 2529.19 with coefficient of variation as -
164.48%. The overall growth of Free Cash Flow to Equity during the period of the study was -278.71%,
with average annual growth of -27.87%.
• Free Cash Flow to the Firm
Free Cash Flow to the firm measures the financial performance of a company by calculating the net
amount of cash generated for a company or a firm after providing for expenses, taxes, changes in working
capital and for investments. It is basically the measurement of a company’s profitability after meeting all
expenses and investments. It represents the firm’s ability to pay dividends, buy back its share as well as pay off
debt. A negative Free Cash Flow to the firm indicates that the firm has not generated sufficient funds or
revenue to cover its cost or investment activities, whereas a positive Free Cash Flow to the firm indicates
excess cash left after meeting all expenses. Free Cash Flow to the firm is also known as the unlevered free cash
flow since it is the cash flow before interest on debt. Free Cash Flow to the firm is calculated as:
Free Cash Flow to the Firm= Free Cash Flow to Equity + Interest Expenses (1-Tax Rate) - Net Borrowings
Table 3: Statement Showing Free Cash Flow to the Firm
(Rs. In Crores)
Free Cash Flow to Interest Expenses Net Free Cash Flow to
Year
Equity (1-Tax Rate) Borrowings the Firm
2005-06 604.59 175.88 4311.21 -3530.74
2006-07 3787.51 422.98 3836.88 373.61
2007-08 -1729.93 766.10 6099.84 -7063.67
2008-09 5840.76 2082.84 5602.52 2321.08
2009-10 3281.40 903.75 -978.05 5163.20
2010-11 1002.42 884.00 3040.80 -1154.38
2011-12 2226.26 2224.27 3691.66 758.87
2012-13 895.55 1412.80 3707.16 -1398.81
2013-14 8807.56 1336.36 -4203.56 14347.48
2014-15 17841.09 706.59 -12380.74 30928.42
Mean 4255.72 1091.56 1272.77 4074.51
Standard Deviation 5330.24 636.14 5424.32 10463.33
COV % 125.25 58.28 426.18 256.80
Growth 2850.94 301.75 -387.18 -975.98
Average Annual Growth % 285.09 30.17 -38.72 -97.60
Interpretation
Table 3, states that the Free Cash Flow to the Firm was highest in the year 2014-2015 when it was Rs.
30928.42 crores and was lowest in the 2007-08 when it was Rs.-7063.67 crores. HPCL witnessed negative Free
Cash Flow to the firm in the year 2005-06, 2007-08, 2010-11 & in the year 2012-13. The Free Cash Flow to the
firm showed an increasing trend during 2008-09 and 2009-10 when it was Rs.2321.08 crores and Rs.5163.20
crores respectively and then decreased to Rs.-1154.38 crores in the year 2010-11. The overall average of Free
Cash Flow to the Firm for the whole period of study was Rs.4074.51 crores. The standard deviation of the Free
Cash Flow to the Firm was 10463.33 with coefficient of variation as 256.80%. The overall growth of Free Cash
Flow to the Firm during the period of the study was -975.98%, with average annual growth of -97.60%.
Testing of Hypothesis
Null Hypothesis (Ho)
Ho1 : There is no significant difference in the Free Cash Flow to Equity of HPCL during the study period.
Table 4 : One-Sample Statistics
N Mean Std. Deviation Std. Error Mean
Free Cash Flow to Equity 10 -1537.66 2665.99 843.06
Table 5: One-Sample Test
Test Value = 0
95% Confidence Interval
t df Sig. (2-tailed) Mean Difference of the Difference
Lower Upper
Free Cash Flow to Equity -1.824 9 .101 -1537.66 -3444.80 369.48
Interpretation of t-test
t=-1.824 &t0.05=2.262
t < t0.05
When degree of freedom (df) is 9 and level of significance is 5%, the critical value is 2.262. Since the
calculated value of t is -1.824 which less than the table value, we conclude that there is no significant difference
in the Free Cash Flow to Equity of HPCL during the study period. Hence, null hypothesis is accepted.
Ho2 : There is no significant difference in the Free Cash Flow to Firm of HPCL during the study period.
Table 6: One-Sample Statistics
N Mean Std. Deviation Std. Error Mean
Free Cash Flow to the Firm 10 4074.51 11029.32 3487.78
Table 7: One-Sample Test

Test Value = 0
95% Confidence Interval
Mean
t df Sig. (2-tailed) of the Difference
Difference
Lower Upper
Free Cash Flow to the Firm 1.168 9 .273 4074.51 -3815.40 11964.41
Interpretation of t-test
t=1.168 &t0.05=2.262
t < t0.05
When degree of freedom (df) is 9 and level of significance is 5%, the critical value is 2.262. Since the
calculated value of t is 1.168 which less than the table value, we conclude that there is no significant difference
in the Free Cash Flow to Firm of HPCL during the study period. Hence, null hypothesis is accepted.
Conclusion
In light of the present research work it can be concluded that the Free Cash Flow to Firm position of
HPCL is very satisfactory with highest Free Cash Flow to Firm in the year 2014-2015 when it was Rs.
30928.42 crores showing the efficiency with which the company is going through its Free Cash Flow. As
regards to the Free Cash Flow to equity, the least was in the year 2008-2009 when it was Rs.-6790.39 crores.
The overall average of free cash flow was not at all satisfactory during the entire period of the study, it was
Rs.-2810.43. On analyzing Free Cash Flow to the Firm, it was observed that the company has put in utmost
effort to maintain and increase its Free Cash Flow. The average Free Cash Flow to the Firm was Rs.4074.51
crores, with the lowest in the 2007-08 when it was Rs.-7063.67 crores. The study reveals that the
performance of the company is satisfactory since it is generating sufficient cash to cover its cost and to meet
its investment activities as well as to pay dividends, buy back its share or to pay off its debt.
Suggestions
The following suggestions could be laid down in the light of the findings:
• The company needs to minimize its cash expenses in order to increase its cash in hand, cash at
bank and other short term securities.
• There is a need to maintain balance between profitability and liquidity which is only possible if
the company is having adequate cash balance.
• The company should plan to maximize its net income after tax which in turn will help the
company to have adequate cash balance which in turn will enable the company to have financial
flexibility and will be able to make further investments.
• The company should have a check on its Free Cash flow to equity so that the company can have
proper flow of cash available for its stakeholders throughout the year.
References
Accountants Handbook (1970), New York: A Ronald Press Publications; John Wiley & Sons,
Section10, p.9.
Bhat, S (2008), “Financial Management –Principles and Practice”: New Delhi: Excel Books, pp 608-
615.
Bottan S.E., (2000), op.cit, p.390.
Brigham,E.F, (1978), “ Fundamentals of Financial Management”, Illnois: The Dryden Press, p.168.
Gitman, L.J., op. cit., p.170.
Hartely, W.C.F and Meltzer, Y.L., (1967), “Cash Management, Planning, Forecasting and Control” New
Jersey: Prentice-hall Inc., p.58.
Howard, B.B. Uptan.M, (1953) “Introduction to Business Finance”, New York: McGraw Hill Book
Co., Inc.,p.188.
Khan, M.Y and Jain, P.K. (1982), “Basic Financial Management”, New Delhi: Tata McGraw Hill
Publishing Co. Ltd., p.139.
Orgler, Y. E., (1970), “Cash Management: Methods and Models”, California: Wordsworth Publishing
Company, p.392.
Pandey, I.M. (2002): “Financial Management”: New Delhi: Vikas Publishing House Pvt. Ltd.,
p.912.
Ramamoorthy, V.E., (1978),”Working Capital Management”, Madras: Institute of Financial
Management and Research, p.136.

CONTRIBUTING FACTORS TO THE COST OF FACULTY

ATTRITION IN TECHNICAL INSTITUTIONS
N. Malati∗
Prakash Sharma∗∗
ABSTRACT
The objective of higher education is to provide students with sufficient knowledge and skill so as to function
as creative and productive members of the society. This is fulfilled through its faculty which disseminates knowledge
and skill. The faculty is considered to be a vital element in the success of every institution. Increase in number of
technical education institutions has lead to an increase in demand for faculty. One major problem faced by these
institutions is faculty attrition. Faculty attrition is associated with costs which are in the form of direct, indirect or
opportunity. Measurement of this cost becomes imperative to organizations. Quantification of the indirect and
opportunity costs is all the more difficult but they have far reaching effects. The current study tries to understand
the relationship between indirect and opportunity cost incurred by the institutions and faculty attrition. Factor
analysis and CATREG have been employed and it was observed that higher the attrition, higher the indirect costs
indicating that as the attrition goes above 25% it creates negativity in the climate leading to lower productivity,
loss of motivation of students and faculty, loss of intellectual capital, loss of productivity of faculty in terms of lower
participation in research, conferences, new curriculum development resulting in diminishing sense of professional
value. The same effect has been observed in the case of opportunity costs too indicating that higher the attrition
higher is the loss in terms of decrease in business, students, faculty/adjuncts and institution's reputation.
KEYWORDS: Faculty Attrition, Indirect Costs, Opportunity Cost, Technical Institutions.
_______________
Introduction
Education has been recognized as the most important source of competitive advantage for a
nation. The objective of higher education is to provide students with sufficient knowledge and skill to
function as creative and productive members of the society. The wealth or poverty of a nation depends
on the quality of the higher education (Malcolm Gillis, 1999). The focus on higher education has been
increasing and is evident from the government’s progressive policies in the field of education in the 12th
Five year Plan. This has also resulted in the rise in number of institutions offering higher education
including technical education. Faculty is an important component of every institute and the growth
trajectory is largely dependent on the quality of faculty available. There has been huge mismatch in the
growing demand for faculty with corresponding availability of quality faculty, resulting in faculty
∗
Department of Management, Delhi Institute of Advanced Studies, Guru Gobind Singh Indraprastha
(GGSIP) University, Delhi, India.
∗∗
Department of Accountancy and Business Statistics, Faculty of Commerce, University of Rajasthan, Jaipur,
Rajasthan, India.
attrition. Faculty attrition has quantifiably dire consequences for the nation’s quality of technical
educations. Many educational institutions constantly struggle to maintain and rebuild the staff
continuously. The talent and acumen remain stored in a leaky bucket. An inordinate amount of their
capital – both human and financial – is consumed by the constant process of hiring and replacing faculty
who leave before mastering the art of creating a cohesive learning culture for the students. The
organizations constantly spend and re-spend its resources on grooming fresh talent that acquires
professional know how and exits the system for a better opportunity. This leads to complete wastage of
all the capital consumed by the recruitment and training process. As a result of high turnover,
institutions are often staffed with unbalanced concentrations of under-prepared, inexperienced teachers
who are left on their own to meet student needs. As a consequence of this isolation, many new teachers
feel overwhelmed by the challenge they face, eventually leaving their current workplace.
The need of the hour for institutions is to be aware of their attrition problems. The absence of a
clear understanding of the attrition trends often lead to costly annual recruitment and hiring cycle,
bringing in more and more faculty into institutions only to lose them with an equally fast rate. The
process is bound to drain the institutions both financially and intellectually leading to wider student
achievement gaps. Hence the current study tries to understand the various costs involved in the faculty
attrition with specific focus on the indirect and opportunity costs.
Background for the Study
Technical education is defined as programmes of education, research and training in engineering,
technology, architecture, town planning, management, pharmacy, applied arts and crafts and such other
programmes or areas as the Central Government may, in consultation with the Council, by notification in
the official Gazette, declare. The government on its part aims to increase the Gross Enrolment Ratio
(GER) in higher education to 21% by the end of the 12th five year plan period from the current 13.5% and
Ministry of Human Resource Development has formulated an action plan to achieve this target. This has
led to an unprecedented expansion in the numbers of the premier institutes like IITs, IIM, NITs, and
IISERs etc. Permission for private investors in the area of education has resulted in a spurt of technical
institutions from 4,491 in 2006-07 to 8, 361 in 2011-12 with a corresponding increase in the annual student
intake from 9,07,822 in 2007-08 to 20,46,611 in 2011-12. Further, significant number of university level
technical institutions, such as deemed universities and private universities established by the State
legislatures, have also come into existence in recent years. This has also brought forth pertinent focus on
popularity of certain programmes offered, creation of regional balance, ownership pattern, modes of
delivery of the programme, degree of regulation, creation and sustenance of talented faculty etc. The
National Knowledge Commission (2006-2009) in its ‘Report to the Nation’ also reiterates the high growth.
Further, evaluation of the institutions is largely dependent on the ‘Intellectual Capital and Faculty’
making it increasingly important to develop a mechanism to arrest, conserve, retrieve the intellectual
capital of the management institutions (Doctor and Ramachandran, 2008). According to a report
presented to the Union Government by the University Grants Commission (UGC), India currently has
only half of the required strength and needs about 3,00,000 more faculty, revealing the extent of faculty
crunch in India’s higher education system. Ministry of Human Resource Development (MHRD) in a
statement stated that “establishment of a reliable database itself is a major hurdle in addition to the issue
of faculty shortage”. The report also states that India requires about 100,000 more teachers per year in
next 10 years for its colleges. The task force has urged the Ministry to immediately order a complete
assessment of the academic situation in India, without which higher education policy projections for the
12th Year Five Plan (2012-17) cannot be met. Suneja. K. (2013) states that with 92% of the total institutions
imparting technical education comes from the unaided private institutions. It has become essential for
N. Malati & Prakash Sharma : Contributing Factors to the Cost of Faculty Attrition in...... 27
the colleges to comprehend that a higher attrition rate results in lowering of quality, decreasing prestige
and lesser attraction of students, all of them also influencing the costs. The study was carried out in
Delhi which is the capital city and the education hub.
Literature Review
Ingersoll, (2001); NCTAF, (2002), McCullough & Johnson, (2007) put forth various costs of faculty
attrition which have an impact on school performance and community. Further, it was observed that
high levels of employee turnover are both cause and effect of ineffectiveness and low performance in
organizations. In other words, faculty tends to remain in competent schools and leave ineffective or low-
performing ones. Ingersoll (2002) stated that teaching was a “revolving door…occupation in which there
are relatively large flows in, through, and out of schools”. This ‘revolving door’ was costly to the nation.
Rampant attrition is usually an indicator of organizational inefficiency and proves to be potentially
troublesome and expensive (Waters, 2003). The rise in loss of relatively high human capital value
employees who choose to leave an organization can cause serious loss and difficulty, (Zhang et al., 2006).
Less qualified instructors have been shown to adversely impact student achievement (Hill & Barth, 2004),
resulting in a cost to student achievement across the nation. Voluntary turnover costs emanate from an
increase in the rate of employee turnover Morrell et al (2004). He further identified direct and indirect costs
of voluntary turnover as replacement, recruitment and selection, temporary staff, management time,
morale, pressure on remaining staffs, costs of learning, product or service quality, organizational memory,
and the loss of social capital. According to Rodgers (2005) and Dooney (2002) the costs related to
turnover/attrition of online faculty/adjunct ought to be based on predetermined measures related to costs
established by an institution, based on: 1) Direct costs, 2) Indirect costs, and 3) Opportunity costs. The
financial costs associated with employee attrition are often described in general terms and do not provide
specific line item costs that are critical to annual budgets. Methods for estimating these costs have been
available for years (Brogden, 1949; Cronbach and Gleser, 1965) but not until mid-1970’s when the subject
attracted the attention of the researchers. These costs are most difficult to measure as there is a lack of direct
monetary relationship between the costs and the employee exit behavior. Evaluating these costs is a matter
of prime concern since the repercussions may continue to affect the institution in more than one ways.
Extensive literature on reasons as to why faculty/adjunct depart from higher education exist (Nagowksi,
2006; Amey, 1996), the line item costs related to turnover/attrition are not readily available. Collins and
Smith, (2006) state that, more often than not the cost of replacing employees, or other general costs are
typically associated with employees recruitment and training .Literature on financial costs relating to
attrition often focuses on employees within corporations (Cork, 2008; Dooney, 2005; Rodgers, 2002) and not
higher education. According to O’Connel and Kung (2007) there are three main components of turnover
costs- recruitment cost, potential loss of business and training and development cost. Holtom. B.C et. al (
2008) reveal that there are no profit and loss statements that specifically depict the “cost of voluntary
turnover”. Instead, the costs are concealed in line items like recruitment, selection, temporary staffing and
training. Or worse still, the valid but unmeasured costs from losses of customer service continuity or critical
implicit knowledge are never calculated. Mehta. S (2012) states that exodus of teachers is a costly
phenomenon, both for the students, who lose the value of being taught by an experienced teacher, and to
the institute as they have to start from the scratch. Faculty turnover costs the nation in multiple dimensions.
The failure to measure the costs may partly be attributed to lack of defined models and frameworks to
guide managers in accurately estimating employee attrition costs. Sorensen (1995) also includes
supervisory time spent on additional on-the-job training as a cost factor. Loss of productivity is identified as
the loss of time invested by the trainer in grooming the trainee and the expanded procedural time. One also
needs to account for costs incurred due to learning curve losses which translate into expenses associated
with the time it takes for a new employee to reach full productivity (Fitz-enz, 1997; Pinkovitz et al., 1997).
According to Bliss (1997), it takes the average employee approximately five months to reach full
productivity. This is most likely a conservative estimate for beginning teachers but may be appropriate for
experienced teachers moving into new positions. In education, teacher productivity could be expressed in
terms of student performance, but it would be difficult to associate monetary value on performance, making
it imperative for the institutions to understand, analyze and arrest the attrition. Often the exit of employees
leads to negative changes in the workplace with dip in employee morale and consequent loss of
productivity hence measurement of the indirect and opportunity cost becomes essential.
This paper discusses about Indirect and opportunity costs. The indirect cost is characterized by
loss of intellectual capital, lower staff productivity, inability to design new courses, inability of faculty for
various activities leading to individual as well as institutional growth due to lack of staff, sense of
professional value, and faculty motivation. The second cost opportunity cost comprising of costs
incurred due to failure to start a new course, failure to offer specialized course, loss of established market
sector to competitors, loss of current and potential students to competitors, loss of potential
business/educational partnerships, loss of faculty/adjuncts to competitors, loss of potential
faculty/adjuncts, decrease in student enrolment, faculty and staff recruitment, possible loss of
accreditation or grading by regulatory bodies, decrease in donations, contributions, and decrease in sense
of community.. Considering both of these costs, this paper explores the relationship between indirect cost
and opportunity cost incurred by the institutions at various levels of faculty attrition.
To explore the impact of faculty attrition on the indirect and opportunity costs of the technical
institutions.
Research Design
A structured questionnaire was designed to collect the data. Different factors were identified through
literature review and exploratory study. Exploratory factor analysis was applied to develop the measurement
tool for identifying factors of indirect and opportunity costs. For the indirect cost 2 items (comprising of 13
sub-items) were selected on the basis of literature review and for the opportunity cost four items (comprising
of 18 sub-items)were selected. The indirect cost and opportunity cost were dependent variables and the levels
of faculty attrition was taken as independent variable. Validity of the questionnaire was checked through face
validity method and was found to be high. Items were rated on likert scale of five points which is the most
popular choice for ordinal scale; the opinion indicated as “very high” has been assigned the weight of 5. To
evaluate the indirect and opportunity cost of the institutions total (summated) score was calculated for each
respondent by summing across items.
Sampling and Data Collection
The study was conducted in Technical institutions (approved by AICTE) in the Delhi and NCR
region. A sample of 55 institutions was drawn using simple random sampling. The data on these items was
collected through a sample of fifty five directors/HOD of various technical institutions on a 5 point likert
scale. Questionnaires were circulated in 102 institutions and 55 completely filled in questionnaires were
received. The response rate was 53.92.
Data Analysis and Results
Exploratory Factor Analysis was undertaken and was followed by categorical regression. The
factor analysis generated two components with Eigen value greater than 1. The varimax rotation clubbed
the items on one component as shown in Table 1.
Table 1: Rotated Component Matrix and Cronbach

Components Cronbach
Indirect Cost
A1 Productivity Costs .842
0.66
A2 Cost of Morale .882
Opportunity Cost
B1 Loss of Business .802
B2 Loss of Students .782 0.83
B3 Loss of Faculty/Adjuncts .879
B4 Loss of Reputation .792
KMO for Sampling Adequacy = 0.75 & Barlett’s test of Sphericity Significance= 0.00
Items A1 and A2 were clubbed as ‘Indirect Cost’ characterized by Productivity Costs and Cost of
Morale.
Further B1, B2, B3, & B4 were clubbed as Opportunity Cost comprising of Loss of Business, Loss
of Students, Loss of Faculty/Adjunct and Loss of Reputation. The split half reliability measure cronbach
alpha values are found to be acceptable as shown in Table 1.
To assess the indirect cost and opportunity cost of faculty attrition categorical regression was
applied with factors of indirect and opportunity cost as dependent variable and four categories of
attrition i.e. attrition less than 5%, 5%-less than 15%, 15%- less than 25%, and greater than 25% as
independent variables. Results could not be achieved when all the four categories were entered together
as it was generating zero tolerance implying high collinearity between the independent variables. So
results were generated by removing one of the independent variable every time. The level of tolerance of
categories (nearing to 1), have been considered for the study. Further means have been taken to
understand the variations across the attrition levels with respect to each of the elements of indirect costs
and opportunity costs.
Indirect Cost
The scrutiny of the Table 2 shows that there are significant effects of various attrition categories on
indirect cost. In this case also the results depicted in I and II cases will be considered. The results show
that in the I case the category of attrition greater than 25% has significant positive effect on indirect cost
and in II case the category 15%-less than 25 % has significant adverse effect on indirect cost. This means
higher the attrition lower is the indirect cost in case of attrition category 15% to less than 25% while in
case of attrition greater than 25% the higher attrition leads to high total indirect cost.
Table-2: Categorical Regression of Faculty Attrition Rate on Indirect Cost
Standardized
Correlations Tolerance
Coefficients
Importance
Std. Zero- After Before
R2= .161 Beta df F Sig. Partial Part
Error Order Transformation Transformation
When I Independent Variable was removed
Greater
.286 .131 1 4.784 .033 .270 .293 .281 .481 .961 .961
than 25%
When II Independent Variable was Removed
15%- less
-.297 .133 1 4.941 .031 -.267 -.297 -.285 .493 .924 .924
than 25%
Also the table of means (Table 3) shows that the total indirect cost incurred is average in institutes
having low attrition rates while it is above average in institutes with high attrition rates. The results indicate
that till the attrition rate of 15% to 25% the climate of the institute does not lead to be negative to lower
down the productivity, motivation of students and faculty remain intact, loss of intellectual capital is not
detrimental, loss of productivity of faculty in terms of research, conferences, new curriculum development
is not too high, sense of professional value does not diminish but when the attrition raises more than 25%, it
creates negativity in the climate leading to lower productivity, loss of motivation of students and faculty,
loss of intellectual capital is detrimental, loss of productivity of faculty in terms of research, conferences,
new curriculum development is high and diminishing sense of professional value is high.
Table 3: Mean Scores of Institutes on Indirect Costs with respect to Different Attrition Rates
Attrition less Attrition 5%-less than Attrition 15% - less than Attrition Greater than
than 5% 15% 25% 25%
Indirect Cost 2.93 3.12 3.29 3.54
Opportunity Cost
In the case of opportunity costs also the results depicted in I and II cases are considered, the results
show that in both I and II case the category greater than 25% has significant positive effect on opportunity
cost. This means higher the attrition higher is the loss opportunity costs. The result shows that in greater
than 25% attrition category the 1 standard deviation changes leads to .332 to .412 standard deviation
increases in total opportunity cost. Also the individual prediction power of attrition category greater than
25% is 11.56% and 16.81%. Looking at the importance of the predictors, the attrition category of greater than
25% attrition is the only important predictor with the importance of 82% which is very high (Table 4).
Table 4: Categorical Regression of Faculty Attrition Rate Opportunity Cost
Standardized
Correlations Tolerance
Coefficients
Importance
Std. Zero- After Before
R2= .189 Beta df F Sig. Partial Part
Error Order Transformation Transformation
When I Independent Variable was removed
Greater
.412 .129 1 10.280 .002 .377 .410 .404 .823 .961 .961
than 25%
When II Independent Variable was removed
Greater
.332 .129 1 6.659 .013 .377 .340 .325 .663 .958 .958
than 25%
Also the screening of means table (Table 5) shows that total opportunity cost incurred by
institution with low attrition rates is average while by institutes having attrition greater than 25% this
cost is above average. This means that in the institutions having attrition below 25% the decrease in
business, students, faculty/adjuncts, and reputation is average while in institutions having attrition
above 25% these costs are above average.
Table 5: Mean Scores of Institutes on Opportunity Costs with respect to Different Attrition Rates
Attrition less Attrition 5%-less than Attrition 15% - Attrition Greater
than 5% 15% less than 25% than 25%
Opportunity Cost 2.03 2.28 2.94 3.46
The purpose of the study was to explore the cost of faculty attrition in technical institutions with
focus on indirect and opportunity costs in Delhi and NCR. Measurement of these costs becomes
imperative as it is implied that institutions which experience higher attrition have not invested
adequately in their faculty. It has been observed that that higher the attrition the higher the indirect costs
indicating that as the attrition goes above 25% it creates negativity in the climate leading to lower
productivity, loss of motivation of students and faculty, loss of intellectual capital, loss of productivity of
faculty in terms of lower participation in research, conferences, new curriculum development resulting in
diminishing sense of professional value. The same effect has been observed in the case of opportunity
costs too indicating that higher the attrition higher is the loss in terms of decrees in business, students,
faculty/adjuncts and reputation. The costs have far reaching impact on the institutions both in short run
and in the long run. Institutions have to compete for the scarce human resource and ought to understand
that higher the attrition higher are the costs. Retaining and managing the talent has become the need of
the hour. Hence the motto of the institutions in this age of high competition is “Keep your faculty happy
lest you lose them to your competitors and be reduced to training founds for others”.
References
Amey, M. (1996). “The Institutional Marketplace and Faculty Attrition”. The NEA Higher Education
Journal. Retrieved from http://www2.nea.org/he/heta96/s96pg23.pdf
Bliss, W.G., “Cost of Employee Turnover,” The Advisor (available on line at http://isquare.com/
turnover.html);
Brogden, H.E. (1949). “When Testing Pays off”, Personnel Psychology, 2, 171-183.
Cork, B. (2008). “The True Cost of Employee Attrition”, .Human Capital, retrieved http://www.
catalystmag.com/Blog/2008/The_True_Cost_of_Employee_Attrition.html
Cronbach, L.J., & Gleser, G.C. (1965).Psychological Tests and Personnel Decisions. 2nd ed. Urbana:
University of Illinois Press
Fitz-enz. (1997). “It's Costly to Lose New Employees”. Workforce, 76, 50-51.
Hill, D., & Barth, M. (2004)., “NCLB and Teacher Retention: Who will Turn Out the Lights?” Education
and the Law, 16(2-3), 173-181.
Ingersoll, R. M. (2002), “The Teacher Shortage: A Case of Wrong Diagnosis and Wrong Prescription”.
NASSP Bulletin, 86(631), 16–30.
Mehta.S (2012),“Faculty Attrition: A Challenge for Private Management Institutions”, International
Journal of Business and Management Tomorrow Vol. 2 No. 9,pg. 1-10.
Morrell Kevin M, John Loan-Clarke and Adrian J. Wilkinson, (2004) "Organisational Change and
Employee Turnover", Personnel Review, Vol. 33 Iss: 2, 161 – 173.
O’Connell, M., & Kung M. (2007). “The cost of employee turnover”. Industrial Management, 49(1), 14-19.
Retrieved from http://www.iienet.org/public/articles/index.cfm?cat=38
Pinkovitz, William H., Moskal, Joseph & Green, Gary P(1996);., “How Much Does Your Employee
Turnover Cost?,” Small Business Forum, 14:707
Rodgers, K. (2002). “Lessons in HR Metrics”. Webster Buchanan Research. Retrieved from http://www.
websterb.com/articles.php?ID=8c28386503551212.
Sorensen, N. (1995). “Measuring HR for Success”. Training and Development, 49, 49-51.

DISCRETIONARY ACCRUALS AND EARNINGS MANAGEMENT

BY OIL COMPANIES IN INDIA
Gnyana Ranjan Bal∗
ABSTRACT
The study attempts to analyze the earnings management practices by select oil companies in India. Further
the study tries to test whether the reason behind consistent hike in oil prices by oil companies in India is due to
earnings management. Specifically by taking 18 oil companies including exploration and marketing companies
during the period from 2003 to 2012, the study analyses the magnitude of use discretionary accruals though
estimation of modified Jones model. The paper concludes that oil companies in India are using income decreasing
accruals to manage their earnings in order avoid implication of new policies, taxes and political pressure to claim
for less subsidies.
KEYWORDS: Earnings Management, Political Cost, Modified Jones Model, Oil Companies.
JEL classification: M41, M48, M49.
_______________
Introduction
Since a decade hike in oil price and government subsidies to oil companies has been a major issue
in India. The considerable increase in oil prices has made the life of average person vulnerable for the
reason that all other economic variables are associated with it. This rise in oil prices and the clamor of oil
companies to lift the subsidies in regulated economies have raised a question among the stakeholders
about the genuineness of the claims made by oil companies. The claims of loss made by oil companies
and the increase in petrol prices which do not commensurate with the change in crude oil prices has
often come under sharp criticism from rulers as well as academic community. This raises some serious
concerns whether oil companies are managing earnings to increase the price of petroleum products. The
quality of earnings had suffered a major setback in nineties with many firms showing signs of earnings
management. According to Chen et al., (2010) the frequency of earnings management is higher when
firms try to meet analysts forecast. Further, empirical evidence shows that more firms manage earnings
to decrease their earning rather than to avoid negative earnings.
In addition, evidences of fraudulent practices by companies like Satyam, Sunbeam, Mcdata, Open
wave systems and many others have forced both analysts and academicians to focus the issue on quality of
earnings. Companies are increasingly resorting to clever gimmicks to show their earnings are matching
with analyst’s expectation. Studies conducted by Byerd, (2007), Watt and Zimmerman, (1986), Rodríguez-
∗
Assistant Professor, Department of Commerce, Guru Ghasidas Vishwavidyalaya, Bilaspur, (C.G.), Koni,
Chhattisgarh.
Gnyana Ranjan Bal : Discretionary Accruals and Earnings Management by Oil Companies ..... 33
Pérez and Hemmen, (2010) have established a relationship between the political cost hypothesis, agency
cost theory, and debt covenant hypothesis with the earnings management by companies. Further Iatridis
and Kadorinis (2009) investigated the motivation behind the firms that engage in earnings management.
The findings of the study have shown that firms with low profitability and high leverage are likely to adopt
earnings management practices. Moreover, firms in need of more equity or debt finance also try to increase
firm’s financial numbers in order to attract more investors. Firms that chose to debt covenants also resort to
earnings management to avoid financial distress and lenders disappointment.
Byard (2007) argues that political costs have increased after implementation of Sarbenes and Oxley Act.
Oil companies were engaged in earnings management to escape from political pressure and imposition of new
taxes like wind fall tax. Using time series for earnings management estimation the study finds earnings
management by US based oil companies immediately after impact of Katrina and Rita. Further big oil
companies use more income decreasing accruals as compared to smaller oil companies. In similar line, Han
(1998) studied political cost and earnings management by oil companies during Persian Gulf crisis. Watt and
Zimmerman (1986) argues that during the period of unusual product price increases the reported earnings
bring political attraction for scrutiny, so firms engage in earnings management to show lower earnings.
Literature shows that models like Healy (1985), Jones (1991) and Jones (1995) are there to identify the
earnings management by firms. Among this Modified Jones model (1995) is one of the powerful model
used for detection of earnings management. Prior to Jones model non discretionary accruals was used as a
measure of earnings management and discretionary accruals were assumed to be constant. A company can
manage its earning through various ways like change of accounting policies, change of capital structure and
use of accruals (Jones1991). Nevertheless, the companies are engaging in earnings management through
changes in their accounting policies. Change of capital structure may not be always a better idea as in either
way it will attract high leverage or debt covenant hypothesis. From a regulator point of view, it may not be
possible to scrutiny the accounting changes of all companies, for which only accruals is a measure of
earnings management. Therefore, the accrual models assume that the companies are using only accruals for
earnings management. Hence it is a non-trivial exercise to test whether only changes in current accruals
affect it or the changes in past also can affect the current earnings. Companies can manipulate its income
through change in the policy of capitalization of expenditure. In a similar line, the change in total assets can
detect the changes in income due to the change for depreciation. Further, the increase in accounts receivable
may increase the EM or vice versa. Through changing revenue recognition policy, companies can manage
the position of account receivables. Companies that recognize all future earnings in current period will
show less earnings in future. The cookie jar reserves maintained by the companies might have both positive
and negative impact. This will help regulator, analyst and investor to know actual effect due to earnings
management. The main objective of the paper is to analyze the use of discretionary accruals for earnings
management by oil companies in India. By using modified Jones model I have estimated discretionary
accruals to analyze earnings management practice by oil companies in India.
Data and Methodology
Data pertaining to earnings management (EM) from 18 oil companies as per availability of data,
which consist of both exploration and marketing, are from Centre for Monitoring Indian Economy
database (CMIE). The period of the study ranges from 2003 to 2012during which considerable fluctuation
in oil price occurred. The variables of the study include total accruals (TA), calculated as net profit before
extra-ordinary item, minus cash flow from operation. Other variables are change in revenue minus
change in account receivables (REV-AR) and plant property and equipment (PPE). As use of
discretionary accruals cannot be observed directly from company’s financial statement, so we have to use
some model for it. Here I have applied modified Jones model to identify use of abnormal accruals by the
companies. The model estimation includes three steps; first is to calculate total accrual which is
calculated by deducting cash flow from operation from net profit. The second step to estimate
parameters through regression using panel data and calculate non-discretionary accruals. The third is to
calculate the discretionary accruals as a proxy of earnings management, which is total accrual minus
non-discretionary (NDA) accruals.
Modified Jones Model (Dechow et al. 1995)
TAit= β1 ( REVit - ARit) + β2PPEit+ it (1)
TAit = Annual current accruals = earnings before extraordinary items - cash from operations;
ARit = Accounts receivable;
REVit =Annual revenues;
PPEit =property, plant, and equipment
By applying regression to equation (1) we have calculated the parameters, and then non-
discretionary accruals have been calculated by putting the parameters in equation (2).
NDAit= β1 ( REVit - ARit) + β2PPEit+ it (2)
Here NDAit means non-discretionary accruals and in above equation (1) and (2) all the variables
are scaled by total assets in t-1 period. After estimation of NDA, Discretionary accruals (DA) have been
calculated as below in equation (3).
DAit = TAit - NDAit (3)
Results
The table: 1 shows the descriptive statistics of the different variables for sample companies. Here mean
of total accruals is 0.194999 and median is 0.007186 which indicates there is presence of accruals. In all cases the
variables are statistically significant. Also by taking TA as dependent and other variables as independent we
found the R square is 0.027693 and S.E of regression is 1.027848, which gives evidence of presence of
discretionary accruals. It means the companies are using abnormal accruals to manage their earnings.
Table 1: Descriptive Statistics
TA REV-AR PPE
Mean 0.194999 1.768885 0.350196
Median 0.007186 0.988592 0.000000
Maximum 6.109626 206.0275 60.89331
Minimum -6.476818 -28.20288 -1.752086
Std. Dev. 1.036543 16.35626 4.553675
Skewness -0.088766 10.89260 13.16423
Kurtosis 18.19242 136.8715 175.5413
Jarque-Bera 1731.308 137971.4 228477.5
Probability 0.000000 0.000000 0.000000
Sum 35.09986 318.3992 63.03531
Sum Sq. Dev. 192.3214 47887.35 3711.736
Observations 180 180 180
Source: Computed by the author
Figure 1: Discretionary Accruals for the Period From 2003 to 2012
The figure 1shows the average discretionary or abnormal of sample companies for the period
from 2003 to 2012. We can observe the DA is negative in case of all companies. It means the sample
companies have engaged in downward earnings manipulation and same also conformed in Table.2.
Table 2: Mean and Standard Deviation of total Accruals, Non-Discretionary Accruals and
Discretionary Accruals of Sample Companies
Mean Mean Mean SD SD
Company Name SD NDA
TA NDA DA TA DA
Bharat Petroleum Corpn. Ltd. 0.00 1.21 -1.21 0.23 0.15 0.26
Castrol India Ltd. 0.96 1.16 -0.19 1.29 0.31 1.54
Chennai Petroleum Corpn. Ltd. 0.04 1.19 -1.15 0.48 0.14 0.40
Essar Oil Ltd. -1.03 1.23 -2.26 2.42 0.14 2.43
Goa Carbon Ltd. 0.28 1.19 -0.91 1.72 0.18 1.82
Gulf Oil Corpn. Ltd. 0.23 1.21 -0.97 0.38 0.04 0.36
Hindustan Petroleum Corpn. Ltd. -0.06 1.21 -1.27 0.21 0.10 0.19
India Carbon Ltd. 0.23 1.19 -0.96 1.01 0.21 1.07
Indian Oil Corpn. Ltd. 0.34 1.20 -0.86 0.28 0.07 0.29
Mangalore Refinery & Petrochemicals Ltd. 0.01 1.18 -1.18 0.26 0.16 0.41
Numaligarh Refinery Ltd. 0.00 1.20 -1.20 0.14 0.05 0.17
Panama Petrochem Ltd. 1.02 1.47 -0.45 2.05 0.49 1.67
Reliance Industries Ltd. -0.01 1.20 -1.21 0.11 0.03 0.11
Sah Petroleums Ltd. 0.16 1.22 -1.05 0.79 0.13 0.74
Savita Oil Technologies Ltd. 0.19 1.22 -1.02 0.44 0.08 0.44
Savita Polymers Ltd. -0.13 1.20 -1.33 0.21 0.10 0.20
Southern Refineries Ltd. 0.30 1.21 -0.91 0.45 0.02 0.44
Tide Water Oil Co. (India) Ltd. 0.33 1.25 -0.92 1.02 0.16 1.00
Source: Computed by the Author
The Table 2 shows the mean and standard deviation of discretionary accruals, non-discretionary
accruals and total accruals. Here the discretionary accruals have been taken as a measure for earnings
management. If it is positive then it indicates use of income increasing accruals and in case of negative it
indicates income decreasing accruals. From the table no: 2 it is very clear that the average abnormal accruals
is negative in case of all the companies. It means the companies are using income decreasing accruals. The
companies have engaged in downward manipulation of the earnings. We can see that DA is high in case of
Essar Oil i.e. 2.26 and low in case of Castrol India Ltd. i.e.0.19. Also the variation is high in case of Essar Oil
and low in case of Reliance Industries Ltd. While though in case of Castrol India Ltd. the mean DA is low
but variation is more. Out of 18 companies 10 companies have abnormal accruals of more than -1. This may
be because the earlier studies say that the company’s higher profit attracts political scrutiny and leads to
imposition of new tax etc. So to avoid political scrutiny and imposition of new costs, the companies are
showing lesser earnings. In other words, the oil companies are showing less profit and managing earnings
so that the prices of the oil products are increased accordingly. This may be due to the political cost
hypothesis where oil companies always come under the scrutiny of government policy decisions.
Conclusion
In an emerging economy, it is very highly desirable to watch out corporate actions and their
performance, especially in case when the product of firms affects the development of society. Taking into
consideration the current scenario of oil prices and political conditions, we studied the earnings
management by oil companies in India. At this point of time when the fiscal deficits are high, there exists
a need think about subsidies and its requirement. In other words, we need to test whether oil firms are
really in need of subsidies. Using modified Jones model I have examined the earnings manipulation by
oil companies in India. The results of the study show that the sample companies have been engaged in
income decreasing accruals to understate their earnings. Out of 18 companies the mean discretionary
accruals is negative for all the companies. Findings of our study revealed that oil companies are indeed
managing earnings so that the price of oil is enhanced correspondingly. The findings of this study have
several dimensions. It will help the policy makers in making important decisions regarding the hike in oil
prices. It further raises questions to the regulatory authority on the adequacy of the standards that help
oil companies in managing the earnings. Finally, if expropriation risk by the rulers is mitigated average
person will be less vulnerable to oil price hike.
References
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earnings forecast form and explanations on financial analyst forecast revisions. Advances in
Accounting, 27(1), pp.17–25.
Byard, D., Hossain, M. &Mitra, S., 2007. US oil companies’ earnings management in response to
hurricanes Katrina and Rita. Journal of Accounting and Public Policy, 26(6), pp.733–748.
Chen, T., 2012. Analysis on accrual-based models in detecting earnings management Analysis on
Accrual-Based Models in Detecting. Lingnan Journal of Banking, Finance and Economics, 2(1), pp.57-65.
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BENEFITS AND SHORTCOMINGS OF ETHICS EDUCATION:

AN EMPIRICAL ANALYSIS OF PERCEPTION OF
ACCOUNTING STUDENTS AND FACULTY MEMBERS IN INDIA
Dr. Ajay Kumar Singh∗

Dr. Sakshi Vasudeva∗∗
ABSTRACT
Accounting scandals in the past have created the demand to curb such practices by various means. Ethics
education have gained importance across the globe as it is believed that unethical practices can be reduced by
increasing realization among accounting professionals. Both international and national accounting bodies have
mandated the teaching of ethics in all professional courses of accounting. But the right way to deliver such kind of
education in an effective manner is still debatable. The current paper is an attempt to understand the various
benefits and shortcomings of teaching ethics in India from the perspective of students of professional course of
accounting that is chartered accountancy and faculty members teaching them. The results provided an insight that
both the groups have positively accepted the benefits of ethics education. Their opinion on various shortcomings
revealed that both the groups shared a similar opinion that the text material provided for learning accounting ethics
is not sufficient and lacks quality. Current method of delivering ethics education is deficient as it does not provide
any practical exposure and just a theoretical discourse. Faculty employed to teach ethics is not formally trained to
teach ethics. The study recommends removal of various shortcomings for effective results.
KEYWORDS: Accounting Scandals, Ethics Education, Demand, Accounting Professionals.
_______________
Introduction
Accounting scandals in the past have put a question mark on the credibility of audited financial
statements. An accountant has responsibility at various fronts such as towards the company, investors,
and the society in general. They are supposed to be the protectors of the interest of various stakeholders
of the organization. It is expected from them that they will exercise due diligence in the preparation and
audit of financial statements. But various unethical practices in the past created an environment of
distrust among the stakeholders. Such practices led the policy makers in various countries to bring
various amendments in the laws to curb the unethical practices by punitive ways. It also created a
critical need for ethics education in the hope that it can create a right mind-set to appreciate the
responsibility of the individual towards public interest. As the idea developed, so were various
apprehensions. Some raised serious doubts on the effectiveness of ethics education (Piper, Gentile, &
Parks, 1993; Rossouw, 2002). But many researchers strongly felt that ethics education can bring in the
∗
Professor, Department of Commerce, Delhi School of Economics, University of Delhi, Delhi.
∗∗
Assistant Professor, Department of Commerce, Dr. Bhim Rao Ambedkar College, University of Delhi, Delhi.
desired change. Faculty members also appreciated the impact of ethics education (Said & Al-Tarawneh,
2013; Warinda, 2013).
Ethics education is being promoted by even IFAC through its various publications in all member
countries (IAESB, 2006; IAESB, 2015). IAESB always stressed that ethical education should be re-enforced
throughout the career of an accountant (IAESB, 2015). It has been realized all over world that teaching
ethics to accounting students can create right mind set for ethical decision making among them. There
are various perceived benefits of teaching ethics. Some of the important benefits of teaching of ethics are
that it increases the demand for individuals possessing ethics education and skills, develop the ability of
students to recognize ethical issues, satisfies the need of the society for ethical education, prepares the
students to examine fraud related issues, improves the moral orientation of the students and prepares the
students to face uncertainties of accounting profession (Said & Al-Tarawneh, 2013, p.74).
There are various shortcomings that prevent the successful delivery of ethics education and
effectiveness of ethics education in preventing the scandals. The available ethics material lacks the
quality and depth of topic of ethics as advocated by IFAC (Tweedie et al., 2013, p.12). One size may not
fit all; the developed ethics material may not address the concerns of students from different family and
cultural backgrounds (Cooper et al., 2008, p.416). Ethical development can be best done by institutions
outside the formal education such as family or religious institutions (Blanthorne, Kovar & Fisher, 2007).
Similarly, lack of trained faculty, students and administrative interest, lack of instructional material,
difficulty in integrating ethics with technical nature of accounting, ethics by nature cannot be taught were
identified as important barriers (Said & Al-Tarawneh, 2013; Dellaportas et al., 2014). Students are not
taught fundamentals of ethics topics, thus they are likely to be frustrated by the superficial discussion
and view the “ad hoc, disconnected nature of the coverage as a signal that ethics is secondary to technical
ability” (Kidwell et al., 2013, p.48). ‘Integration of ethics is only an ad-hoc list of topics rather than…a
synchronized set of topics’ (Miller & Becker, 2011, p.7). Overcrowded curriculum of accounting may act
as impediment to the integration of ethics into it. Lack of Opportunities in the area of teaching and
research in accounting ethics, lack of reference material, and difficulty of integration of subjective/soft
nature of ethics with the technical nature of accounting are some important perceptions affecting the
inclusion of ethics into accounting. It is also considered that moral standards of students are already
developed and cannot be changed by teaching ethics in accounting education (Dellaportas et al., 2014).
Literature Review
Name of the
Objectives of the Study, Country of the
Researcher(s), Findings
Study and Sample Size
Year of Publication
Cooper et al., 2008 Detailed Discussion of Ethics Education It provided evidence of positive
Toolkit developed by IFAC and through feedback of students who are taught
review of literature; the paper considers ethics on the basis of guidelines in the
the importance of teaching ethics, the toolkit.
types of ethics intervention and issues in
teaching ethics to accounting students. The
study was carried out in Australia.
O’Leary, 2009 The impact of teaching of ethics to final Positive Impact on hypothetical ethical
year accounting students on the basis of decision- making as a result of ethical
response to five ethical scenarios before instruction thus showed the benefit of
and after ethical instruction. The study ethics education.
was carried out in Australia on final year
undergraduate accounting class and 155
students completed the survey instrument.
Graham, 2012 Views of students to assess “the goals and Students regarded ethics teaching
effectiveness of the teaching of ethics” in important.
undergraduate accounting programs. The
study was carried out in UK. Out of
population of 150 students attending the
particular second year accounting course,
77 complete usable responses were used.
Said and Al-Tarawneh, Opinion of accounting instructors on Favorable Opinion of educators about the
2013 various aspects of teaching of accounting ethics course. 67% of the educators favored
ethics. Total of 70 instructors from seven inclusion of ethics in the curriculum.
selected public and private universities Faculty members showed interest in
from Bahraini universities were targeted teaching ethics and believed that topics
and finally results were compiled on the related to professional practice should be
Singh and Dhingra, 2013 basis ofwas

Study 41 complete responses.
carried out in India to evaluate included
Suggestedin athe curriculum.
multi-dimensional ethical
ethical approach to accounting and approach.
auditing practices.
Singh and Vasudeva, Attempted to find an association between Ethical value score of professionals were
2013 ethical values of accounting professionals found to be more explanatory than
and their choices in ethical dilemmas in formal ethical education.
their profession. The study was carried out
in India on the basis of opinion of 82
chartered accountants.
Tweedie, et al., 2013 Study of IFAC’s strategy in implementing Available ethics resources lack the “depth
IES4 and evaluation of available ethical and diversity that IFAC’s strategy
resources. The researchers were from requires”. Suggested “adopting a
Australia. ‘thematic’ approach to teaching ethics as an
integrated part of accounting curriculum”.
Warinda, 2013 Preparedness of accounting faculty for Faculty found ethics as extremely
accounting ethics education. The study important in personal, business, and
was carried out in Zimbabwe on the basis accounting education. The results also
of complete usable response received from showed that most of the faculty expressed
10 faculty members. an interest in teaching ethics topics.
Dellaportas, et al., 2014 Analyzing the barriers to enhancing ethics Lack of qualified staff was identified to
education by the opinion survey of Heads be the most important barrier. Other
of Departments/Schools of Australian important barriers were inadequate
universities. The survey was administered research opportunities, paucity of
via a mail to Heads in 2000 and again in curriculum space, and the notion that
2012 by keeping an intervening period of moral values of students are fixed and
12 years. Valid responses were 24 and 17 cannot change.
from heads in 2000 and 2012 respectively.
Singh and Vasudeva, Important causes and consequences about Inadequacy of ethics education and
2014 unethical financial reporting from the directions for accounting education was
point of view of chartered accountants and not found to be significant cause.
commerce/management teachers in India.
The results were compiled on the basis of
200 respondents, out of which there were
84 teachers and 116 chartered accountants.
Research Objectives and Methodology
Objectives
As a contribution to previous research on accounting ethics, this study seeks to elicit the
perceptions of students and faculty members in Delhi related to two main aspects concerning ethics in
accounting. This study has the following objectives:
• To explore the perceived benefits of teaching ethics to students.
• To identify important shortcomings in the ethics education imparted to future accounting
professionals in India.
Hypothesis
The study investigates two main hypotheses with respect to the main research questions.
H01 : The ranking of faculty members toward identifying various perceived benefits of accounting
ethics education by faculty members are not significantly different from the ranking
assigned by accounting students.
H02 : The perceptions of faculty members towards identification of shortcomings related to
teaching of ethics as a part of accounting education are not significantly different from the
perceptions of future accounting professionals.
Research questions are also analyzed using descriptive statistics.
Significance of the Study
To the best of the authors’ knowledge, this is the first exploratory survey conducted in India to
explore various issues regarding integrating ethics into accounting curriculum.
Sample of the Study
The data has been collected from faculty members imparting education to professional students of
accounting and students undergoing professional accounting course that is chartered accountancy. The
population consisted of all the students undergoing professional accounting course and faculty teaching them
accounting or auditing course in geographical area of Delhi. Coaching institutes were randomly chosen from
each region of Delhi, thus in total 8 coaching institutes were covered. Some of the students studying at
Vishwas Nagar, institute of ICAI were also approached. Minimum 2 years of experience was kept in mind
while choosing faculty members. The faculty was contacted from coaching institutes in Delhi, University of
Delhi and Board of Studies of ICAI at Noida. Random selection was done of respondents. 350 questionnaires
were distributed but only 203 questionnaires were received back. Around 16 questionnaires had to be rejected
because of incomplete responses. The results were compiled on the basis of 187 respondents out of which
there were 122 students and 65 faculty members. The face validity of the questionnaire was verified by
conducting a pilot survey among 10 teachers and 20 students.
Design of the Questionnaire
The questionnaire was divided into three parts. The first part included demographic information
related to gender and numbers of years of experience as a faculty member or group/year of course as a
student. In the second part, the respondents were asked to express opinion on the benefits of imparting
ethics education. The research studies of Said and Al-Tarawneh (2013) was taken as the reference paper
for identifying important perceived benefits. The third part was designed from available literature and
the purpose was to identify important shortcomings. These shortcomings were taken from the prior
research studies (Said and Al-Tarawneh, 2013; Adkins and Radtke, 2004; & Dellaportas, et al., 2014).
Respondents were requested to assign ranks to perceived benefits of ethics education. Opinion of
respondents was sought on shortcomings of ethics education on Likert Type Scale.
Tools and Techniques
The data were analyzed using descriptive statistics such as mean for general profile of
respondents. To analyze the difference in rankings, Mann-Whitney U test was used to compare the
difference in rankings among students and faculty members. Mann- Whitney U test is distribution free.
To apply the test, it was ensured that the data met the following basic assumptions for applying the test:
• The dependent variable was difference in ranks assigned by two groups and it was measured on
ordinal scale.
• The independent variable was two independent categorical groups, i.e. faculty members and the
students. There were different participations in each group and no respondent was in more than
one group.
• The responses are not normally distributed. The data which is measured on rankings is not
normally distributed (Chawla & Sondhi, 2011, p.419). The technique and assumptions were also
studied from some prior studies (Milenović, 2011; Nachar, 2008).
The shortcomings were analyzed by using mean values and t –statistic for the difference in responses
among two groups. For testing II hypothesis, robust test of equality of means that is Welch and Brown-
Forsythe was used. Spearman’s Rank correlation was used to find out correlation of mean values for both the
hypothesis between students and faculty members. We have based our decisions to accept or reject hypothesis
on the basis of Spearman’s Rank correlation. It is recommended for testing correlation where both the
variables are ordinal. It is a non-parametric technique and does not require data to be normally distributed
(Jackson, 2009, p.126).
Analysis and Interpretation
General Profile of Respondents
There were 187 complete responses out of which there were 122 students and 65 faculty members.
45 faculty members (approx. 69%) were having experience above 10 years and 20 faculty members (31%)
were having experience less than 10 years. Out of 122 students, 51 (41.8%) were in the second year and
71 (58.2%) students were found to be in the final year of their accountancy course of chartered
accountancy.
Table 1: Distribution of Respondents on the basis of Gender and Category
Gender Faculty Members Students Total
Female 43 (66.2%) 35 (28.7%) 78 (41.7%)
Male 22 (33.8%) 87(71.3%) 109 (58.3%)
Total 65 (34.8%) 122 (65.2%) 187 (100%)
On the basis of the table no.1, there were 34.8% faculty members and 65.2% students. Out of 65
faculty members, there were 66.2% females and 33.8% males. Out of 107 students, there were 29%
females and 71% males.
Benefits of Teaching Ethics to Accounting Students
The respondents were given eight benefits and were told to rank on the scale of 1 to 8. The most
important benefit should be assigned the first rank and the least important benefit should be assigned the
lowest rank. The lower the mean value, the higher is its importance among the respondents. (See table no. 2).
The ranks have been shown in parenthesis. The researchers also wanted to test the null hypothesis ‘the ranking
of faculty members toward identifying various perceived benefits of accounting ethics education by faculty
members are not significantly different from the ranking assigned by accounting students’.
Table 2: Benefits of Teaching Ethics to Accounting Students
S. Mean Values by Mean Values by Overall Mean Std.
Benefits
No. Students Faculty Members Values Deviation
Makes students capable to
recognize ethical dilemmas
1. facing accounting profession 2.86 (I) 2.71 (I) 2.81 (First) 1.543
and business community.
Helps students learn to face
ethical issues that may be
2. faced by them in accounting 3.09 (II) 3.38 (III) 3.19 (Second) 1.554
profession and business
community.
Satisfies the society’s need for
3. 4.90 (V) 4.11(IV) 4.63 (Fifth) 2.451
ethical and moral education.
Students who have undergone
4. ethical education are better 5.22 (VI) 5.02 (V) 5.15 (Sixth) 2.190
required in market place.
Improve the ethical and moral
5. orientation of students. 4.04 (III) 3.25 (II) 3.76 (Third) 2.325
The emphasis on ethical and

moral development is
6. 4.16 (IV) 5.45 (VII) 4.60 (Fourth) 1.985
important to the accounting
profession.
Unethical accounting practices
can be reduced by imparting
7. 5.66 (VII) 5.95 (VIII) 5.76 (Seventh) 2.125
ethical education to the
students.
Prepares the students to
8. examine fraud related issues. 5.99 (VIII) 5.40 (VI) 5.79 (Eight) 1.961
Thus, the three most important benefits identified are:

• Makes students capable to recognize ethical dilemmas facing accounting profession and business
community.
• Helps students learn to face ethical issues that may be faced by them in accounting profession and
business community.
• Improve the ethical and moral orientation of students.
The ranks seem similar for some of the benefits, while look dissimilar for the others. Therefore,
Mann- Whitney U Test was used to test that ‘whether benefits measured on ordinal scale, differed
between responses of faculty members and students.’(See Table 3)
Table 3: Test Statistics of Difference in Ranks Among Two Groups for Various Benefits
benefit1 benefit2 benefit3 benefit4 benefit5 benefit6 benefit7 benefit8
Mann-Whitney U 3.718E3 3.248E3 3.235E3 3.665E3 3.359E3 2.566E3 3.282E3 3.628E3
Wilcoxon W 1.122E4 1.075E4 5.380E3 5.810E3 5.504E3 1.007E4 1.078E4 5.774E3
Z -0.728 -2.079 -2.101 -0.861 -1.760 -4.057 -1.979 -0.971
Asymp. Sig. (2-tailed) 0.467 0.038 0.036 0.389 0.078 0.000 0.048 0.331
Exact Sig. (2-tailed) 0.468 0.037 0.035 0.391 0.079 0.000 0.048 0.333
Exact Sig. (1-tailed) 0.234 0.019 0.018 0.195 0.039 0.000 0.024 0.166
Point Probability 0.000 0.000 0.000 -0.000 0.000 0.000 0.000 0.000
a. Grouping Variable: category
Thus, it can be inferred that ‘The ranking of faculty members toward identifying various
perceived benefits of accounting ethics education by faculty members are not found to be significantly
different from the ranking assigned by accounting students.’ Thus, the results indicated that Null
Hypothesis could not be rejected for all the statements except ‘The emphasis on ethical and moral
development is important to the accounting profession’. Students assigned it fourth rank while faculty
members assigned it seventh rank.
The respondents indicated their preference for teaching ethics with respect to recognition of
ethical dilemmas (Rank 1), followed by facing of ethical issues (Rank 2). The third rank was assigned to
‘improving the ethical and moral orientation of students.’ The last rank was assigned to ‘examining fraud
related issues.’ The respondents also assigned the lowest rank in terms of its importance to the statement
that ‘Unethical accounting practices can be reduced by imparting ethical education to the students’
(mean value=5.76). Thus, the respondents though agreed with the importance of teaching of ethics, but
seem to be unsure about the impact of teaching of ethics in reduction of unethical accounting practices.
The researchers also calculated the rank correlation between the mean rankings of faculty and the
students by Spearman’s Rank Correlation. Thus, results as displayed in table 4 shows that by the method,
the correlation was found to be significant. Thus, we fail to reject the null hypothesis and it can be
inferred that there is no significant difference between the mean rankings of students and faculty
members for various benefits.
Table 4: Correlations between Mean Ranks of Faculty and Students for Various Benefits
Spearman's rho Rank Students Correlation Coefficient 1.000 0.786*
Sig. (2-tailed) ---- 0.021
N 8 8
Rank Faculty Correlation Coefficient 0.786* 1.000
Sig. (2-tailed) 0.021 ---
N 8 8
* Correlation is significant at the 0.05 level (2-tailed).
Shortcomings Related to Education of Ethics
The various inhibitors to success of ethics education perceived by the researchers on the basis of
available literature and discussion with experts which included chartered accountants and faculty
members were identified. 17 problem areas were finally identified and respondents were requested to
express their opinion on Likert type Scale on the scale of 5 (Strongly Agree) to 1 (Strongly Disagree).
Cronbach's Alpha was computed to check the reliability among various statements which was found to
be reasonably high as reported in table 5, thus the researchers could use the responses to frame a reliable
and valid opinion.
Table 5: Reliability Statistics
Cronbach's Alpha Cronbach's Alpha Based on Standardized Items No. of Statements
0.858 0.857 17
Table 6: Mean Averages, Standard Deviation, t Values and

Significance Level for Shortcomings
Std. t values (Cut Sig.
Statements Mean Off Point 3) Result
Dev. Level
1. The text material provided for Agreement (Highly
3.88
learning accounting ethics is Significant)
F 3.88 1.146 10.467 0.000
not sufficient (inadequate) to
S 3.89
impart moral education.
2. The text material provided for 3.52 Agreement (Highly
learning accounting ethics F 3.42 1.215 5.837 0.000 Significant)
lacks quality to impart moral S 3.58
education.
3. The accounting ethical values Not Significant
taught to students are not 2.92 differentiator from
F 3.50 1.444 -.0.760 0.448
relevant to their culture/ neutral opinion
S 2.62
traditions.
4. The accounting ethical values Not Significant

3.10
explained in the texts are not differentiator
F 3.69 1.345 0.979 0.329
relevant to the situations prevailing from neutral
S 2.80
in their nation. opinion
5. Accounting ethics are taught to 3.60
students only as a text with no F 3.89 Agreement
relevant explanation on recognizing S 3.46 1.233 6.703 0.000 (Highly
possible ethical dilemmas in Significant)
professional life.
6. Accounting ethics taught to Not Significant

3.06
students does not help them to learn differentiator
F 3.34 1.289 0.681 0.497
dealing with ethical conflicts. from neutral
S 2.93
opinion
7. There is no provision of Agreement
evaluation on the basis of decisions 3.40 (Highly
of students on ethical dilemmas in F 3.58 1.309 4.134 0.000 Significant)
the examination on accounting S 3.31
ethics.
8. The professional institute imparting Agreement
3.68
accounting course does not give (Highly
F 3.84 1.192 7.851 0.000
adequate importance to teaching Significant)
S 3.61
accounting ethics to students.
9. Faculty members teaching 3.25 Not Significant
accounting ethics do not give much F 3.39 differentiator
1.354 2.538 0.012
importance to the paper on ethics. S 3.19 from neutral
opinion
10. Faculty members teaching 3.42 Agreement
accounting ethics are not formally F 3.47 1.195 4.834 0.000 (Highly
trained to teach the paper. S 3.41 Significant)
11. Students lack interest in the 3.63 Agreement
study of accounting ethics. F 3.69 1.235 6.989 0.000 (Highly
S 3.62 Significant)
12. Imparting moral education at
this age of maturity cannot help to
make a person behave ethically in
their professional lives. In other 3.39 Agreement
words, students already know right F 3.73 1.283 4.103 0.000 (Highly
or wrong from the influence of S 3.20 Significant)
family, religion, and culture and
teaching accounting ethics course is
a farce.
13. Ethics by nature cannot be 3.34 Agreement
taught in classroom. F 3.50 1.328 3.524 0.001 (Highly
S 3.27 Significant)
14. Teaching of ethics cannot be Not Significant
3.02
combined with technical expertise differentiator
F 2.89 0.997 0.220 0.826
required in accounting course. from neutral
S 3.09
opinion
15. Teaching of Ethics is only a 1.97 Disagreement
waste of time of students of F 1.81 1.235 -11.426 0.000 (Highly
accounting. S 2.06 Significant)
16. Persons cannot change and 2.47 Disagreement
made to behave ethically by F 2.55 (Highly
1.202 -6.086 0.000
teaching ethics to them. S 2.43 Significant)
17. Ethics cannot be integrated in
2.74 Disagreement
current accounting curriculum
F 2.61 1.236 -2.899 0.004 (Highly
because of lack of administrative
S 2.82 Significant)
support.
Observation of mean values in table no. 6 indicated that values were between 3 and 4. Therefore,
to frame valid opinion, one sample t values were calculated, Cut off point of 0 indicated all the results to
be significant at 1 % level. As the 3 indicated a neutral opinion, therefore, the researchers wanted to see
whether the results appear significantly different from neutral opinion. Again, the t values were
calculated, cut off point of 3 was fixed and their significance level was calculated. (See table no. 6).
The findings suggested that agreement with respect to the following:
• The text material provided for learning accounting ethics is not sufficient (inadequate) to impart
moral education.
• The professional institute imparting accounting course does not give adequate importance to
teaching accounting ethics to students.
• Students lack interest in the study of accounting ethics.
• Accounting ethics are taught to students only as a text with no relevant explanation on
recognizing possible ethical dilemmas in professional life.
• The text material provided for learning accounting ethics lacks quality to impart moral education.
• There is no provision of evaluation on the basis of decisions of students on ethical dilemmas in the
examination on accounting ethics.
• Faculty members teaching accounting ethics are not formally trained to teach the paper.
• Imparting moral education at this age of maturity cannot help to make a person behave ethically
in their professional lives. In other words, students already know right or wrong from the
influence of family, religion, and culture and teaching accounting ethics course is a farce.
• Ethics by nature cannot be taught in classroom.
The findings suggested that disagreement with respect to the following:
• Teaching of Ethics is only a waste of time of students of accounting (1.97).
• Persons cannot change and made to behave ethically by teaching ethics to them (2.47).
• Ethics cannot be integrated in current accounting curriculum because of lack of administrative
support (2.74).
The findings suggested neutral opinion with respect to the following:
• The accounting ethical values taught to students are not relevant to their culture/ traditions (2.92).
• Teaching of ethics cannot be combined with technical expertise required in accounting and
finance degrees (3.02).
• Accounting ethics taught to students does not help them to learn dealing with ethical conflicts
(3.06).
• The accounting ethical values explained in the texts are not relevant to the situations prevailing in
their nation (3.10).
• Faculty members teaching accounting ethics do not give much importance to the paper on ethics
(3.25).
Checking of Hypothesis: Test for Difference in Mean Values
For testing II hypothesis, robust test of equality of means that is Welch and Brown-Forsythe was
used.
Table 7: Robust Tests of Equality of Means of Various Shortcomings
Statistic a df 1 df 2 Sig.
short 1 Welch 0.010 1 109.760 0.922
Brown-Forsythe 0.010 1 109.760 0.922
short 2 Welch 0.692 1 118.909 0.407
Brown-Forsythe 0.692 1 118.909 0.407
short 3 Welch 18.136 1 143.002 0.000
Brown-Forsythe 18.136 1 143.002 0.000
short 4 Welch 18.324 1 110.590 0.000
Brown-Forsythe 18.324 1 110.590 0.000
short 5 Welch 5.514 1 137.480 0.020
Brown-Forsythe 5.514 1 137.480 0.020
short 6 Welch 4.706 1 137.340 0.032
Brown-Forsythe 4.706 1 137.340 0.032
short 7 Welch 1.901 1 143.598 0.170
Brown-Forsythe 1.901 1 143.598 0.170
short 8 Welch 1.599 1 132.385 0.208
Brown-Forsythe 1.599 1 132.385 0.208
short 9 Welch 1.068 1 153.816 0.303
Brown-Forsythe 1.068 1 153.816 0.303
short 10 Welch 0.095 1 116.249 0.759
Brown-Forsythe 0.095 1 116.249 0.759
short 11 Welch 0.126 1 142.731 0.723
Brown-Forsythe 0.126 1 142.731 0.723
short 12 Welch 7.889 1 141.190 0.006
Brown-Forsythe 7.889 1 141.190 0.006
short 13 Welch 1.306 1 135.296 0.255
Brown-Forsythe 1.306 1 135.296 0.255
short 14 Welch 1.526 1 111.564 0.219
Brown-Forsythe 1.526 1 111.564 0.219
short 15 Welch 1.561 1 118.387 0.214
Brown-Forsythe 1.561 1 118.387 0.214
short 16 Welch 0.395 1 141.456 0.531
Brown-Forsythe 0.395 1 141.456 0.531
short 17 Welch 1.178 1 121.614 0.280
Brown-Forsythe 1.178 1 121.614 0.280
a. Asymptotically F distributed.
The findings were found be significantly different for the three statements:
• The accounting ethical values taught to students are not relevant to their culture/ traditions.
• The accounting ethical values explained in the texts are not relevant to the situations prevailing in
your nation.
• Imparting moral education at this age of maturity cannot help to make a person behave ethically
in their professional lives. In other words, students already know right or wrong from the
influence of family, religion, and culture and accounting ethics course are a farce.
Thus, the null hypothesis could not be rejected for the rest of 14 statements which implies that
there is no difference of opinion among students and faculty members for opinion on other statements
that is both the groups shared a similar response on the various statements.
The accounting ethical values taught to students are not relevant to their culture/ traditions.
Faculty 3.50 Students 2.62
The accounting ethical values explained in the texts are not relevant to the situations prevailing in their nation.
Faculty 3.69 Students 2.80
Imparting moral education at this age of maturity cannot help to make a person behave ethically in their
professional lives. In other words, students already know right or wrong from the influence of family, religion, and
culture and teaching accounting ethics course is a farce. Faculty 3.73 Students 3.20
Table 8 : Correlations between Mean Values of Faculty and Students for various Shortcomings
Spearman's rho Faculty Correlation Coefficient 1.000 0.756**
Sig. (2-tailed) -- 0.000
N 17 17
Students Correlation Coefficient 0.756** 1.000
Sig. (2-tailed) 0.000 --
N 17 17
**. Correlation is significant at the 0.01 level (2-tailed).
We also sought to find association between the mean rankings of faculty members and the
students by the method. Thus, results as displayed in table no. 8 shows that by the method, the
correlation was found to be positive, reasonably high and significant. Thus, overall, we fail to reject the
null hypothesis at 1% level of significance and it can be inferred that there is no significant difference
between the rankings on the basis of mean values between students and faculty members and we can
form a valid judgment on the basis of combined opinion of both the groups of stakeholders.
Summary of Findings and Discussion
The study was conducted to explore various issues regarding ethics education to accounting
students. The sample consisted of students of professional accounting course that is chartered
accountancy in India and faculty members teaching them at the institute or various coaching Institutes.
They were asked to express their opinion on benefits and shortcomings in delivering ethics education to
accounting students. Various findings are reported as:
• There were 187 complete responses out of which there were 122 students and 65 faculty members.
There were 34.8% faculty members and 65.2% students. Out of 65 faculty members, there were
66.2% females and 33.8% males. Out of 107 students, there were 29% females and 71% males.
• The respondents indicated their preference for teaching ethics with respect to recognition of ethical
dilemmas (Rank 1), followed by facing of ethical issues (Rank 2). The third rank was assigned to
‘improving the ethical and moral orientation of students.’ The last rank was assigned to ‘examining
fraud related issues.’ The respondents also assigned the low rank in terms of its importance to the
statement that ‘Unethical accounting practices can be reduced by imparting ethical education to the
students’ (mean value=5.76). Said and Al-Tarawneh, 2013 found in his study that 92.5% of respondents
agreed that “accounting student's ethical skills development is crucial to the development of the
accounting profession" (Benefit I, mean of 4.64). The other important benefits identified by him were
“increase in demand for individuals possessing accounting ethics education and skills” and helping the
“students to solve ethical and moral issues facing the accounting profession and the business
community” (Said and Al-Tarawneh, 2013).
• The results showed that first hypothesis (H01) could not be rejected and also showed that the ranking
of faculty members towards identifying various perceived benefits of accounting ethics education by
faculty members were not significantly found to be different from the ranking assigned by accounting
students by both Mann-Whitney U test and Spearman’s Rank Correlation methods.
• The respondents identified that the most important shortcomings are that the text material provided
for learning accounting ethics is not sufficient. The professional institute imparting accounting/ finance
degrees also gives less importance to teaching accounting ethics to students. Students lack interest in
the study of accounting ethics. No practical exposure is provided to students to help them in
recognizing possible ethical dilemmas in professional life. Similarly, there is no provision of evaluation
on the basis of decisions of students in ethical dilemmas in the examination on accounting ethics.
Faculty members are not formally trained to teach ethics. Said and Al-Tarawneh (2013) also found
similar results and reported that lack of trained faculty (3.76), less engagement of faculty with the topic
of ethics education (3.70), lack of students interest (3.59), lack of interest by administrative authorities
(3.51) were found to be significant barriers (p.76). Dellaportas, et al., 2014 also identified that lack of
trained faculty and less research opportunities in the area act as significant barriers. Some other authors
also identified that business and accounting educators lack adequate training to teach ethics (Cohen
and Pant, 1989). Tweedie, et al., 2013 also found that ethics education material lacks quality and depth.
Though it was also agreed by faculty that accounting students age is mature to effectively respond to
ethics education but students (m= 3.20) were having a neutral opinion towards this statement. But the
respondents totally disagreed that teaching of Ethics is only a waste of time of students and persons
cannot change and made to behave ethically by teaching ethics to them. Adkins and Radtke (2004) also
showed that accounting and business students find ethics education to be important.
• The second hypothesis (H02) also could not be rejected for the 14 statements on the basis of Welch
T statistic. Using Spearman’s Rank Correlation method, the correlation was found to be positive,
reasonably high and significant. Thus, overall, we fail to reject the null hypothesis at 1% level of
significance and it can be inferred that there is no significant difference between the opinion of
students and faculty members on the basis of mean values.
Conclusion and Recommendations
Teaching of ethics is important to save the profession of accounting from the perils of unethical
accounting practices. The current study and all the previous studies have well realized the benefits of
teaching ethics. But there are important shortcomings in the way of ethics education also because the
subject is still evolving. The most important shortcomings are lack of teaching material and lack of
trained faculty. Both the shortcomings can be overcome by giving adequate attention by policy makers.
Faculty can be identified and trained in this area and only trained faculty members should be employed
to teach the paper. It is also recommended that the policy makers should design curriculum meticulously
that gives adequate exposure to students to learn practical case studies related to ethical issues in
accounting. The curriculum should be revised regularly and evaluation of students should be done
through their responses to various case studies in the examination paper. The students should learn to
recognize ethical dilemmas and face ethical issues. Ethics should not be taught as a theory paper but
relevant practical training should be given to students for leading an ethical life. It is multidisciplinary
subject; therefore, faculty from different subjects should be engaged to handle the practicality of the
paper. Moral education should start from childhood and reinforced during both higher studies and
professional life to leave an everlasting impact. Teaching material also needs to be improved on the
guidelines of IFAC and other previous research studies with the involvement of psychologists,
philosophers and accountants.
References
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business ethics and accounting ethics education. Journal of Business Ethics, 51(3), 279–300.
Blanthorne, C, Kovar, S.E., and Fisher, D.G. (2007). Accounting educators' opinions about ethics in the
curriculum. Issues in Accounting Education, 22(3), 355-390.
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Issues in Accounting Education, 4(1), 70-81.
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Accounting Curriculum: A Longitudinal Study Examining Barriers and Enablers. Accounting
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INSIDER TRADING AND BANK MERGER ANNOUNCEMENTS IN INDIA:

TESTING THE VALIDITY OF INFORMATION LEAKAGE HYPOTHESIS
Dr. Sony Kuriakose∗

Prof. M S Senam Raju∗∗
Prof. N V Narasimham∗∗∗
ABSTRACT
Bank mergers are very important to banking regulators and governments owing to their increased public
policy implications and its effect on the efficiency of the sector. Merger announcements always result in a diversity of
problems to the regulatory authorities because of the significant price affecting information and the involvement of
many people in the due diligence process who have material inside information. It creates information asymmetry in
the market which strikes at the root of fairness of the securities market. In the post-reform period, Indian banking sector
has undergone considerable merger activity. In contrast to the pre-liberalized era, it experienced voluntary or market
driven mergers and Universal Banking Models apart from forced deals. The research into announcement effects has
found inconsistent returns for bidder banks and significant positive abnormal returns to the target bank shareholders.
The recent evidence of fraud, corruption and earnings manipulation in the Indian corporate sector increases the
relevance of the research into the insider trading activity prior to bank merger announcements. This issue involves
great relevance and remains unexplored particularly in emerging markets like India where the stock market is relatively
new, under regulated and segmented. In this backdrop, this paper empirically looks into the insider trading activity
prior to bank merger announcements in India.
KEYWORDS: Insider Trading, Bank Merger Announcements, MAAR, Event Study.
_______________
Introduction
Mergers and Acquisitions (M&As) is one of the major ways of corporate restructuring or
ownership structuring. While merger is used to denote the unification of two or more companies,
acquisitions are aimed at gaining the controlling interest. In line with global trends, Indian companies
have been using corporate restructuring through M&As since 1970s. Notwithstanding the fact, the new
industrial policy introduced in the year 1991 was the key motivating factor behind the increased
consolidation process in India. Though mergers became a routine corporate event in real sectors during
1990s, the banking industry, especially the commercial banks stayed away from such corporate events
even after the introduction of new industrial policy. It doesn’t mean that M&As is completely a new
phenomenon in Indian banking milieu. Till 1999, Indian banking sector experienced 66 merger deals but,
∗
Assistant Professor, Postgraduate Department of Commerce, Newman College, MG University, Kerala.
∗∗
Professor of Commerce, School of Mgt. Studies, Indira Gandhi National Open University, New Delhi.
∗∗∗
Professor of Commerce, School of Mgt. Studies, Indira Gandhi National Open University, New Delhi.
Dr. Sony Kuriakose, Prof. M S Senam Raju & Prof. N V Narasimham : Insider Trading and Bank..... 51
all those were triggered by the weak financials of the target banks or forced mergers u/s 45 (2) of the
Banking Regulation Act, 1949. The acquirers were public sector banks. There were no market driven
deals till 1999. But, after the implementation of the second Narasimham Committee Report on Banking
Sector reforms in 1998, the industry witnessed voluntary or market driven deals. Till date there are eight
voluntary mergers. HDFC Bank- Times Bank merger in 2000 was the first of this kind. Again, during this
period State Bank of India acquired two of its subsidiaries as per State Bank of India (Subsidiaries Act),
1959. Apart from these developments, banking industry also witnessed Universal Banking Models (Bank-
NBFC Merger) and severe consolidation in the cooperative sector.
A careful analysis of Indian financial sector in the post liberalization period would pinpoint the
reasons and motives of bank merger activity in India. There are two broad reasons; regulatory
interventions and other business environmental reasons. Regulatory intervention means the policy
changes announced in the form of economic reforms and the compulsion from RBI to follow prudential
norms in asset quality, credit risk management, capital adequacy, etc. Business environmental reasons
include the elimination of competition, growth prospects, tax benefits, acquisition of technology,
synergies arising from geographical diversification, increased efficiency, cost savings and economies of
scale, financial service convergence, etc.
While an impressive body of literature exists on mergers in the international context, few studies
are conducted in India particularly in the financial sector. Further, these studies are confined to market
performance and efficiency gains. Most of the prior studies on announcement wealth effects of bank
mergers have found that returns for the target bank shareholders are significantly positive and have
reported inconsistent results for bidder banks (See Dodd and Ruback, 1977, Muller, Firth, 1980, Jenson &
Ruback, 1986, Jayadev & Rudrasensarma, 2007, Anand & Singh, 2008, etc.). So it becomes necessary to
look into the reasons for this phenomenon.
Global literature suggests that there can be two prominent reasons for the positive abnormal
returns of target banks; higher merger premiums or higher valuations and insider trading before merger
announcements (Finnerty, 1976, Keown & Pinkerton, 1981, John Elliot et. al 1984, Jarrel & Paulsen, 1989,
etc.). The comparison of market prices showed that target banks have got higher prices compared to their
market prices at the time of merger. Does it mean that valuations were more favorable to the target bank
shareholders? To what extent was the valuation fair? How do different accounting variables relate to the
valuation of targets? Was there any leakage of valuation information or merger news prior to the merger
announcement? These are highly debatable issues.
In this context, it is relevant to recall the incidents allied to the UTI Bank-Global Trust Bank (GTB)
merger scam in the year, 2001 as it involved both the issues mentioned above. In the valuation, swap
ratio was fixed at 2.25:1 in favor of GTB. But, before the merger was officially announced, the Bombay
Stock Exchange (BSE) witnessed high volumes and sizeable rise in price of GTB shares. On this issue,
SEBI started an investigation and that compelled UTI Bank to go for a second valuation for the share
swap ratio and suggested a new swap ratio of 2:1, slightly lower than the first valuation and submitted
the second valuation report to RBI. Before taking the final decision, RBI awaited SEBI’s report. In the
investigation SEBI found the price rigging and concluded that Ketan Parekh, his associates, and two
corporate groups were involved in ramping up the stock price before the merger (Insider trading) for
getting a higher valuation and finally the merger was called off.
It is generally accepted that corporate insiders have access to information superior to that of
outsiders. There has been limited literature available in the global context and the existing studies found
that insiders earn abnormal returns prior to corporate announcements. All such studies are retraced
upon the assumption of semi-strong efficiency hypothesis which states that all public information is
reflected in the market price of a security so that only those possessing inside information can
outperform the market on a risk adjusted price (Keown and Pinkerton, 1981). It means that constant and
positive build up in the returns of the target bank shareholders can be treated as the presence of insider
trading. It is commonly known as information leakage hypothesis.
Research into buying and selling of shares by keeping insider information has been going on for
years in the developed economies. However, this issue didn’t get much attention in the Indian literature.
In this backdrop, this paper empirically looks into the insider trading activity prior to bank merger
announcements and in India.
Bank mergers are very important to banking regulators and Governments owing to their
increased public policy implications and its effect on the efficiency of the sector. Merger announcements
always result in a diversity of problems to the regulatory authorities because of the significant price
affecting information and the involvement of many people in the due diligence process who have
material inside information. The recent evidence of fraud, corruption and earnings manipulation in the
Indian corporate sector increases the relevance of the research into the insider trading activity prior to
bank merger announcements. This issue involves great relevance and remains unexplored particularly in
emerging markets like India where the stock market is relatively new, under regulated and segmented.
In the post-reform period, Indian banking sector has undergone considerable merger activity. In
contrast to the pre-liberalized era, it experienced voluntary or market driven mergers and Universal
Banking Models apart from forced deals. The research into announcement effects has found inconsistent
returns for bidder banks and significant positive abnormal returns to the target bank shareholders. This
leads the researcher to investigate the reason for the significant difference in returns of shareholders of
merging entities and the events around the merger announcements.
Literature Review
The effect of consolidation on the merging banks and on the economy is a multi-dimensional issue
(Altunbas & Ibanez, 2004). The volume and number of business combinations increased in parallel with
the economic policies introduced in India during 1990s. M&As have been deeply studied by theoretical
and empirical literature examining the reasons and effects of such business combinations. While an
impressive body of literature exists on mergers in the international context, few studies are conducted in
India particularly in the financial sector. Further, these studies are confined to market performance and
efficiency gains.
Asset prices tend to react on corporate announcements of earnings, financial results, acquisitions,
etc. and it would affect the trade patterns and stock prices. It is generally accepted that corporate insiders
have access to information superior to that of outsiders. Researchers have not given much importance to
this burning issue so far. There has been limited literature available in the global context and these studies
found that insiders earn abnormal returns prior to corporate announcements. All such studies are retraced
upon the assumption of semi-strong efficiency hypothesis. Semi-strong form of efficient market hypothesis
states that all public information is reflected in the market price of a security so that only those possessing
inside information can outperform the market on a risk adjusted price (Keown & Pinkerton, 1981).
Informed trading around M&As has received attention in the finance literature because the target bank’s
abnormal returns are always significantly positive. It is argued that unrestricted volume of insider trading
will lead to the destruction of the capital market and it demonstrates the inefficiency of the capital market
(Agarwal & Singh, 2006).
Finnerty (1976) used numerous financial ratios from annual reports to explain insider trading.
Finnerty found a positive correlation between insider purchases and the cross sectional levels of earnings
and dividends. The study concludes that the occurrence of profitable insider transactions implies that
“trading on insider trading is wide spread”. Keown and Pinkerton (1981) analysed 194 successfully
acquired firms between 1975 and 1978 using market model and found that the pre-announcement
trading was based on inside information. The study further reported that market reaction to intended
mergers begins to occur before the first public announcement. Elliot et al. (1984) studied whether
profitable trading is associated with the public release of information about earnings, dividends, bond
ratings, mergers and bankruptcies or not. They used multivariate tests to examine the relationship
between insider trading and public announcements. In contrast to the previous empirical evidence, the
study found as follows:
“Although there is some indication that insiders use private information to generate profits, the vast
majority of insider trading appears to be unrelated to imminent information releases. Some insider trading
probably occurs because of wealth changes, portfolio diversification effects, consumption opportunities,
and taxes. Although insiders are not necessarily representative investors, the availability of trading data
which are specific as to trader and date allows for the generation and empirical testing of theories on
investor trading.”
Jarrel and Paulsen (1989) used share price data and trading volume to determine how the market
for information operates to anticipate tender offers. The study covers the tender offers between 1981 and
1985 and well documented the stock price reactions to many types of corporate announcements
including dividend changes, earnings reports, the sudden deaths of CEOs, regulatory changes and
macroeconomic events such as inflation, oil-price shocks and interest changes. The study found that the
26 target firms in the sample that have been identified in government insider trading allegations show
high pre bid run-up.
Agarwal and Singh (2004) investigated insider trading activity before merger announcements in
the Indian corporate sector using daily closing prices and trading volume of 42 target companies. The
analysis has taken 165 trading days (150 days prior and 15 days after announcement). They recorded
systematic abnormal movements using modified market model. The findings of the study are very
important and shed light on the weak regulatory environment in India. The study states:-
“The results suggest that there exist significant abnormal returns prior to the merger
announcement, beginning approximately one month before the announcement date. Further, this
inference becomes more pronounced when the ten-day period immediately preceding the announcement
date is considered” (pp 19 NSE working paper, 2004).
Insider Trading – Legal Framework
It is a common notion that insiders’ activities in the market create news and they affect the trading
volume of other market participants. Insider trading is a term which is subjected to many connotations as
it can be of both legal and illegal trading. When a company’s director or chartered accountant or any
other employee buy or sell their own shares within the policies and regulations prescribed by company
and the law, it is treated as legal insider trading. Illegal insider trading simply means the act of trading,
directly or indirectly, in the securities of a publicly listed company by any person, who may or may not
be managing the affairs of such company, based on certain information, not available to the public at
large, that can influence the market price of the securities of such company. An insider, who has access
to critical price sensitive information with respect to a given company, may tend to use such information
to his economic advantage, severely impairing the interests of a public shareholder who is not privy to
such information.1
Insider trading is a crime against the shareholders and the market as it demolishes the fairness and
equity of the market. Permitting a few people to take the advantage of Unpublished Price Sensitive
1 Nishith Desai Associates, a research based international law firm (2013)

Information (UPSI) before it is disclosed to the others is a hefty compromise on fairness and integrity of the
stock market. It creates information asymmetry in the market which strikes at the root of fairness of the
securities market. A safe and sound market is one in which all information that is relevant to existing and
potential investors is in the public domain through disclosures that are correct, complete and
contemporaneous.1 Any information to be price sensitive, the information (i) has to relate to the company,
directly or indirectly; and (ii) should have the capability to materially affect the price of the securities of the
company when disclosed to the public. Possession of any and every information that relates to the company
cannot stop an insider from trading in securities of that company; and therefore, what is of importance is
the possession of information that can materially impact the market price of the securities.
Insider trading is a crime difficult to be detected as it is practically impossible to distinct the legal
and illegal insider trading without proper investigation. Direct evidence on insider trading is rare. Unless
the insider (trader) confesses his knowledge in some admissible form, evidence is almost entirely
circumstantial2. But there have been easy cases also. For example, in Dilip Pendse Vs SEBI case,
Nishkalpa was a wholly owned subsidiary of TATA Finance Ltd (TFL), which was a listed company. D.
P. was the MD of TFL. Nishkalpa had reported a loss of Rs. 79.37 crore and this was bound to affect the
profits of TFL. This was basically the unpublished price sensitive information of which Pendse was
aware. This information was disclosed to the public only on 30/04/2001. Thus any transaction by an
Insider between the period 31/03/2001 to 30/04/2001 was bound to fall within the scope of Insider
Trading; ‘DP’ passed on this information to his wife who sold 2, 90,000 shares of TFL held in her own
name as well as in the name of companies controlled by her. It was thus very easy for SEBI to prove
insider trading.3 Although insider trading is a global phenomenon, the study done by global
competitiveness survey for International Monetary Fund (IMF) reports that it is relatively high in countries
such as India, China, Russia, Mexico, etc. Hindustan Lever Limited – Brooke Bond Lipton merger case
(1998), Rakesh Agarwal (2001), KLG Capital (2009), Manmohan Shetty (2010), etc. were examples. United
States was the first country that addressed the insider trading activity through Section 10(b) and Section
10(b) of the Securities Exchange Act of 1934. Apart from this, rest of the world financial markets went
without any regulation prior to 1980s.
The first regulation outside US in this direction was the European Community (EC) directive in
1991. In India, except some of the suggestions given by Thomas Committee (1948), Sachar Committee
(1977) and Patel Committee (1984), Companies Act, 1956 didn’t have adequate provisions to curb insider
trading. In 1992, the Indian parliament enacted the Securities Exchange Board of India Act, 1992 to
protect the interest of the investors and to promote the development of securities market in India. Based
on this, SEBI (Prohibition of Insider Trading Regulations, 1992) were framed. Later the insider trading
regulations were amended two times, in 2002 and 2008.
After two decades since the SEBI Regulations, 1992, in the light of increased insider trading
probes and scams, the former SEBI chairman U K Sinha appointed a panel in March 2013 to weed out
insider trading activity from Indian capital markets. The high level committee was chaired by N K Sodhi,
retired Chief Justice of Karnataka High Court and the former presiding officer of Securities Appellate
Tribunal (SAT). The committee submitted its report in December 2013. The major suggestions of the
panel are as follows.
1 M Damodaran (Business Today, November 25 2005), Former chairman of SEBI.

2 Speech by SEC Staff: Insider Trading. A U.S. Perspective Remarks by Thomas C. Newkirk
Associate Director, Division of Enforcement Melissa A. Robert, 16th International Symposium on
Economic Crime, Jesus College, Cambridge, England September 19, 1998
3 See Chaturvedi, Sourabh (2013)
• The definition of insider should be simplified and the definition of the connected person should
be broadened.
• Public servants, Ministers, Judges and policy makers should be brought under the ambit of
insider.
• Financially dependent close relatives of company officials, fund managers, brokers and traders
should be treated as insiders.
• There should be clear distinction between generally available information and unpublished price
sensitive information.
• Promoters, employees, directors and their immediate relatives should disclose trades exceeding
Rs. 10 lakhs.
The market regulator evaluated the pros and cons of the report and has come up with stricter
rules on insider trading, SEBI (Prohibition of Insider Trading) Regulations, 2015. As per the new rules,
the definitions of insider, connected persons, price sensitive information are widened. In connection with
M&As, the regulations contain a specific carve-out for communication and procurement of information,
for instance for the purpose of conduct of due-diligence in connection with substantial transactions
including mergers and acquisitions.
Data and Methodology
The present study is based on secondary data. The study obtained bank merger data from the
websites of RBI, SEBI, NSE, BSE etc. The share price data, share volume data and financials of bidder and
target banks have been collected from CMIE Prowess Data Base and Capital Line Plus Data Base. The
study is empirical, analytical and descriptive in nature. In addition to the overall picture, it provides a
case wise analysis of deals as well.
• Justification of Low Sample Size
Indian banking sector experienced 24 merger deals in the post reform period. In contrast to the
pre-reform period, post reform period has witnessed voluntary mergers and Universal Banking Models
(Bank-NBFC merger) as per section 44A of the Banking Regulation Act1. Again, during this period, State
Bank of India acquired two of its subsidiaries as per the State Bank of India (Subsidiaries Banks) Act,
1959. The primary reason which motivated the researcher to analyze the insider trading activity is the
high valuations of target banks. The study considers all bank merger deals in the post liberalization era in
which the target banks are listed and received purchase consideration either in shares or debentures or
cash. The reason for this criterion is that the valuation problem doesn’t arise in the absence of purchase
consideration. Therefore, out of the 24 commercial bank merger deals occurred in the post liberalization
era, 5 deals are chosen which satisfy the conditions.
In the excluded 19 deals, either the target banks are not listed or they do not receive anything as
consideration. Further, most of them were local banks2. Universal banking models are avoided as the
financials of merging institutions are incomparable. Similarly, mergers in the cooperative banking sector
are excluded as the issues discussed in the study are not relevant in such cases.
1 ICICI Bank- ICICI Ltd reverse merger in 2002, IDBI Bank- IDBI Ltd merger in 2004, Ashok
Leyland Finance Company –Indusland Bank Ltd deal in 2004, conversion of Kotak Mahindra
Finance Ltd to Kotak Mahindra Bank in 2003 are examples of Universal Banking Models. Table 1.1
doesn’t include such deals.
2 Though Bareilly Corporation bank- Bank of Baroda deal derived swap ratio, the deal is not
considered because of the unavailability of relevant data. Bareilly Corporation bank had 63
branches.
Table 1: Sample Bank Merger Deals
Year Target Bank Bidder Bank Nature Merger Announcement Date
2001 Bank of Madura ICICI Bank Voluntary Merger December 07, 2000
2005 Centurion Bank Bank of Punjab Voluntary Merger June 20, 2005
2006 United Western Bank IDBI Bank Forced Deal September 16, 2006
2008 Centurion Bank of Punjab HDFC Bank Voluntary Merger February 22, 2008
2010 Bank of Rajasthan ICICI Bank Voluntary Merger May 17, 2010
Source: Compilation from RBI data
• Analysis Using Share Prices
The investigation into the insider trading activity is retraced upon the assumption of semi-strong
efficiency hypothesis. There are three versions of Efficient market Hypothesis (EMH). EMH argues that it
would be impossible to outperform the market consistently. The three versions of EMH are differentiated
in their notion about the concept of ‘All available information’ (Fama & Laffer, 1971, Fama et al, 1969).
Following are the versions of EMH.
• Weak form of efficiency: It states that share prices already reflect all information that can be
derived from examining the historic data related to the market.
• Semi strong form of efficiency: It asserts that all publicly available information is reflected in the
stock prices.
• Strong form of efficiency: It argues that all public and private information are reflected in the
stock prices.
The study uses semi-strong efficiency hypothesis which states that all public information is
reflected in the market price of a security so that only those possessing inside information can
outperform the market on a risk adjusted price (J Keown and John M Pinkerton, 1981). Event studies are
used to locate this out-performance or abnormal returns earned by the insiders (Ball & Brawn,1968, Fama
et al, 1969, Brawn & Warner , 1997, Campell et al, 1997). In US, Security Exchange Commission regularly
uses event studies in its investigations and US Courts rely on such studies and reports to locate the
fraudulent and unfair market practices. Though there is no unique structure for an event study, there is a
general flow. The event study methodology used in the present work is described below.
Defining the Event Window
In the present study, bank merger announcement is the event. The announcement date is defined
as the date when the merger news appeared in the national dailies. For this, the study considers online
editions of the dailies too. It may not be the official announcement of the merger. The reason is that, in
some cases, the news on merger negotiations had appeared before its official announcement. (-60, +14) is
the window period. The justification for the said long window period is discussed in the next sections.
Calculation of Abnormal Returns and Average Residuals
MAAR (Market Adjusted Abnormal Return) method is used to measure the abnormal returns
around the merger event date. Abnormal Return (AR) is calculated using the following equation.
ARit = Rit - Rmt -------------------- t = (-60 ……. + 14)
Where,
ARit = Abnormal return for the stock ‘i’ for the day‘t’.
Rit = Return for the stock ‘i’ for the day‘t’.
Rmt = Return of the Bank Nifty.
Return of the individual security is found by the following formula;
Rit = Pt - Pt-1 / Pt-1
The same method is applicable to the calculation of return of the Bank Nifty. Based on the
abnormal return figures, Average Residuals (ε) are calculated. It is the simple arithmetic mean of the
estimated abnormal return for all banks in the sample. The average residuals are computed for t= -60 to
+14 trading days. The study considers average residuals of 60 trading days before the announcement
date and 14 days after the announcement date. Therefore, price movements much before the
announcement date can be located and the average residuals so calculated would indicate the unusual
price movements. More clearly, the study is more emphasized on the abnormal price movements much
before the announcements. The reason is that the abnormal price movements around the announcement
date cannot be caused just by insider trading. But, abnormal returns much prior to announcement date is
mainly caused by the informed buying and selling of such securities. If the abnormal return tends to
zero, one can confirm that there is no unusual price movements and insider trading.
Calculation of Cumulative Average Residuals (CAR)
Cumulative Average Residuals (CAR) is calculated by adding the previous daily average
residuals which has been determined in the previous step. Mathematically,
CARt = ε + CARt-1 t = (-60, …. + 14)
If there are no price movements prior to the announcement, the CAR also tends to zero. If the
average residuals and CAR are plotted in a graph, it will indicate whether there is any positive buildup
in the CAR or not. The presence of buildup clearly indicates the presence of insider trading activity prior
to the merger announcement.
Testing Significance
The study tests the following hypotheses;
H0 : There are no significant changes in the share prices of the target bank before the merger
announcement.
Mathematically,
AR = 0 or CAR= 0
H1 : There are significant changes in the share prices of the target bank before the merger
announcement.
AR > 0 or AR < 0 or CAR > 0 or CAR < 0
• Analysis Using Trade Volume Data
In order to confirm the results of share price analysis, an analysis of the trade volume data of
target banks is made. The methodology is borrowed from the working paper which is part of the NSE
research initiative (Agarwal and Singh, 2006). A short description of the methodology is described below.
The first step is the fixation of two benchmarks. The average trading volume data for the period (-60
to -31 days) and (-100 to -41 days) which represent short term benchmark and long term benchmark
respectively. Then these benchmarks are compared with average trading volume data for (-20 to -1), (-10 to
-1) and (+ 1 to +14) windows. This comparison will locate the deals in which higher trade volume is done. If
the trade volume is higher by 100% or more compared to short term benchmark, the study considers it as a
‘significant’ change. Similarly, if it is higher by 50% or more compared to long term benchmark, the study
considers it as a ‘significant’ change.
Results and Discussion
• Aggregate Results
The basic premise of this analysis is that systematic abnormal price movements in target bank
shares can be interpreted as prima facie evidence of insider trading. For the purpose of analysis, the
residuals for the target banks for the 60 trading days prior to the announcement date and 15 days on and
after the announcement date were estimated. As mentioned in the methodology part, MAAR method is
used to find out the abnormal returns and average residuals. If there are no unusual price movements
prior to the announcement date, it means that both AR and CAR fluctuate randomly about zero. At the
same time, if the AR show positive trend when trading days (t) approach zero and a corresponding build
up in CAR t, it can be taken as an evidence for trading on inside information.
Figure 1: Average Residual
Source: Calculations are based on Secondary Data

It is very much evident that (Figure.1 and Figure.2) there exists a constant increase or build up in the
CAR of target banks much before the merger announcement. To be more specific, the build-up started
almost 45 days preceding the merger announcement. Figure 1 shows that average residuals prior to the
merger were positive and turned negative in the post-merger announcement scenario. It pinpoints the
trading on insider information. When turning into CAR, the build-up is sharp and very much visible. As
per the information leakage hypothesis, the positive and constant build up in the CAR (market adjusted)
prior to corporate announcements can be treated as the presence of insider trading. Therefore, it can well be
argued that the bank merger information and valuation details of the deals were leaked much before their
announcements (the day on which the merger news comes in a national daily). In spite of this, the t statistics
given in the tables do not suggest that AR and CAR are significantly different from zero. We assume that it
is because of low sample size and lack of normality.
Figure 2: Cumulative Average Residual
Therefore, in order to trace out the pattern of movement in CAR in a better way, we divided the 60
days period prior to the merger announcement into seven sub-periods. Then, the CAR build up accounted
by the various sub-periods are computed. It is very clear from the Table 2 that about 35% of the total build
up in the CAR is accounted by ten days immediately preceding the announcement day, which is significant
at 1% level of significance. If we take the build up for a period of one month preceding the date of
announcement out of the total build up in the CAR during the 60 days, it can be seen that 67% of the total
build up is accounted by it.
Table 2: CAR- Announcement Effect
Sub-periods CAR Announcement Effect
-60 to -51 days 0.13 0.42%
-50 to -41 days 1.60 5.18%
-40 to -31 days 1.82 5.90%
-30 to -21 days 5.37 17.41%**
-20 to -11 days 9.98 32.37%**
-10 to -1 days 10.82 35.09%**
0 to +1 days 1.08 3.52%**
-60 to +1 days 30.83 ------
** indicates CAR is significantly different from zero at .01 level of significance.
Based on the above results, it can be easily concluded that there exists abnormal returns much
before, say one month, before the merger announcement date. Therefore, the study rejects the null
hypothesis that there is no abnormal price movement before the merger announcement and validates
information leakage hypothesis. Again, to confirm these results, we have analyzed the trading volume
pattern of the target banks. As mentioned in the methodology part, the average trading volumes
occurred during -20 to -1, -10 to -1 and 1 to +14 are compared to short term and long term benchmarks (-
60 to -31 days and -100 to -41 days). The following table reports the results of the analysis.
Table.3: Analysis of Trade Volume Pattern – Aggregate Results
Window -20 to -1 -10 to -1 +1 to+14
Average Trading Volume 1717513 2344580 999800
% Change (Compared with Short- term Benchmark) 330 487 150
% change (Compared with Long- term Benchmark) 522 749 262
Note: Short-term Benchmark (-60 to -31 trading Days) is 399030 and Long–term Benchmark (-100 to -41 trading days) is 276025
The aggregate results of trading volume pattern analysis presented in Table 3 show that target
banks’ trading volume is significantly high in all the periods when it is equated with the short term and
long term benchmarks. The percentage changes compared to short term benchmark during -20 to -1, -10
to -1 and +1 to 14 are 330%, 487% and 150% respectively and are higher than the 100%. In the case of long
term benchmark comparison, the percentage changes are 522%, 749% and 262% respectively. It is
interesting and important to note that, in both comparisons, -10 to -1 window shows the highest
percentage change. Therefore, our analysis strongly supports the information leakage hypothesis and
provides concrete evidence for trading on inside information. Thus, as suggested by global literature
(Finnerty, 1976, Keown & Pinkerton, 1981, Gregg A et.al ,Pound & Zeckhauser, 1990, Meulbrock, 1992),
before the merger announcements, Indian equity markets also experienced unusual or dramatic increases
in the trading volumes parallel with the constant buildup in the CAR.
Individual Results
A case by case discussion on individual merger deals is available below:
• ICICI Bank-Bank of Madura
Table 4 reports that during one month preceding the announcement date witnessed CAR
announcement effect of 68%. Further, 10 days period preceding the announcement accounted for 72% of the
announcement effect. It means that about one third of the total CAR announcement effect is accounted by
10 days preceding the merger announcement (see Figure 3).
Figure 3: Cumulative Abnormal Returns – Bank of Madura

Table 5 shows the average trading volumes of Bank of Madura for the respective window periods.
The average trading volumes for the window period are 30,289, 60,182 and 9,799 respectively. When
compared with the short term (13,021) and long term (508) benchmarks, these figures are significantly
high. The percentage change of average trading volume compared to the benchmarks is also shown in
the following table. The analysis clearly shows that the trading volume has started rising much before the
public announcement of the merger. The trading volume is 133% higher to the short term benchmark and
5,868% higher to the long term benchmark in the month before the merger announcement date. Further,
it is even higher in the two weeks before the merger announcement.
Table: 5: Analysis of Trade Volume Pattern – Bank of Madura
Window Period -20 to -1 -10 to -1 +1 to+14
% Change (Compared with Short- term Benchmark) 133 362 (32)
% Change (Compared with Long- term Benchmark) 5868 11747 1828
Note: Short-term Benchmark (-60 to -31 trading Days) is 13021 and
Long–term Benchmark (-100 to -41 trading days) is 508). Figures in the parenthesis are negative.
Hence in the ICICI Bank- Bank of Madura deal, CAR for the one month period preceding the
announcement is very high and average trading volumes for both the windows, -20 to -1 and -10 to -1
periods are substantially high. In the valuation part, the ICICI Bank paid Rs. 305.80 per share to BoM
shareholders when its market price was only Rs. 122.50. Average of 15 days price prior to this date is Rs.
90.31, one month average is Rs. 86.95, two months average is Rs. 79.86 and three months average is Rs.
77.82. The book value per share was Rs. 205.12. Thus, premium to book value and premium to market
value are 1.50 times and 2.50 times respectively. By considering the high acquisition price, abnormal
CAR and high average trading volume, it can well be argued that Bank of Madura’s shares had
undergone insider trading.
• Centurion Bank –Bank of Punjab
The news about the Centurion Bank-Bank of Punjab deal was first appeared on June 20, 2005. It is
very much clear from Table 6 that in all the seven sub periods, the percentage of announcement effect to
the total announcement effect (-60 to +1 window) are significantly high. It includes both positive and
negative drifts. Figure 5.4 also does not show any constant build up in CAR. Though the announcement
effect accounted by -10 to-1 window is 800% in total build up, the other periods also show similar results.
However, -10 to -1window is accounted for the highest portion of the total effect. The analysis of trading
volume supplements it. When compared with short term benchmark, the percentage change in trading
volume is significant only in -10 to-1 window. In the long term benchmark comparison, none of the
periods reflect significant percentage change.
Table 6: CAR- Announcement Effect - Bank of Punjab
-60 to -51 days 0.04 500.00%
-50 to -41 days -0.0211 -263.75%
-40 to -31 days 0.0521 651.25%
-30 to -21 days -0.057 -712.50%
-20 to -11 days -0.012 -150.00%
-10 to -1 days 0.064 800.00%
0 to +1 days -0.058 -725.00%
-60 to +1 days 0.008 ------
In the Centurion Bank- Bank of Punjab deal, the average trading volumes of Bank of Punjab for the
window period are 2, 60,184, 4, 32,923 and 12, 08,035 respectively. Table 9 clearly indicates that these figures are
less than the long-term benchmark and slightly higher than the short term benchmark. The percentage change
is ‘significant’ only for the (-10,-1) window period. It is interesting here to note that the percentage change in
trading volume compared to short term and long term benchmarks is very low as opposed to ICICI Bank-
Bank of Madura deal.
Figure 4: Cumulative Abnormal Returns – Bank of Punjab

In the valuation aspects, the exchange ratio agreed was 9:4. Based on this ratio, the deal value was
Rs. 3591 millions. It is important here to remember that Bank of Punjab was a loss making bank it had
reported a loss of Rs. 624 millions in the financial year preceding the merger. The acquisition price was
Rs. 34.20/share. The book value of Bank of Punjab at the time of merger was Rs. 22.90/share. The
premium based on book value and market value are 1.49 times and 1.02 times respectively. It means that
premium was not that high compared to the market price of Bank of Punjab at the time of merger.
Table: 7: Analysis of Trade Volume Pattern – Bank of Punjab
% Change (Compared with Long- term Benchmark) (74) (56) 23
Long–term Benchmark (-100 to -41 trading days) is 982698). Figures in the parenthesis are negative.
Though the announcement effect of CAR and percentage change in the trading volume are high in
the ten day period, by considering high volatility in all sub-periods and the valuation aspects, the study
rates it as an uncertain case.
• IDBI Bank- United Western Bank
IDBI Bank- United Western Bank deal was a forced merger deal and the news first appeared in
the public domain on September 16, 2006. In contrast to other forced deals, the target bank got
consideration in the deal and it was a cash transaction. Table 8 provides that the announcement effect was
negligible in the ten days period preceding the announcement. However, the one month period before
the announcement is accounted for nearly 30% of the total announcement effect. In the trading volume
analysis it can be observed that all the windows, in both short term and long term benchmark
comparison, show substantially high average trading volumes. The price paid was Rs. 1506 millions. The
acquisition price was Rs. 28/share. The premium to book value and market value were 1.90 times and
1.31 respectively.
Table 8: CAR- Announcement Effect -United Western Bank
-60 to -51 days 0..237 4.38%
-50 to -41 days 0.042 13.74%
-40 to -31 days 0.102 1.88%
-30 to -21 days 2.65 49.07%
-20 to -11 days 1.74 32.22%
-10 to -1 days -0.13 -2.40%
0 to +1 days 0.06 1.11%
-60 to +1 days 5.40 ------
Figure 5: Cumulative Abnormal Returns – United Western Bank
Table 9: Analysis of Trade Volume Pattern – United Western Bank

Long–term Benchmark (-100 to -41 trading days) is 36394. Figures in the parenthesis are negative.
In spite of these evidences favoring insider trading, the study doesn’t argue the presence of
insider trading in this case. This is because of the fact that the RBI had placed United Western Bank
(UWB) under moratorium on September 02, 2006. UWB had been struggling with continuous erosion in
their networth, negative CRAR and high NPA. From the moratorium date onwards, there were lot of
negotiations between UWB and other banks to come up with a decent plan of merger. These negotiations
and the expectations of a merger might have increased the trading volumes and the share prices.
• HDFC Bank- Centurion Bank of Punjab
The news on the HDFC Bank- CBoP first appeared on February 22, 2008. The target bank had
acquired Bank of Punjab and Lord Krishna Bank earlier. Table 10 exhibits that -10 to -1 window is
accounted only for the 5% of the total build up. However it is surprising to know that one month prior to
the merger is accounted for the 236% of the total effect and it was negative too. When all the other target
banks in the sample displayed positive effect in the one month period prior to the merger, CBoP showed
a substantially high negative pattern. The overtrading activity (Table 11) prior to the merger too indicates
the same. The average trading volume is significantly high in (-20,-1) and (-10.-1) window periods
compared to short term benchmark.
Table 10: CAR- Announcement Effect - Centurion Bank of Punjab
-60 to -51 days 0.113 126.96%
-50 to -41 days -0.073 -82.02%
-40 to -31 days 0.123 138.20%
-30 to -21 days 0.159 178.65%
-20 to -11 days -0.214 -240.44%
-10 to -1 days 0.004 4.49%
0 to +1 days -0.023 -25.84%
-60 to +1 days 0.089 ------
Long–term Benchmark (-100 to -41 trading days) is 4783342. Figures in the parenthesis are negative.
Figure 6: Cumulative Abnormal Returns – Centurion Bank of Punjab
Table: 11: Analysis of Trade Volume Pattern–Centurion Bank of Punjab

% Change (Compared with Long- term Benchmark) (10) (06) 108
The acquisition price was below the market price of CBoP at the time of merger. The exchange
ratio was 1:29. The acquisition price was Rs. 50.85 whereas the market price stood at Rs. 56.44. This
should be linked to the negative pattern of CAR prior to the merger announcement. Taking into account
the valuation aspects, we presume that the negative drift much prior to the merger can be due the
leakage of exchange ratio information.
• ICICI Bank- Bank of Rajasthan
The news on ICICI bank- Bank of Rajasthan merger was first appeared on May 17, 2010. When
compared with other voluntary mergers, this deal has many oddities in the context and in the
background of the merger including various regulatory interventions of authorities like the Reserve Bank
of India (RBI), Securities and Exchange Board of India (SEBI) and Foreign Investment Promotion Board
(FIPB). This deal attained great attention because of poor corporate governance of the target bank and
cancellation of Extra Ordinary General Meeting (EGM) by the Calcutta District Civil Court. The
promoters of the Bank of Rajasthan (BoR) have been under huge pressure from regulatory authorities to
restructure the Bank owing to a diversity of problems since 2009. BoR, controlled by Tayal Group, had
been asked to lessen their shareholding to below 10% from 28% by the RBI. According to SEBI, the
promoter’s shareholding in the old private sector bank accounted to 55%.
Table 12: CAR- Announcement Effect -Bank of Rajasthan
-60 to -51 days 0.075 0.05%
-50 to -41 days 7.35 4.96%
-40 to -31 days 8.99 6.07%
-30 to -21 days 24.03 16.24%
-20 to -11 days 48.45 32.75%
-10 to -1 days 53.65 36.26%
0 to +1 days 5.4 3.38%
-60 to +1 days 147.95 ------
On February 26, 2010, the RBI levied a penalty of Rs. 25 lakhs for a series of violations including
irregular property deals, actions against money laundering norms, deletion of corporate records from the
information systems, irregularities in the accounts of corporate groups, extension of repayment period over
permissible limits on intra-day overdraft, lack of enough credit committees and poor corporate governance.
Further, the RBI appointed a new CEO and nominated 5 directors for the Bank. Following this, SEBI banned
100 entities holding BoR Shares for the sake of their promoters from stock market activities. The RBI then
asked the BoR to perform an audit of ‘internal delegation of sanctioning powers followed by the banks’ and
the provisioning procedure of bad debts. Due to a series of actions from the regulators, the Tayal family
decided to merge the bank with ICICI Bank, the second largest bank in India which was looking for a target to
increase their customer base and geographical reach in northern India.
Figure 7: Cumulative Abnormal Returns –Bank of Rajasthan

Surprisingly, when the RBI and SEBI were initiating actions against irregularities in BoR, the bank
experienced a major 20.9% rise in price and in comparison; the Bank Nifty saw only an increase of 9.9%.
It was during this quarter that, the holding of institutional investors increased substantially from 5.73%
to 16.24%. It can be thus presumed that the reason for the marked price appreciation was due to
information asymmetry or insider trading or both.
Table: 13: Analysis of Trade Volume Pattern–Bank of Rajasthan
Note: Short-term Benchmark (-60 to -31 trading Days) is 421207and
Long–term. Benchmark (-100 to -41 trading days) is 312693
Turning into the CAR announcement effect, Table 12 shows that all sub-periods have positive
announcement effects. Furthermore, nearly 70% of the announcement effect is accounted by the one
month prior to the merger announcement. The build up in the CAR is very much evident in Figure 7. In
addition, all periods show substantially high or significant change in the average trading volumes both in
short term and long term benchmark comparisons. Exchange ratio fixed in the deal was 1: 4.72. The
acquisition price was Rs. 190.90/share. The premium based on book value and market value was 3.29
times and 2.30 times respectively. It means that ICICI Bank paid 2.30 times of market price of BoR. The
substantial increase in the trading volume and high CAR much prior to the merger can be read in line
with the leakage of higher valuation of the target bank.
Conclusion and Policy Implications
As the analyzed cumulative abnormal return data and trading volume data showed abnormal
build up much prior to the bank merger announcements, the study validates the information leakage
hypothesis. In other words, the study argues that trading on insider information is present in Indian
equity markets. In the case wise analysis, out of the five deals examined, the analysis of three deals
clearly supported the argument; ICICI Bank- BoM, HDFC Bank- CBoP and ICICI Bank- BoR deals. The
other deals are rated as uncertain cases. Though this paper is not intended to provide measures for
preventing insider trading or penalizing insiders, it has relevance and public policy implications. During
last five years, SEBI has received 87 cases of insider trading and completed investigations in 72 cases.
Merger of Reliance Petroleum with Reliance Industries Limited and Statham Computers signatories
issues were the high profile cases. In spite of this high completion rate, what is worrying is that insider
trading consistently goes unpunished in India. Otherwise, the offenders often get favorable orders from
Securities Appellate Tribunal (SAT). Further, many studies on the legal aspects of insider trading have
clearly shown that the enforcement system is not timely, effective and creditable.
At many instances the authorities couldn’t prove the crime beyond doubts and the legal experts
argue that existing definitions of ‘Insider’, ‘UPSI’ and ‘Connected person’ are complex and not adequate.
In this backdrop, as India is a growing economy, it should bring efficient and effective surveillance and
enforcement approach to solve the deficiencies of the system. It is expected that the implementation of
Sodhi Committee Report, 2013 will resolve these issues and thereby improve the public confidence in
Indian equity markets.
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ISSN : 0972-1479 (Print) 2395-6127 (Online) Vol. XLVIII (2), December, 2016, pp. 67- 72
IMPACT OF CRUDE OIL PRICES IN CHINA, INDIA AND USA

ON THE GOLD PRICES
Prof. Guntur Anjana Raju∗

Shripad Marathe∗∗
ABSTRACT
The paper studies Impact of Inflation, Crude Oil prices and Exchange Rate on Gold Prices Fluctuations in
India, China and USA. Applying co-integration and vector error correction models (VECM), Vector Auto Regression
(VAR) and Granger Causality to data for 1996–2015 and found that Crude Oil Prices have the Short term
Relationship with Gold Prices in India, China and USA and there is a bidirectional Causality in India and USA.
KEYWORDS: Gold Prices, Oil Prices, Co-integration, VAR, VECM, Granger Causality, Co-integration.
_______________
Introduction
In India, oil demand for 2015, rose by 0.22 mb/d (Millions barrels per day), products like LPG,
gasoline and diesel shows the gain to the Investors. Macro-economic variables also shown the support to
low international oil prices but in China oil demand is fall by 0.05 mb/d because of lower growth rate
and same situation arise in USA the demand is fall by 0.16 mb/d because of lower growth rate. In
(Allese, 2008), (SitiNurulhuda Ibrahim, Rahul Bishnoi (2014), concluded that the relationship between
the Oil Prices and Gold prices are positively correlated. (K. S. Sujit, 2011), (Bhunia, 2013) concluded that
there is a long term relationship between the oil and Gold prices. So the study has been conducted to see
the relevance of the literature and country India, China and USA are taken for the study.
Literature Review
Allese, 2008 studied the development of the price of Gold. The author has studied Gold market
and the factors and trends from 1997 to 2007, which effect the Gold prices fluctuation. The study
concluded that Oil and Gold Prices and USD positive correlated.
Sujit, 2011 thisstudy shows relationship among Gold price, stock returns, Exchange rate and Oil
price. This study takes daily data from January 1998 to June 2011. Using techniques of time series they
studies relationship among these variables using vector autoregressive and co integration technique. The
results show that Exchange rate is highly affected by stock returns, Exchange rate and Oil price.
Bhunia, 2013 Study investigates the Co-integration relationships among Crude Oil price,
domestic Gold price and selected financial variables (Exchange rates and stock price indices) in India for
the period from January 2, 1991 to October 31, 2012. Johansen Co-integration test result indicates that
there exists a long-term relationship among the selected variables. Granger causality test result shows
that there must be either bidirectional or no causality among the variables.
∗
Head, Department of Commerce, Goa University, Taleigao Plateau, Goa.
∗∗
Assistant Professor, DMC College, Assagao, Mapusa, Goa.
Ibrahim, 2014 this paper analyzed factors that affecting the Prices of Gold in Malaysia covering
data for 10 years period which are from 2003 until 2012. The researcher used variables that affect the
Prices of Gold which are Crude Oil Prices, CPI rates and Exchange rates. The empirical results have
found there is negatively significant relationship between CPI rates and Exchange rates on Gold Prices,
while a Crude Oil price is positively significant.
Bishnoi, 2014 This paper analyses the critical factors affecting the price of Gold using ordinary
least square, white-test and weighted least squares taken yearly data from 1994 to 2013. The results show
that Gold Prices, US dollar to Indian Rupee Exchange rate, and Crude Oil Prices are positively correlated
albeit a negative relationship clearly emerges with the Rate of CPI, long run interest rates in the US and
their Real GDP.
Dubey, 2014 Present study is based on the Gold price trends and what factors determine the Gold
price in India. The paper specially focuses on increase in Gold Prices in India in the years between 2004
to 2013. According to empirical findings, highly positive correlation is found between Gold Prices and
CPI rate of our country.
Jaiswal, 2015 The paper deals with various aspects attached to the paper basically uses the data
available through journals, reports, articles etc. and concludes that Investing in Gold is potentially a way
to maintain purchasing power. The purchasing power of Gold rises and falls as the real price of Gold
rises and falls.
Shafiee, 2010 reviews that world Gold market and the historical trend of Gold Prices from
January 1968 to December 2008. This is followed by an investigation into the relationship between Gold
price and other variables like Oil price and Global CPI over the last 40 years. The study estimates the
Gold price for the next 10 years, based on monthly historical data of nominal Gold price.
Objectives of the Study
Is to Study the Impact of Crude Oil Prices in China, India and USA on Gold Prices.
The Period of the Study is from January 1996 to December 2015 Sample size Contains three
countries India, China and USA. The study undertook the secondary data for analysis. The Monthly
values of Oil prices taken from US Energy information Administration (oil prices),World Gold Council
(Gold Prices) and National Bureau of Statistics of China etc. Statistical Tools and Techniques used are
Unit Root Analysis (Augmented Dickey Fuller), (Phillip Perron)
The ADF Unit root is based on null Hypothesis Ho:-Yt is Not I(0). If the calculated ADF Statistic is
less than the critical value, then the null Hypothesis is rejected; otherwise accepted. ADF and Phillip
Perronis used to see the stationarity between Gold Prices and Exchange rate of Rupee.
∆ Yt = α 0 + α 1 Yt − 1 + ∑ Υ j ∆ Yt − j + Et
Vector Auto Regression
VAR Model is used to predict and analyze interrelated time series and dynamic effects that the
random perturbations have on the variables system. There is no need to specify whether some variables
are endogenous or exogenous. It shows the response of Exchange Rate and Gold Prices. It focuses more
on the increase or decrease in trend. It is also used to detect the causal relationships among the variables.
Johansen Co-integration Test
The trace statistic can be specified as: Γ Trace
= −T ∑ log( 1 − λ i )
Johansen Co-integration Test has been applied to check whether the long run Equilibrium
relation exists between the Oil Prices and Gold Prices. It is based on two test statistic, i.e. Trace Test
Statistic and the Maximum Eigen value test statistic.
Prof. Guntur Anjana Raju & Shripad Marathe : Impact of Crude Oil Prices in China, India ..... 69
Granger Causality Test
The Granger causality test is a statistical hypothesis test for determining whether one time series
is useful in forecasting another.So study helps to determine whether Exchange Rate helps to determine
Gold Prices. A time series Exchange Rate is said to Granger-cause Y if it can be shown, usually through a
series of t-tests and F-tests on lagged values of Exchange Rate (and with lagged values of Gold Prices
also included), that those Exchange Rate values provide statistically significant information about future
values of Gold Prices.
m m
tˆ = ∑i = 1
B 1 Yt − 1 + ∑ i = 1
aiXt − i
m m
Xt=
α 0 + ∑
i−1
α iXt − 1 + ∑
i=1
Λ iΥ t − 1
Scope of the study

Growing variability in Gold prices in the recent years, validate the need to examine such
fluctuation from January 1996 to December 2015.The data for 20 years has been taken for consideration
and the three markets are considered i.e. India, China and USA for studying the determinants of Gold
Prices. In reality Gold price did not solely affected by single factor. In the study, the relationship between
the Crude Oil Prices, and Gold prices of the countries were being investigated.
Table 1: Descriptive Statistics of Gold Prices and Oil prices from 1996-2015
Particulars Gold prices Oil Prices
China India USA USA India China
Mean 2.285630 2.285879 2.285838 2.3825 1.647937 0.914845
Standard Deviation 0.282718 0.282779 0.282538 0.5255 0.298477 0.314679
Skewness 0.228366 0.229379 0.2283 -1.4112 -0.204067 -0.455685
Kurtosis 1.477696 1.480270 1.4783 3.7455 1.772440 1.996587
Jarque-bera 25.26013 25.20037 25.240 85.221 16.73478 18.37432
Probability 0.0000 0.0000 0.0000 0.0000 0.0002 0.0001
Source: Authors compilation
Table 2: Unit Root Analysis of Gold Prices and Oil Prices

Unit Root ADF Phillip-Perron
Null Hypothesis T- Statistics Prob T- Statistics Prob.
Gold price USA has a Unit Root -13.01519 0.0000 -13.01519 0.0000
Gold price India has a Unit Root -13.02951 0.0000 -13. 03678 0.0000
Gold price China has a Unit Root -12.99907 0.0000 -12.99907 0.0000
Oil Prices of USA has a Unit Root -10.06745 0.0000 -10.108025 0.0000
Oil Prices of India has a Unit Root -9.765815 0.0000 -9.826013 0.0000
Oil Prices of China has a Unit Root -20.15853 0.0000 -20.10238 0.0000
Source:-Authors compilation
Above Table 1 highlights the Descriptive Statistics of Oil and Gold Prices. The Data is Converted
to logs Because of uniformity ,It gives information about Mean, Standard Deviation, Skewness and
Kurtosis values of the India, China, USA for the period of January 1996 to December 2015.The dependent
variable that is Gold Prices India has a Highest standard deviation i.e. 0.282779 and kurtosis value of
1.480270.which points out that Gold Prices of India moves around 0.0282779, Gold prices have shown an
increasing trend because the Average value is increasing over the period of time . Oil price shows a
highest standard deviation for USA i.e. 0.52550 Skewness shows that Oil prices are is Negatively Skewed
between the three variables. Table 2 shows that the data is significant at 1% level (i.e. p value<1%) and
become stationary at First differenced so this data can be used to find the Johansen (1998) and Johansen
and Juselius (1990) Co-integration for long term relationship.
Johansen Co-integration Test
To find the long term relationship by Co-integration first we have to decide the Lag length criteria
by running a Normal VAR so from the VAR the length which is decided as per the Schwarz information
criterion(SIC)is order(2) for Oil and Gold Prices of China, India, USA.
Table 3 Johansen Co-integration between Oil Prices and Gold Prices
Null Hypothesis Alternative Eigen Value Trace Critical Values P-values*
Trace rank Test Hypothesis Statistic (0.05%)
India Oil and Gold Prices
H0: r = 0 H1: r = 0 0.053441 13.58434 15.49471 0.0951
H0: r = 1 H1: r = 1 0.002393 0.567798 3.841466 0.4511
USA Oil and Gold Prices
H0: r = 0 H1: r = 0 0.042209 11.1464 15.49471 0.2027
H0: r = 1 H1: r = 1 0.003898 0.925514 3.841466 0.336
China Oil and Gold Prices
H0: r = 0 H1: r = 0 0.030887 8.089691 15.49471 0.4559
H0: r = 1 H1: r = 1 0.002756 0.653969 3.841466 0.4187
Max-Eigen Alternative Eigen Value Max-Eigen Critical values P-values*
Statistic Hypothesis Statistic (0.05%)
India Oil and Gold Prices
H0: r = 0 H: r > 0 0.053441 13.01654 14.2646 0.078
H0: r ≤1 H1: r > 1 0.002393 0.567798 3.841466 0.4511
USA Oil and Gold Prices
H0: r = 0 H1: r > 0 0.042209 10.22089 14.2646 0.1978
H0: r ≤1 H1: r > 1 0.003898 0.925514 3.841466 0.336
China Oil and Gold Prices
H0: r = 0 H1: r > 0 0.030887 7.435723 14.2646 0.439
H0: r ≤1 H1: r > 1 0.002756 0.653969 3.841466 0.4187
Source:-Authors Compilation
Table 3 shows that there is no Co-integration equation between India, USA, China Oil and Gold
prices or we also find co-integrating variables when p value is less than 0.05% then there is a co-
integrating variable in the equation. In above table we can see that all the p values are more than 0.05%
then we conclude that there are no co-integrating variables and there is no long term relationship and we
use VAR model to determine the Short term relationship between the variables.
Table 4 shows Vector Auto Regression (VAR) between Oil prices and Gold prices of China, India,
and USA. It shows that in USA as the time goes Gold prices are decreasing. It means Gold prices are
affected by its own past values. In China Gold prices Lag (-1) is significant at 1% level shows that today’s
prices are affected by its past one month prices but for Lag (-2) the today’s prices are decreasing and it is
accepted at 5 %level of significance.
Table 4 Vector Auto Regression between Gold prices and Oil Prices
Prof. Guntur Anjana Raju & Shripad Marathe : Impact of Crude Oil Prices in China, India ..... 71
Particular USA Oil and Gold Prices China Oil and Gold Prices India Oil and Gold Prices
Independent Dep. Gold Dep. Oil Price Dep. Gold Price Dep. Oil Price Dep.Gold Dep. Oil Price
Price USA USA China China Price india India
1.134720*** 0.179626 1.155*** 0.012672 1.141484* 0.025582
(0.06594) (0.18758) (0.06482) (0.01074) (0.06641) (0.02684)
Gold Price (-1) [ 17.2072] [ 0.95761] [ 17.8271] [ 1.17940] [ 17.1891] [ 0.95328]
-0.146370** -0.155563 -0.1556** -0.011249 -0.151667** -0.016433
(0.06551) (0.18635) (0.06508) (0.01079) (0.06630) (0.02679)
Gold Price(-2) [-2.23419] [-0.83479] [-2.39148] [-1.04285] [-2.28773] [-0.61338]
0.028271 1.3710*** 0.06508* 0.696681*** 0.163679 1.387393***
(0.02152) (0.06121) (0.38367) (0.06359) (0.15004) (0.06063)
Oil price (-1) [ 1.31384] [ 22.4001] [ 0.16963] [ 10.9553] [ 1.09091] [ 22.8826]
-0.020819 -0.401*** -0.223804 0.247868*** -0.126736 -0.441314***

(0.02161) (0.06147) (0.38148) (0.06323) (0.15136) (0.06116)
Oil Price (-2) [-0.96335] [-6.53469] [-0.58667] [ 3.92013] [-0.83733] [-7.21529]
0.739528 6.024608 2.400885 0.159229 1.127169 0.821920
(1.39049) (3.95520) (1.53082) (0.25373) (1.40854) (0.56920)
Constant [ 0.53185] [ 1.52321] [ 1.56837] [ 0.62755] [ 0.80024] [ 1.44400]
* Indicates significance at 10% ** significance at 5% ***significance at 1%
Source:-Authors compilation
Table 5 : Granger Causality Test between Gold Prices and Oil prices
Null Hypothesis Obs. F-Statistics Prob. Decision Nature of Causality
USA Oil prices does not Granger Cause USA Gold 235 2.51144 0.0309 Rejected Causality
Prices
USA Gold Prices does not Granger Cause USA Oil 235 2.28138 0.0476 Rejected Causality
prices
China Oil prices does not Granger Cause China 228 0.46382 0.9338 Accepted No causality
Gold Prices
China Gold Price does not Granger Cause China 228 0.77259 0.6783 Accepted No causality
Oil prices
India Gold Prices does not Granger Cause India 235 2.71373 0.0211 Rejected Causality
Oil Prices
India Oil Prices does not Granger Cause India Gold 235 2.82088 0.0171 Rejected Causality
Prices
Source:-Authors Compilation
Table 5 shows the results of Granger Causality Test between USA, India, China, Gold prices and
Oil prices. The selected lags for USA is Lag (5), China (12), India (5). And If the Probability value is less
than 5% then we reject the null hypothesis i.e. There is no Causality between the variables. This test
shows that if past values of Oil prices Causes the Present Value of Gold prices from above table we can
conclude that USA Oil Prices and Gold Prices Probability is less than 5% so we reject the null hypothesis
and Relationship between the USA Gold Prices and Oil prices are bidirectional causality between the
variables. So past values of USA Oil prices causes the present value of Gold Prices and vice versa. In
China we can conclude that China Oil and Gold Prices doesn’t affect each other. In India we can see that
null hypothesis is rejected so Oil prices and Gold prices are causes each other so there is bidirectional
causality between the variables. The past values of Oil prices affecting today’s Gold prices.
Conclusion
In this paper we have analyzed the impact of Crude Oil Prices on Gold Prices. We have taken
the time series data from January, 1996 to December, 2015 and applied Co intégration, Granger Causality
test and Vactor auto Regression to assese the impact of Crude Oil Prices on Gold Prices. In India the
relationship between the Crude Oil prices and Gold prices have Insignificant short term Relationship
and the variables are not co integrated but the past values of Gold Prices affect the present values of Oil
prices and Vice Versa so there is a bidirectionalcausality between the variables. In USA Gold Prices and
Oil Prices are not co integrated and they have insignificant Short term Relationship between the
Variables and also there is a bi directional causality i.e. past values of Oil prices affect the Present values
of Gold prices and vice versa. In China Gold prices and Oil prices are not co integrated and they have
significant positive short term relationship and there is no causality between the variables.
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IMPACT OF FINANCIAL LEVERAGE ON FIRM'S PERFORMANCE AND

VALUATION: A PANEL DATA ANALYSIS
Dr. Amit Kumar Singh∗

Preeti Bansal∗∗
ABSTRACT
In the field of corporate finance, capital structure decisions have gained currency in the academic world as
sufficient and in-time availability of required finance from appropriate source and its effective utilization is the key
to success in every field. Many firms become insolvent because they have improper capital mix. Thus, it is
imperative for companies to have right mix of capital which reduces their insolvency risk and also maximizes their
firm value. The present study is an attempt to investigate the impact of financial leverage on firm's financial
performance and also on firm's valuation. For this purpose, 60 Fast Moving Consumer Goods (FMCG) companies
listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) have been considered for a period of
10 years from 2007 to 2016. These companies constitute S&P BSE FMCG Index. Due to information availability
constraint, 2 firms have been excluded and the study is based on remaining 58 companies. Return on Total Assets
and Economic Value Added are taken as indicators of firm's profitability, whereas, Enterprise Value and Tobin's Q
are taken as indicators of firm's valuation. So, four regression equations have been developed to study the impact of
financial leverage on firm’s performance and valuation. The technique of panel data regression has been used on
SPSS. The results showed that leverage has a significant negative impact on firm's performance indicator EVA and
ROA and firm's valuation indicator Tobin's Q.
KEYWORDS: Capital Structure, Enterprise Value, Financial Leverage, Firm Performance, Tobin's Q.
JEL Classification: G3.
_______________
Introduction
The corporate sector is one of the most important sectors of any modern economy as they
contribute to the economic growth process through increased corporate savings, investments and
employment. Several studies have been done to analyze certain issues which are responsible for
enhancing the value of the companies. The most important research issues in the area of corporate
finance includes financing decision, investment decision and dividend decision. Among these issues, the
financing decision or determination of capital structure has gained currency in the academic world. A
firm's capital structure is the structure of its liabilities, i.e., the way it finances its assets through some
combination of equity, debt and hybrid securities. Selecting the right combination of debt and equity is a
∗
Associate Professor, Department of Commerce, Delhi School of Economics, University of Delhi, Delhi.
∗∗
Research Scholar, Department of Commerce, Delhi School of Economics, University of Delhi, Delhi.
big challenge, to which Stewart C. Myers has called “a capital structure puzzle”(1984). It is imperative to
solve this capital structure puzzle as sufficient and in-time availability of required finance from
appropriate source and its effective utilization is the key to success in every field. Many firms become
insolvent because they have improper capital mix. Thus, it is imperative for companies to have right mix
of capital which reduces their insolvency risk and also maximizes their firm value. The present study is
an attempt to investigate the impact of financial leverage or capital structure on firm's financial
performance and also on firm's valuation.
The fund requirement is not the same for all industries as they are driven by different asset
structure, technology, cash flows, etc. Therefore, the type of industry is also considered as one of the
important determinants of leverage. The present study focuses on FMCG industry and as the name
suggests, "Fast Moving Consumer Goods" companies sell goods which have a shorter shelf life, lower
price, fast moving and therefore cash flows are predictable. So, it is easier for FMCG company to raise
debt as cash flows are swift and predictable. Thus, it is essential to analyze whether use of debt in the
capital structure can help FMCG firms to leverage their profitability and valuation.
Literature Review
Impact of leverage on firm's Performance
A large number of studies in various countries and industries have been conducted to assess the
impact of financial leverage on firm's performance. But there is no general consensus for any country or
for any specific industry. Moreover, the impact of short term and long term debt is also found to have
different impact on the firm's performance measures. Goyal (2013) studied the impact of leverage on
profitability of Indian public sector banks and found that there exists a strong relationship between short
term debt and all profitability measures (ROA, ROE and EPS). They further suggested that long term
debt has a negative relationship with ROA, ROE and EPS.
Ibrahim El Sayed Ebaid, (2009) have examined listed non financial Egyptian firms for a period
1997-2005 and propounded that capital structure decision has a weak-to-no impact on firm's financial
performance. Pouraghajan and Malekian (2012) investigated the impact of leverage on the firm's financial
performance for Tehran based companies. They concluded that there exists a significant negative
relationship between debt ratio and financial performance of companies. Quang and Xin (2012) analysed
Vietnamese Firms and concluded that leverage has a significant negative impact on financial
performance as measured by ROA and ROE. Sheikh and Wang (2013) investigates the impact of leverage
on performance of non-financial firms listed on the Karachi Stock Exchange Pakistan during 2004-2009.
They propounded that all measures of debt (i.e. total debt ratio, long and short-term debt ratio) have
significant negative impact on ROA. Chadha and Sharma (2015) analyzed 422 BSE listed Indian
manufacturing firms from 2004 to 2013 to assess the impact of financial leverage on firm financial
performance. They deduced that financial leverage has no impact on the firm’s financial performance
parameters of ROA and Tobin’s Q. However, it has negative and significant impact on ROE.
The impact of financial leverage on firm's performance also depends upon the book value and
market value of debt. Mireku, Mensah and Ogoe (2014) studied the impact of book value & market value
of debt on firm's performance. They analyzed 15 Ghana Stock Exchange listed companies for the period
2002–2007 and concluded that the financial leverage has an impact on firm's performance, but, the
market value of debt has a stronger impact than book value.
Impact of Leverage on firm's Valuation
Limited empirical studies have been done to assess the impact of leverage on firm's valuation.
Modigliani and Miller (1963) have shown that the value of levered firm is higher because of the tax-
shield effect that arises due to the deductibility of interest payments. Korotkikh,
Konstantin (2012) empirically demonstrated a negative relationship between leverage and firm value.
Dr. Amit Kumar Singh & Preeti Bansal : Impact of Financial Leverage on Firm's Performance .... 75
This study was conducted with reference to Dutch listed companies which had the problem of
overinvestment and low growth potential. Sanjay Bhayani (2009) showed that financial leverage has no
impact on the firm's valuation in the Indian Cement industry.
To assess empirically the impact of financial leverage on the performance and valuation of firms
in the selected BSE FMCG firms.
Rationale of the Study
Amongst the research issues in the field of corporate finance, financing decision or determination
of capital structure is one of the most significant research problems. Sometimes, organizations are under
the extreme pressure of debt and, their failure to meet even the interest obligations leads to their
bankruptcy. Therefore, it is required for all companies to maintain an optimal capital structure. So, in
order to achieve the firm's financial goals, it is imperative to study the impact of leverage on firm's
performance and valuation indicators. It is also evident in the famous DuPont analysis that the ROE is
affected by three things: Operating Efficiency, Asset use efficiency and financial leverage. It is a well
established fact that leverage affects profitability. The present study attempts to identify the direction
and magnitude of this impact in select BSE listed FMCG firms in the last 10 years.
Data Sources and Methodology
The present study is based on the firms that constitute the S&P BSE FMCG Index. The data for the
required variables has been collected for a period of 10 years from 2007 to 2016. Though the BSE FMCG
Index comprises of 60 firms, only 58 firms have been considered for the analysis. Two firms have been
excluded from the study due to their incomplete data for the period of study. The completeness in data
of remaining 58 firms have lead to a balanced panel data, where each variable has 580 observations. The
four regression equations have 4 dependent variables and 7 independent variables. Thus, a sample of 58
listed FMCG firms with 11 variables have been analyzed for a period of 10 years, with 6380 observations,
to assess the impact of leverage on firm's performance and valuation.
The present study is based on secondary data of the sample companies. The list of companies
constituting BSE FMCG Index and their financial time series data has been taken from Prowess—a
Centre for Monitoring Indian Economy (CMIE) database. CMIE Prowess was established in 1976 for
providing financial time series data of listed companies in India. For analyzing the data, panel data
regression has been used and run on IBM SPSS 21 (Statistical Package for Social Sciences).
Theoretical Framework
In order to assess the impact of financial leverage on firm's financial performance and valuation
indicators, panel data regression has been applied. Based on past research studies, two performance
indicators and two valuation indicators have been selected. The indicators employed for firms' financial
performance are Return on Total Assets (ROA) and Economic Value Added (EVA). Tobin's Q and
Enterprise Value (EV) have been employed as measurement indicators for firm's valuation. Accordingly,
four regression models have been constructed to analyze the said relationship.
Model 1: Return on assets (ROA) has been used as a performance indicator with debt-equity ratio,
firm's size, spending on R&D, tangibility and growth rate in sales as the independent variables. ROA
measures the profitability of the firm with respect to the assets being employed by the firm and thereby
shows the efficiency of the firm in utilizing the assets for firm's growth.
Alternative Hypothesis: Variables like debt-equity ratio, firm's size, spending on R&D, tangibility
and growth in sales significantly affect the ROA.
In this equation, the data for ROA, D/E, R&D and Sales Growth have been directly taken from
CMIE Prowess. Firm's size has been calculated as Natural Logarithm of Net Sales and Tangibility is ratio
of Net Fixed Assets to Total Assets. The data for Net Sales, Net Fixed Assets and Total Assets have been
directly taken from CMIE Prowess.
Model 2: Economic Value Added (EVA) has been used as a performance indicator with debt-
equity ratio, firm's size, spending on R&D, tangibility and Weighted Average Cost of Capital (WACC) as
the independent variables. EVA measures the firm's economic profit and therefore the value being
created by the firm over and above the shareholders return.
Alternative Hypothesis: Variables like debt-equity ratio, firm's size, spending on R&D, tangibility
and WACC in sales significantly affect the EVA.
In this equation, the data for D/E, R&D and WACC have been directly taken from CMIE Prowess.
Firm's size has been calculated as Natural Logarithm of Net Sales and Tangibility is ratio of Net Fixed
Assets to Total Assets. Firm's EVA has been calculated by using the formula: EVA = Profit After Tax -
WACC* (Total Assets - Current Liabilities). The data for Net Sales, Net Fixed Assets, Total Assets, PAT
and Current Liabilities have been directly taken from CMIE Prowess.
Model 3: Enterprise Value has been used as a valuation indicator with debt-equity ratio, spending
on R&D, WACC, tangibility and profitability as the independent variables.
Alternative Hypothesis: Variables like debt-equity ratio, spending on R&D, WACC, tangibility
and profitability significantly affects the Enterprise Value.
In this equation, the data for firm's Enterprise Value, D/E, R&D and WACC have been directly
taken from CMIE Prowess. Firm's Tangibility has been calculated as the ratio of Net Fixed Assets to Total
Assets and Profitability has been calculated as PAT/Net Sales. The data for PAT, Net Sales, Net Fixed
Assets and Total Assets have been directly taken from CMIE Prowess.
Model 4: Tobin's Q has been used as a valuation indicator with debt-equity ratio, spending on
R&D, WACC, tangibility and profitability as the independent variables. Tobin's Q compares the firm's
value with its total assets.
Alternative Hypothesis: Variables like debt-equity ratio, spending on R&D, WACC, tangibility
and profitability significantly affects the Tobin's Q.
In this equation, the data for D/E, R&D and WACC have been directly taken from CMIE Prowess.
Firm's Tangibility has been calculated as the ratio of Net Fixed Assets to Total Assets and Profitability
has been calculated as PAT/Net Sales. Firm's Tobin's Q has been calculated by using the formula:
(Market Capitalization + Value of Debt)/ Total Assets. The data for PAT, Net Sales, Net Fixed Assets,
Total Assets, Market Capitalization and Value of Debt have been directly taken from CMIE Prowess.
Data Analysis, Findings and their Interpretation
Table 1 exhibits the descriptive statistics of performance and valuation measures of 58 firms that
are a constituent of BSE FMCG Index. The median of performance indicator ROA is 7.3% and that of
EVA is 27.60. The median of valuation indicator EV is 13836.27 and that of Tobin's Q is 1.46x. The
descriptive statistics shows that the companies are heterogeneous and companies have Tobin's Q as high
as 184.47x and median as 1.46x, which is an indicator of being overvalued.
Table 1: Descriptive Statistics of Dependent Variables
Statistic ROA EVA Enterprise Value Tobin's Q
Median 7.3 27.60 13836.27 1.46
Min -42.3 -266555.81 220.95 0.21
Max 131 76589.38 2704946.02 184.47
Std Dev 11.81 14879.08 277333.51 8.09
N 578 578.00 578 578.00
Table 2 exhibits the descriptive statistics of independent variables that impact the performance
and valuation measures. The mean Debt equity ratio is 0.56 and median WACC is 8.40%. The median
R&D and profitability are on the lower side. The median growth in sales is 14.9% with mean tangibility
of 26% and size of 9.22 represents the median natural logarithm of Net Sales.
Table 2: Descriptive Statistics of Independent Variables
Statistic D/E ROG in Net Sales Size R&D WACC Tangibility Profitability
Median 0.56 14.90 9.22 4.00 8.40 0.26 5.80
Min 0.00 -57.30 -0.51 0.00 0.00 0.00 -39.96
Max 5.80 652.00 13.16 2042.00 368.40 0.78 139.03
Std Dev 1.04 39.82 1.52 207.55 24.93 0.16 13.74
N 580 580 580 580 580 580 580
Table 3 exhibits the correlation coefficient between all independent variables under study. It is
evident that there is low correlation between the variables which implies that the problem of high multi
colinearity does not exist.
Table 3: Correlation among Independent Variables
Independent
D/E Ratio WACC ROG in Net Sales R&D Size Tangibility Profitability
Variables
D/E Ratio 1.0000
WACC -0.0923 1.0000
ROG in Net Sales 0.0260 0.0038 1.0000
R&D -0.2148 0.1288 -0.0639 1.0000
Size -0.0065 0.0401 -0.1760 0.4696 1.0000
Tangibility 0.1107 0.0586 -0.0839 -0.0527 0.0607 1.0000
Profitability -0.3228 0.0263 0.0314 0.1100 -0.1142 -0.1659 1.0000
In order to assess the impact of financial leverage on firm's performance and valuation, four
regression equations have been developed and panel data regression has been run. IBM SPSS 21 gave the
following empirical findings for the regression equations.
Table 4: Model 1 (ROA as a Measure of firm's Performance)
Independent Variables Coefficient Standard Error t- Stat P-Value
D/E -4.3582* 0.4333 -10.0586 0.000
R&D 0.0074* 0.0025 3.0147 0.0027
Size 0.6538* 0.3316 1.9715 0.0491
ROG in Net Sales 0.0318* 0.0111 2.8669 0.0043
Tangibility -4.9059 2.6980 -1.8184 0.0695
Intercept 7.4363* 3.0750 2.4183 0.0159
Total Panel (balanced) observations 3480
Adjusted R2 21.37%
F statistics 32.3664
Prob. (F statistics) 0.0000
*significant at 5% level.
The empirical results of Model 1 are revealed in Table 4. It has been found that leverage has
negative and highly significant impact on ROA. Thus, high leverage has significant negative impact on
ROA of the FMCG firms. However, other explanatory variables like R&D spending, firm's size, sales
growth have significant and positive impact on ROA. Firms which are bigger in size and spend more on
R&D have higher ROA. Also, firms which have higher growth rate in sales have a higher ROA. The
firm's tangibility has an insignificant negative impact on ROA. The adjusted R2 is 21.37% and the F test
shows that the model is highly significant.
Table 5: Model 2 (EVA as a Measure of firm's Performance)
Independent Variables Coefficient Standard Error t Stat p-value
D/E -1577.9123* 570.8263 -2.7643 0.0059
R&D -22.0300* 3.2493 -6.7798 0.0000
Size 611.4039 430.8680 1.4190 0.1564
WACC -144.5172* 23.2995 -6.2026 0.0000
Tangibility -3138.1331 3547.4767 -0.8846 0.3767
Intercept -510.8073 3929.9542 -0.1300 0.8966
Total Panel (balanced) Observations 3480
Adjusted R2 14.39%
The empirical results of Model 2 are revealed in Table 5. It was found that leverage has negative
and highly significant impact on EVA. Thus, high leverage has significant negative impact on EVA of the
FMCG firms. However, other explanatory variables like R&D spending and WACC have significant
negative impact on EVA. The impact of firm's tangibility and firm's size have an insignificant impact on
EVA. The adjusted R2 is 14.39% and the F test shows that the model is highly significant.
Table 6: Model 3 (Enterprise Value as a Measure of firm's Valuation)
Independent Variables Coefficient Std. Error T Value P value
D/E 1692.3941 6448.4233 0.2625 0.7931
R&D 1118.3039* 30.8965 36.1952 0.0000
WACC 549.1402* 252.5518 2.1744 0.0301
Profitability 243.5563 482.8637 0.5044 0.6142
Tangibility 15488.2477 38677.0217 0.4005 0.6890
Intercept -4977.3529 15538.5070 -0.3203 0.7488
Adjusted R2 71.03%
The empirical results of Model 3 are revealed in Table 6. It has been found that leverage has positive
but insignificant impact on EV. However, other explanatory variables like R&D spending and WACC have
significant and positive impact on EV whereas, profitability and tangibility have insignificant and positive
impact on EV. Firms which spend more on R&D and have lower WACC are valued more by the
stakeholders. The adjusted R2 is 71.03% and the F test shows that the model is highly significant.
Table 7. Model 4 (Tobin's Q as a Measure of firm's Valuation)
Independent Variables Coefficient Std. Error T Value P value
D/E -0.9987* 0.3454 -2.8915 0.0040
R&D 0.0031** 0.0017 1.9016 0.0577
WACC -0.0048 0.0135 -0.3518 0.7251
Profitability 0.0196 0.0259 0.7562 0.4498
Tangibility 1.4546 2.0717 0.7021 0.4829
Intercept 3.1549* 0.8323 3.7906 0.0002
Adjusted R2 2.24%
F statistics 3.6499
*significant at 5% level. **significant at 10%
The empirical results of Model 4 are revealed in Table 7. It was found that leverage has negative
and highly significant impact on Tobin's Q. However, other explanatory variable like R&D spending has
a positive impact but significant at 10%. Other explanatory variables like WACC, profitability and
tangibility have insignificant impact on Tobin's Q. Firms which spend more on R&D are valued more by
the stakeholders. As majority of the variables are found to be insignificant at 5%, the adjusted R2 is very
low at 2.24% and the F test shows that the model is significant. Thus, financial leverage (D/E) has
negative and significant impact on the firm’s performance and valuation indicators in case of BSE listed
FMCG firms when financial performance indicators are ROA and EVA and valuation indicator is Tobin’s
Q. The impact of R&D spending has been found to be positive and significant when dependent variables
were ROA, EV and Tobin’s Q. Other control variables such as size, sales growth and WACC are found to
be significant determinants of firm’s financial performance and valuation in the FMCG sector.
Conclusion
The present study analyzed the impact of financial decisions on firm's financial performance and
valuation indicators taking 58 companies of BSE FMCG Index as sample and being analyzed for a period of 10
years from 2007 to 2016. ROA and EVA have been used as a proxy for firm's financial performance whereas,
Tobin's Q and EV have been used as firm's valuation indicators. The results showed that financial leverage has
significant and negative impact on performance and valuation when firm's financial performance indicators
are ROA and EVA and valuation indicator is Tobin’s Q. Out of the control variables, R&D spending, size,
growth in sales and WACC significantly impact the firm's performance and valuation. Remaining control
variables like tangibility and profitability are found to have insignificant impact on firm's financial
performance and valuation. Thus, the empirical findings of this study would augment the existing literature
on capital structure. As the study is based on the latest data, it is significant for the Indian FMCG sector in
planning their capital structure which can enhance their both performance and valuation indicators.
References
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Annexure
S. No. Company Name S. No. Company Name
1 A V T Natural Products Ltd. 30 Jay Shree Tea & Inds. Ltd.
2 Advanta Ltd. 31 Jyothy Laboratories Ltd.
3 Agro Tech Foods Ltd. 32 K R B L Ltd.
4 Avanti Feeds Ltd. 33 Kaveri Seed Co. Ltd.
5 Bajaj Corp Ltd. 34 Kohinoor Foods Ltd.
6 Bajaj Hindusthan Sugar Ltd. 35 Kokuyo Camlin Ltd.
7 Balrampur Chini Mills Ltd. 36 Kwality Ltd.
8 Bombay Burmah Trdg. Corpn. Ltd. 37 Linc Pen & Plastics Ltd.
9 Britannia Industries Ltd. 38 Marico Ltd.
10 C C L Products (India) Ltd. 39 Mcleod Russel India Ltd.
11 Colgate-Palmolive (India) Ltd. 40 Nestle India Ltd.
12 Dabur India Ltd. 41 Procter & Gamble Hygiene & Health Care Ltd.
13 Dhampur Sugar Mills Ltd. 42 Radico Khaitan Ltd.
14 E I D-Parry (India) Ltd. 43 Ruchi Soya Inds. Ltd.
15 Emami Ltd. 44 Shree Renuka Sugars Ltd.
16 Ess Dee Aluminium Ltd. 45 Som Distilleries & Breweries Ltd.
17 Eveready Industries (India) Ltd. 46 Tata Coffee Ltd.
18 Future Consumer Enterprise Ltd. 47 Tata Global Beverages Ltd.
19 Gillette India Ltd. 48 Tilaknagar Industries Ltd.
20 Glaxosmithkline Consumer Healthcare Ltd. 49 Triveni Engineering & Inds. Ltd.
21 Globus Spirits Ltd. 50 United Breweries Ltd.
22 Godfrey Phillips India Ltd. 51 United Spirits Ltd.
23 Godrej Consumer Products Ltd. 52 Usher Agro Ltd.
24 Gujarat Ambuja Exports Ltd. 53 V S T Industries Ltd.
25 Hatsun Agro Products Ltd. 54 Vadilal Industries Ltd.
26 Heritage Foods Ltd. 55 Venky'S (India) Ltd.
27 Hindustan Unilever Ltd. 56 Vimal Oil & Foods Ltd.
28 I F B Agro Inds. Ltd. 57 Waterbase Ltd.
29 I T C Ltd. 58 Zydus Wellness Ltd.

EXPLORING FINANCIAL RISK MANAGEMENT AND VOLATILITY INDEX

IN THE INDIAN STOCK MARKET: A STUDY
Dr. Nenavath Sreenu∗
ABSTRACT
The present research paper main objective is that the study of exploring the financial risk Management and
stock market volatility in the present scenario in the Indian equity capital market and debt market While the
traditional theory explored in the present situation that high returns of stocks are associated with high risks, in the
research paper shows in that under certain conditions, a portfolio with low volatility stocks can yield higher returns
than a high-volatility portfolio. The main agenda of this research paper is the relatively new phenomenon of ‘Risk-
based anomaly. The present study mainly using a low-volatility portfolio strategy over a 5- year period (from 2010
to 2015) with rolling monthly iterations in the Indian market, the paper finds that as compared to a high-volatility
portfolio, a low volatility portfolio produces not only higher absolute returns, but also higher risk-adjusted returns.
Stock price Volatility is the source of risk in an investor’s portfolio. Recent incidents in the financial markets across
the world as well in India have shown that the Financial market volatility have wide scale repercussion on the
economy as a whole. Hence there is a necessity to understand time path and nature of volatility of stock returns. In
this study, an attempt has been made to analyze the behavior of volatility in the Bombay Stock Exchange Index
shares and other share capital market in India. The nature of volatility persistence, its possible relationship with
foreign institutional investment and the flow of unexpected news have been examined in this study.
KEYWORDS: Stock Market, Financial Risk, Volatility, Financial Market, Share Capital, Investor’s Portfolio.
_______________
Introduction
The present research paper focuses on exploring the financial risk and volatility in financial markets,
with a special reference of volatility communication between different capital markets and asset categories.
Further the research study indicates the effect of macroeconomic announcements on the returns, volatility
and correlation of Indian stock markets as well as explored the Risk in the financial market effects on the
EPS. The presently These issues are analyses taking into account the phenomenon of asymmetric volatility
and incorporating the period of financial turmoil caused by the Indian Financial Crisis. The Research study
focuses the attention on the emerging markets of the context of Indian capital market.
Literature Review of the Study
Author Name Year Explanation
Forbes and Rigobon 2002 Transmission of volatility across economies and the contagion effects
of a financial crisis.
Rogobon 2003 Has focused on alternative measures of volatility in the equity and
bond markets in the period surrounding the financial crises.
∗
Assistant Professor, Finance and Accounts Department of Business Management, Indira Gandhi National
Tribal University (A Central University), Amarkantak, M.P.
Bekaert and Harvey 2000 Analyzed equity returns in a group of Emerging markets before and
after financial reforms.
Kim and Singal 1997 Study the behavior of stock prices following the opening of a stock
market to foreigners or large foreign inflows.
Hamao and Mei 2001 examined the impact of foreign and domestic trading on market
volatility for Japan and find no systematic evidence that foreign
trading tends to increase market volatility
Nilsson 2002 has explored that stock market liberalization canlead to excess
volatility possibly on account of noise trading for Nordic stock
markets using the Markov regime-switching model.
Doong,s-c,yang 2005 examined that causal relationship of exchange rate and stock returns
of Colombo stock exchange
Yah,H,Y and Niehc 2006 Investigated about the relationship of the stock prices and exchange
rate in Kenya.
Wu,y. 2000 in this paper he used the error correction model to analysis the impact
of the stock exchange
Chakrabarti 2001 in his paper he viewed the dynamic behavior between stock market
and exchange rate of India .
Fama and MacBeth 1973 estimated month-by-month cross-sectional regression of monthly
returns on betas so as to address the problem caused by correlation of
the residuals
Keim, Donald 1983 Examines, month-by-month, the empirical relation between abnormal
returns and market value of NYSE and AMEX common stocks.

• To explore Risk and volatility spillovers and the time-varying behavior of the correlation in the
Indian stock markets.
• To study the risk return trade of situation in Indian equity market and examine Indian capital
market for the existence of risk anomaly
• To investigate volatility spillovers between equity and debt markets in Indian context.
• To study the scope and trading mechanism of capital market in India.
• To find the relationship between the equity investment pattern and Indian stock indices.
• There is no normally disturbing between Volatility and stock Market returns.
• There is correlation between two variables of Volatility and Indian equity market.
• There is correlation between two variables of the exploring risk management and Indian capital
market.
To determine whether the factors related to financing risk and Stock Market Volatility coin-incidence
have an effect on the behavior of the individual investor In the Perspective of the Indian Stock Market.
Scope of the Study
In this research paper the study has covered the study of co-movement of stock market volatility
and exploring the financial risk system in the Indian stock market as well as in the area of Hyderabad,
Chennai, Bangalore, Mumbai and Delhi. The time frame is from 2010 to 2016 March.
• Methodology of the Study: This part deals with how the research was designed and the
methodology used to determine the factors influencing the individual investment decisions,
Exploring the financial risk and Volatility index in the Indian Market on the Indian Stock
Exchange. The survey research design was adopted with a population of approximately 1million
Dr. Nenavath Sreenu : Exploring Financial Risk Management and Volatility Index in the Indian..... 83
investors from whom a sample of 245 investors was randomly selected for study. Primary data
was collected using online questionnaires which were examined by the researcher personally and
collected data was coded and tabulated for analysis.
Research Design: The present research paper has discussed the research design was used
for this study. Mugenda and Mugenda (1999) notes that a survey research attempts to
collect data from members of a population and describes existing phenomena by asking
individuals about their opinion, attitudes, behavior or values of the investors and consider
other influence factor.
Target Population: The target population of this study was all the investors drawn from
NSE and BSE which are approximately 1 million Investors in all five regions share capital
market in India. In this research paper the study has consider from the five region capital
market investors opinions
Sampling Design and Sample Size: The study has adopted a simple random sample of
five stock market and share capital was selected from which 245 individual investors from
it were randomly selected targeting one questionnaire each and secondary data of five
years record of NIFTY, NSE and BSE. Random numbers can be obtained using a calculator,
a spreadsheet, printed tables of random numbers, or by the more traditional methods of
drawing slips of paper from a hat, tossing coins or rolling dice (Neville and Sidney, 2004).
The researchers study adopted the random number tables. Simple random sampling helps
ensure that the sample represents the entire population, and is not biased or prejudiced
toward any particular groups within the population. It also helps eliminate the tendency to
select based on a basing factor (Cooper and Emory, 1995).
Secondary Data and Primary Data Sample : The study uses a sample of different market
indicators of Nifty 50 stocks. These indicators include Data analysis and primary data also
used for this research paper through the semi structure question and majority of
information has been drawn from the secondary data.
∗ Monthly, quarterly and annual total returns of the index and securities,
∗ Monthly, quarterly and annual transaction volume of the index and securities,
∗ Monthly, quarterly and annual high and low values of the index
∗ Monthly, quarterly and annual closing prices of Nifty 50 index options
Along with this the daily, Monthly, Quarterly and annually risk-free rate of return of the
Indian stock market and Capital markets index is also used. The data set has been taken for a
period 2010-2016. Further, the study used the cross sectional and time-series data.
Collection of Secondary Data: The data on Nifty 50 stocks is procured from Prowess
database of Centre for Monitoring Indian Economy (CMIE). The dataset of Nifty50 options,
Ministry of Finance, Ministry of Economics, Department of Statistics and Treasury-bill
index is obtained from the official NSE website.
• Data Analysis and Interpretation: The data consist of the benchmark indexes in the 5
share markets covered and include developed and emerging markets. The share markets
are represent for the study Hyderabad share market, Bangalore share market, Chennai
share market, Delhi share market and Mumbai share market to sum up, there are the
following groups: Nature of markets: Equity Market, Debt Market, and Share Capital.
Emerging markets: Indian Stock Market. Selected Region for the study: Hyderabad,
Chennai, Bangalore, Delhi and Mumbai.
According to above table the study has displayed the sample size contains five share markets in
India, which will be analysed according share values wise and pair-wise. The data has been extracted from
the Indian stock market and Mumbai stock market and encompasses the period 1 January 2010 to 3 March
2016 (1200 observations through online). For this Research study to take into account the Indian Financial
crisis, and some selected variable has used the next following model development purpose. Many financial
analysts have fixed the beginning of the Indian Financial crisis and banks of our countries responded to the
collapse of the economy with unprecedented fiscal stimulus, monetary policy expansion, and institutional
bailouts. The data used for this study through secondary and primary to partially overcome the potential
problem of non synchronous data, which may arise because there are instants in which markets are closed
in one Region and open in another. The returns are computed as log differences using day to day, weekly
and monthly, the index prices to avoid any potential day of the week biases. The study begin testing for the
presence of a particularly market share value in each of the series using the Augmented Dickey-Fuller
(1981) test that has the share value (Unit root) process as the null hypothesis (i.e. the series as I(1) against
I(0)). Dickey and Fuller (1981) use the following regression equation:
Regression Formula:
Regression Equation(y) = a + bx Slope (b) = (NΣXY - (ΣX) (ΣY)) / (NΣX2 - (ΣX) 2) Intercept (a) = (ΣY - b (ΣX)) / N
Table1: The test for the study have selected share of particular market in the series is a test of the
null hypothesis that H 0. If the hypothesis cannot be rejected the series is assumed to be non-stationary.
The results in Table shows that based on the Augmented Dickey-Fuller test.
Share Market Region Augmented Dickey-Fuller test (From January 2010 to March 2016
Price series Return series
Hyderabad 3.54585265(0.542323) -8.231546874(0.00125)
Chennai -11.215365012(0.540231) 5.021354210(0.054864)
Bangalore 2.958590609(0.859675) -4.958575(0.0405849)
Delhi 1.048574984(0.00575905) 6.49585764(0.0398485)
Mumbai 5.069685474(0.0485738) 7.045958424(0.04958420)
Note: p-values displayed as (.). Critical value at 5% significance level of MacKinnon (1991) for the Augmented Dickey-
Fuller test (process with intercept but without trend) is -2.86.
As it is shown in the above table distributional properties of the return series, generally
appear to be non-normal. All the return series have negative skewness and are leptokurtic (the Kurtosis
coefficient exceeds three). The Jarque-Bera test rejects Normality of the returns. These characteristics have
been well documented by a number of other studies in the financial literature.
Table 2: Summary of the Descriptive Statistics
Share Markets Under Standard
Time Period Mean Skewness Kurtosis Normality
Indian Stock Market Deviation
January 2010 to Hyderabad 0.0203510 0.212354 -1.23546 4.25631 45.12382
March 2016 (0.23516)
January 2010 to Chennai 0.2510320 0.545680 0.121325 8.25635 18.25876
March 2016 (1.02356)
January 2010 to Bangalore 0.1021003 0.321562 0.120145 2.25632 8.021365
March 2016 (0.25634)
January 2010 to Delhi 0.0012452 0.154065 -2.025401 6.23152 7.235620
March 2016 (0.25789)
January 2010 to Mumbai 0.0010020 0.898502 -0.125412 0.23564 11.125465
March 2016 (0.21548)
Table shows the unconditional correlation matrix. Focusing the attention on the correlation
between the one market and all other rest of four markets it is observed that the highest correlations are
Dr. Nenavath Sreenu : Exploring Financial Risk Management and Volatility Index in the Indian..... 85
those with Mumbai, Hyderabad and Chennai (around 0.6). This result makes sense due to their condition
of mature market and tigers, respectively. The correlation with Mumbai and Chennai, the other two
tigers, is around 0.45 and the correlation with the cubs is around 0.4. Therefore, as it was expected,
correlation. With the Mumbai market increases with the other four market level of development. Finally,
it is remarkable the low correlation between Bangalore and Delhi share market.
Table 3: Unconditional Correlation Matrix
Region Hyderabad Chennai Bangalore Delhi Mumbai
Hyderabad 1
Chennai 0.5450 1
Bangalore 0.5401 0.14230 1
Delhi 0.5421 0.12578 0.54620 1
Mumbai 0.9850 0.89054 0.8452 0.6542 1
Table 4: Empirical Pricing in the Indian share capital market: It requires the objective density
(p) and the risk neutral density (q) calculated using GJR GARCH estimates. Results of GJR GARCH:
GJR GARCH estimates Model: The GARCH effect and leverage impact on dependent series
(includes log values of daily Nifty 50 returns and closing option prices in the Indian stock market and
determine the financial risk and Volatility in the Stock Market)
Out of Out-of-
Average Average Average In-the- In-the-
the the
Daily Nifty Monthly Quarterly Annually money money
Parameters money money
50 returns Nifty 50 Nifty 50 Nifty 50 put call
put call
Returns Returns Returns options options
options options
ω 0.0200** 2.0320* 2.35560 5.2210 0.2360 0.2100 0.00 -0.012
β 0.20230 1.0235 1.32560*** 1.2350 0.2130 0.002 0.00* 0.965**
α 0.25600*** 2.12533 5.2315** 0.9568** 0.0210 0.100** 0.142 0.451
γ 0.1254 1.0236** 2.32665 .96325 0.200 0.001 0.001 0286
* Significant at the 10% level, ** Significant at the 5% level and *** Significant at the 1% level
Table 5: Impact of pessimism in the money put and call option in the derivative market on
objective financial risk premium in the Indian stock market with following of five regions
Parameters Un Standardized Co-eff. t-statistic Sig.
(Constant) 0.2310 3.02154 0.0546
RP-1 0.5420 -0.2654 0.0054
RP-2 0.1002 5.02350 0.2001
Pessimism 0.00231 37.0215 0.0048
Adjusted R square 0.47235
The above Table explored the values of the GJR GARCH estimates of Nifty 50 returns of the
Indian capital for the period of Five Years, in and out of the money put and call options. It is seen that the
leverage effect (measured by the interaction dummy variable „It-1‟ in equation of the GARCH Model) in
the order for all the variables and is verified by a positive γ parameter, except in out-of-the money call
option where it is Positive but insignificant. The parameter γ is Negative and significant for in-the-money
put option and in-the-money call options. It is insignificant for the Nifty 50 return series and the out-of-
the money put option series although the sign is Negative. The GJR GARCH estimates are used to
generate the objective density (p) and risk neutral density (q) for calculating empirical pricing estimation
and determined the financial risk for the evaluating the EPS. The above tables Strongly Indicating that
the probability distribution of objective and risk neutral density functions in the share market of India in
the above selected five regions.
Conclusion
This research paper concluded is based on dynamic relationship between stock markets
movement, Financial Risk of Equity Market and volatility of stock market. The present Research Paper
has started from absolute value of data for checking the normality which was converted to log. Statistics
was yielded the application of Descriptive Statistics test, GJR GARCH estimates Model, Augmented
Dickey-Fuller test, and results have shown that stationary is at level form in both data series. Then, the
Research paper observed the coefficient of correlation between these variables and taken the results that
there is negative correlation.
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http://www.nyxdata.com/nysedata/default.aspx?tabid=115

DISCLOSURE PATTERN OF SIX CAPITALS’ UNDER <IR> FRAMEWORK:

SELECTED SOUTH AFRICAN’S COMPANIES
Monika Soni∗
Dr. Shurveer S. Bhanawat ∗∗
“A strong disclosure regime can help to attract capital and maintain confidence in the capital markets. By
contrast, weak disclosure and non-transparent practices can contribute to unethical behavior and to a loss of
market integrity at great cost, not just to the company and its shareholders but also to the economy as a whole.”
OECD Principles of Corporate Governance (2004)
ABSTRACT
Globalization, regulation and increased stakeholder expectations have added significantly to the complexity of
businesses in all major economies. Accordingly, over the last decades, the information used to manage businesses and
support stakeholders’ decisions has become similarly complex. A balance sheet could provide true insight into a
company's response to a sudden collapse in demand for its products, as well as how it is using the difficult times to
become more cost-efficient and build new capacity for better days, provided the management is open to this. The
financials and other tangibles are easily accountable. But what are the best ways for a company to account for the use of
human and natural resources, intellectual capital and its dealing with the market and competition? Integrated
reporting seeks to align relevant information about an organization’s strategy, governance systems, and performance
and future prospects in a way that reflects the economic, environmental and social environment within which it
operates. However, a lack of clarity on what integrated reporting is really about, coupled with a limited number of best
practice examples, makes it difficult for organizations to understand what needs to be in place for the journey towards
integrated reporting. This paper specifically highlights about the reporting of six identified capital (Financials,
Manufactured, Human, Intellectual, Social and Relations, Natural) and its integration in business for value creation.
Through content analysis, top 10 recognized integrated report of South Africa (as per Ernst and Young Survey,2015)
from different sector has been studied and results shows that there is huge disparity in disclosure and reporting of
capital among top 10 companies, moreover it is practically difficult to measure Intellectual, Natural, social and relation
capital. Key performance indicators have been identified through analysis of integrated reporting and attempt is made
to study how value of the organizations is created through these capitals.
KEYWORDS: Integrated Reporting, Capital, Key Performance Indicators, Value Creation.
_______________
Introduction
Reporting is at a crossroads. The voices questioning whether the current reporting model gives a
fair reflection of an organisation are getting louder. In addition, depicting not only the financial but also
the social and environmental impact of an organisation is increasingly requested by both the investor
community and a variety of other stakeholders, such as NGOs, customers, suppliers and new recruits.
Corporations are increasingly looked to as agents of change in a world facing mounting environmental
∗
Senior Research Fellow, Department of Accountancy and Statistics, MLSU, Udaipur, Rajasthan.
∗∗
Professor and Head, Department of Accountancy and Statistics, MLSU, Udaipur, Rajasthan.
and social problems, where policy-makers sometimes struggle to garner the support necessary for bold
policies. As part of their strategy and in response to stakeholder pressure, more and more businesses
now go beyond strict compliance with environmental and other local regulations. These businesses want
to inform stakeholders, from investors to consumers, about their corporate responsibility efforts. As a
result, the corporate disclosure of environmental, social and governance (ESG) aspects has developed in
a variety of directions over more than two decades. At present, investors and other stakeholders can be
confused by the information in ESG disclosures: it is difficult to compare ESG performance across
companies; the reported information sometimes appears disconnected from the company’s business lines
or products, making it difficult to assess its importance; and it can omit risks and opportunities that are
material to the business and to society, despite dozens or even hundreds of pages of less relevant data.
The current reporting model is not able to fulfill these demands. While in many countries corporations
are required by law to include significant non-financial information in their reports, this information is
often not provided in a coherent way with a clear link between economic drivers, financial information,
and social and environmental impacts.
Integrated Reporting in South Africa
Integrated reporting moves beyond a silo approach of information gathering and reporting
towards a more comprehensive assessment and presentation of a company’s value and performance.
This offers various benefits, such as giving organizations a more holistic view of information relevant to
their strategy, business model and ability to create and sustain value in the short, medium and long term.
Five Guiding Principles support the preparation of an Integrated Report:
• Strategic focus
• Connectivity of information
• Future orientation
• Responsiveness and stakeholder inclusiveness
• Conciseness, reliability and materiality
The idea of integrated reporting is focused on making some real changes to the existing corporate
reporting model, both to external as well as internal reporting. An integrated report is merely intended to
be one output of integrated reporting, which should reflect and will depend upon integrated thinking
within an organisation. It is about understanding the relevance of various factors – financial as well as
non-financial – and their interdependencies for the company’s business model, and considering the
insights formed with such a comprehensive approach in strategic and operational decisions. At the very
core of the concept of Integrated Reporting (IR), is the growing recognition that a number of factors
determine the value of an organisation–some of these are financial or tangible in nature and are easy to
account for in financial statements. However others, like people, natural resources, intellectual capital,
markets, competition, etc. are harder to measure. This is where the concept of Integrated Reporting
comes in. IR enables an organisation to communicate in a clear manner on how it is utilizing its resources
and relationships to create, preserve and grow value in the short, medium and long-term. And thus
helping investors to manage risks and allocate resources most efficiently. The IR reporting framework
covers six parameters:
• Organizational Overview of the Business Model
• Operating Context, Risks and Opportunities
• Strategic Objectives and Strategies
• Governance
• Performance
• Outlook
Monika Soni & Dr. Shurveer S. Bhanawat : Disclosure Pattern of Six Capitals’ Under <IR>..... 89
South Africa leads the world on integrated reporting. The listed companies in South Africa are
required to prepare an integrated report or publicly explain why they are not doing so (from financial
years starting on or after 1 March 2010). The IIRC framework is aligned with the reporting guidelines
adopted in South Africa during 2011. The framework is expected to create a greater understanding
among investors globally and make them more aware of the value of integrated reporting. The
framework has also introduced the concept of reporting on the six forms of capital which impact on
value creation in business. These are financial, manufactured, intellectual, human, social and
relationship, and natural capital. The Integrated Reporting Framework of the International Integrated
Reporting Council (IIRC) has introduced a new way of considering and categorizing the different forms
of capital upon which a business depends for its success. These capitals are either increased, decreased or
transformed through the activities of the business and should ultimately result in value creation.
However, the roadmap to realizing such benefits is not necessarily a simple one. It requires
comprehensive approach: understanding the company’s strategy drivers, identifying key stakeholders
and their specific expectations, and implementing processes to obtain the information necessary for an
integrated approach to managing the business.
Reviews
(Imoleayo, 2015), in their article titled “Should Integrated Reporting be incorporated in the
Management Accounting Curriculum?“ stated that management accounting curriculum should be
updated with integrated reporting as it will not only raise awareness level for the concept, but also equip
accountants with the competence required for preparing integrated reports, thereby preparing them
early for the emerging task of integrated reporting.
(Baron, 2014), in his paper on “The Evolution of Corporate Reporting for Integrated Performance”
provides the state-of-play on ESG reporting which is governed by corporate social responsibility. ESG
aspects include disclosures related to: principles; guidelines; standards; methods. The study highlighted
the potential benefits of ESG Reporting such as: obtaining or maintaining license to operate; improving
the business enabling environment (i.e. public politics); strengthening value chains; or fuelling product
and service innovation. Company-wide data on CO2 emissions and corresponding energy use helps to
identify best practice and cost savings.
(Steyn, 2014), in her article on “Organizational benefits and implementation challenges of
mandatory integrated reporting: Perspectives of senior executives at South African listed companies”
studied the perceptions of Chief Executive Officers (CEOs), Chief Financial Officers (CFOs) and senior
executives of South African listed companies on the perceived benefits and implementation challenges as
a result of implementing integrated reporting (IR) requirements, as well as motives for preparing an
integrated report. The study showed that the companies on the basis of draft framework are attaching the
values to the IR process on the basis of their corporate reputation, investor needs and stakeholder
engagement and relations which overall helps them in reconsidering their business models and
encouraging sustainable product development.
(Clark, 2013), in his article on “Opinion on Integrated Reporting Financial Management” stated
that the demand among investors for firms to adopt IR is irresistible because reporting today is an
altogether dicer affairs as companies have come under pressure to bare their soul. If investors value a
firm’s brand at billions of pounds, they’ll want to know how the management is protecting these
intangibles.
(Maria, 2013), in her thesis titled “How can the global reporting initiative G4 guideline improve
environmental, social and governance disclosure” provided the guidelines which aim to transform
sustainability reporting and make this disclosure more meaningful to all stakeholders including
investors. The findings showed that by shifting the focus on material issues and by inculcating integrated
reporting, the G4 guidelines can be made more beneficial. However the only limitation is its voluntary
disclosure by the companies.
(Stubbs & Higgins, 2012), in their report on “Sustainability and Integrated Reporting: A Study of the
Inhibitors and Enablers of Integrated Reporting” studied how organizations are interpreting and applying
integrated reporting; drivers and motivations for applying integrated reporting; the benefits and challenges for
an integrated reporting approach; and, how integrated reporting can become more widespread. The main
outcome of the study stated that IR is still not understood by the managers; the reporting landscape within
organizations is continually evolving and experimentation and is also underway.
(Bayron, 2011), in her article on “The Bigger Picture: The Challenges of Integrated Reporting”
highlighted the challenges in the implementation of IR which includes: The report has little connection to
creating long-term value. Moreover linking financial and nonfinancial elements is a difficult process.
Another obstacle is the lack of a single standard for sustainability reporting, which makes comparability
among companies a hard task.
(Jensen & Berg, 2011), in their article on “Determinants of Traditional Sustainability Reporting
Versus Integrated Reporting. An Institutionalize Approach” analyses similarities and differences
between companies with traditional sustainability reporting (TSR) and those that publish integrated
reports. The analysis showed that IR companies are different from TSR companies with regard to several
country-level determinants such as investor and employment protection laws, the intensity of market
coordination and ownership concentration, the level of economic, environmental and social development
and the degree of national corporate responsibility.
Objectives
• To study about reporting of six capitals in integrated reports of the sample units.
• To identify the key performance indicators for six identified capital in sample units/ different
industrial sectors.
• To identify the value creation by sample units through six identified capital.
The following research methodology was adopted for the current research article.
• Sample Size: Top ten integrated reports (2014) of organizations in South Africa are considered
who have been given excellence awards by Ernst and Young (2014).
Table 1: Top Ten Companies of South Africa
S. No Name Industry
1 Liberty Holdings Financial Services
2 Anglo American Basic Material
3 Barclays Africa Financial Services
4 Sasol Oil and Gas
5 MTN Group Telecommunication
6 Redefine Properties Real Estate
7 Standard Bank Group Financial Services
8 Truworths International Limited Consumer goods
9 Gold Field Basic Material
10 Kumba Iron Ore Basic Material
• Statistical Tools: For the purpose of study, content analysis and descriptive study of integrated
reports of sample units is done
Disclosure of Capital's
Every business uses different types of capital to create value. These capitals become inputs to
business activities. In the process of becoming an organization’s outputs, they can be increased,
decreased, enhanced, consumed, modified, destroyed or otherwise transformed. Different capitals apply
to different organizations, depending on the level of their dependence or impacts on them in part
through the IIRC Pilot Programme. Some businesses focus only on the types of capitals they use most,
exploring the interdependencies between the capitals (for example, the way financial capital is
underpinned by the other capitals). Others are developing targets and tools to measure the uses of capital
six types of capital included in Integrated Reporting are:
• Financial Funds available for use in the production of goods or provision of services; obtained
through financing, or generated through operations or investments.
• Manufactured Buildings, equipment, infrastructure.
• Human People’s competencies, capabilities, experience, and motivations to innovate.
• Intellectual Organizational, knowledge based intangibles, including: intellectual property,
“organizational capital” and intangibles associated with brand and reputation.
• Social and Relationship Relationships with stakeholder groups and other networks, and the
ability to share information to enhance wellbeing. It includes relationships with key external
stakeholders, such as customers, suppliers, business partners, communities, legislators,
regulators, and policy-makers – an organization’s social license to operate.
• Natural-All renewable and non-renewable environmental resources and processes that provide
goods or services that support the prosperity of an organization.
Quantitative indicators, such as key performance indicators (KPIs) and in some cases monetized
metrics, can be very important in explaining an organization’s uses of and effects on various capitals.
Nonetheless, it is important to point out at the outset that it is not practicable to expect organizations to
attempt to quantify all capitals. It is not, therefore, an objective of <IR> to measure all the capitals or
movements in them. Many uses of and effects on the capitals are best (and in some cases can only be)
reported on in the form of narrative rather than through metrics.
Analysis and Discussion
In order to analyze the objectives of present research paper, Integrated Reports of top ten
companies of South Africa have been taken into account. With the aim of offering a broader explanation
of performance than traditional reporting, defining the business model in the context of integrated
reporting means considering all the relevant capitals on which performance depends, and explaining
their role in how the company seeks to create and sustain value. Capitals can be conceived as resources
and relationships which are used by the organisation, affect it or are affected by it. Depending on
individual circumstances, the organisation needs to categorize relevant capitals and decide on their
importance. The major emphasis of the study is on the disclosure pattern of six capitals’ (financial,
manufactured, intellectual, human, social and relation and natural) which includes the major form of
disclosure, key performance indicators (KPI’s) and creation of organization value through these capital.
The analysis and discussion is shown in below tables-:
Table 2: Disclosure Pattern of Financial Capital
S. Form of
Name of Company KPI Value Creation
No. Disclosure
1. Liberty Holding Monetary • Operating Earnings • Re-investment of self
• Headline earnings per share generated funds
• Return on IFRS Equity • Considering various low cost
• Long- Term Insurance Index funding alternatives
• Dividend • Strategically allocating
• Compounded Annual Growth capital
• Financial Cost Coverage ratio
2. Anglo American Monetary • Return on capital • Portfolio Management
• Earnings per share
• Dividend
3 Barclay Africa Monetary • Return On Equity • Maintaining adequate capital
• Core Tier 1 Equity Ratio and liquidity
• Cost to Income ratio • Access to financial services
• Revenue share from other for under banked and small
countries and medium enterprises
• Payment of taxes • Access to capital markets
• Setting up clear financial
target
• Investing in growth
initiatives
4 Sasol Monetary • Operating Profit • Re-investment of self
• Headline earnings per share generated funds
• Return on shareholder’s • Considering various low cost
equity funding alternatives
• Net borrowings to • Strategically allocating
shareholder’s equity capital
• Dividend
5 MTN Group Monetary • Dividend • Funding of license through
• Finance Cost optimum sources
• Interest bearing Liabilities • Regulatory fees and taxes
• Market value payment on time
• EBITDA • Balancing investments
against returns
• Optimizing resources & cost
6 Redefine Properties Monetary • Loan to value ratio, • Maintaining Liquidity
• Interest Covers, • Maintaining adequate
• Debt capital market Funding, protection against volatile
• % of Debt Secured, interest rate movements
• % of property assets pledged • Extending maturity profile
as security for as long as possible
• Diversifying funding sources
• Maintaining strong credit
and Balance sheet metrics
7 Standard Bank Monetary • Return on equity • Financial Resource
• Credit loss ratio Prioritization
• Headline Earnings • Maintaining Optimal Capital
• Dividend growth and liquidity Level
• No. of training and • Pricing Appropriately for
development programmes risk
• Payment of Tax
8 Truworths Monetary • Dividend, • Effective management of
International • Cash Generation, cash and capital
Limited • Operating margins • Grow shareholder wealth
• Headline Earning Per share and returns
• Return on Capital • Invest for organic growth
• Return on assets • Highly cash generative
• Return excess funds to
shareholders through
dividends and share buy-
backs
• Pursue strategic acquisitions
9 Gold Field Limited Monetary • Dividend • Provide superior returns
• Cash Generation
• Debt Ratio
10 Kumba Iron Ore Monetary • Dividend, • Developed and secured
• Cash Generation, funding for technology
• Debt Ratio
• Unit Cost
• EBIT
• Total Shareholder Return
Source: Own Compilation
The above table reveals the disclosure pattern of financial capital among top ten companies of South
Africa. The table shows that all companies have clearly disclosed the financial capital in form of monetary
terms. Companies have clearly mentioned how financial capital helps in generating long term values for the
organizations. Mostly all companies have mentioned their future targets for financial capital. Through content
analysis dividend, total return on equity, return on assets, total shareholder return, earnings per share were
identified as major key performance indicators identified for financial capital. Generally companies are trying
to create value by acquiring funds at lower cost, developing funds for technology, setting up financial targets,
pursuing strategic acquisition, reinvesting self generated funds, and marinating cash liquidity.
Table 3: Disclosure Pattern of Manufactured Capital
S. Name of Form of
KPI Value Creation
No. Company Disclosure
1. Liberty Monetary • Asset Valuation • Nurture and Grow strategy is
Holding • Claim loss ratio adopted
• Service Fee margin
• Cost to income ratio
2. Anglo Not disclosed • Not Explained • Not explained clearly
American properly
3 Barclay Africa Monetary and • Total no of branches • Improving quality of IT
Narrative • No of data centers and support infrastructure
premises • Implementing modern system
• Total no of equipment and and technology
devices that enables service • Implemented updated
delivery enterprise risk management
• Simple product and services system
4 Sasol Monetary and • Total no of assets under • Nurture and Grow strategy is
Narrative construction adopted
• Total no of property, plant and • Extension of mining rights
equipment
5 MTN Group Monetary and • No of 2G, 3G and LTE based • Building high class network
Narrative stations
• No of towers
• Valuation of assets
6 Redefine Monetary • Number of industrial • Maintaining balanced Portfolio
Properties properties, offices Retail and of assets
office tenants, • Proactive asset management
• Valuation of Assets
7 Standard Bank Narrative • Infrastructure Fund • Not Explained
• Total no of assets
• Valuation of assets
• No of Branches
• Total no of IT infrastructure
8 Truworths Narrative • Suppliers score card • Operate best-of-breed IT
International • Total no of retail stores systems
Limited • Modeling performed using
historical data going back many
yrs
• Store development
9 Gold Field Monetary • Payment to creditors • Provide quality portfolio of
Limited • payment to financial institutes productive mines
• Safety
• Quality portfolio of assets
10 Kumba Iron Monetary and • Total no of mines • Optimization of assets
Ore narrative • Valuation of assets • Restructuring of head office
• Total production
• Total no of reserves
The above table reveals the disclosure pattern of manufactured capital among top ten companies
of South Africa. The table shows that all companies have chosen to disclose their manufactured capital in
monetary terms, narrative terms or in both. Three companies have disclosed monetary information about
manufactured capital. Four companies have disclosed both narrative and monetary information. Two
companies have disclosed narrative information. It is important to note that Anglo American have not
disclosed any information regarding manufactured capital separately, it has not clearly defined key
performance indicators nor it has defined how value is created through manufactured capital. Through
content analysis asset valuation, no of IT infrastructure, total production, infrastructure fund, no of
reserves came out to be major KPI’s. Generally companies adopt strategies like restructuring, store
development, optimization of assets, proactive asset management to create organisation value through
manufactured capital. Among top ten, Liberty Holdings, Barclay Africa, Redefine properties limited and
MTN group leads in disclosure pattern of manufactured capital.
Table 4: Disclosure Pattern of Intellectual Capital
S. Name of Form of
KPI Value Creation
1. Liberty Narrative • No of Innovative Products • Innovative Product and Design
Holding • Stakeholder Sentiment Surveys • Brand Trust
2. Anglo Not disclosed • Not explained • Not explained
American
3 Barclay Africa Narrative • Total no of new Product and • Developing new technologies
services • Using specialized financial
skills and expertise
• Brand awareness
4 Sasol Narrative • Nature of workforce • Creating Integrated Project
• Total no of experiments and Management
research • High Performance culture
• Enhancing Research and
development
5 MTN Group • Total no of innovative • Brand awareness
Narrative products • MTN touch point
• Brand ranking • Cloud services
6 Redefine • Recruiting talented employees
Properties Narrative • Total no of skilled workforce • Retaining skilled employees
• Redefining Brand
• Spending on Research and
Development
(Pilot Wi-Fi Project)
7 Standard Bank Narrative • No of IT professionals • Not explained
8 Truworths Narrative • Market share • Exclusive brands mostly
International • Gross margin owned by the Group
Limited • Behavioral Scorecard • Diversified brand portfolio
• Brand concepts developed
internally
• Selective acquisition of
complementary brands
• Men’s, ladies and kids wear
fashion
• In-house Fashion Studio
• In-house quality laboratory
• Investment to upgrade IT
9 Gold Field Narrative • Total workforce • Not explained clearly
Limited
10 Kumba Iron Narrative • Total workforce • Annual Health and safety
Ore improvement plan
• Technological innovation
• Focus on research and
development
The above table reveals the disclosure pattern of intellectual capital among top ten companies of
South Africa. The table shows that all companies have chosen to disclose their intellectual capital in
narrative terms. It is important to note that Anglo American, Gold Field, Standard bank have not clearly
disclosed any information regarding intellectual capital separately, it has not clearly defined key
performance indicators nor it has defined how value is created through manufactured capital. Through
content analysis asset total no of skilled workforce, goodwill patent, trademark, brand rank, no of
innovative products came out to be major KPI’s. Generally companies adopt strategies like investing in
research and development area, brand awareness, installing new technologies, redefining brand etc.
Among top ten, MTN group, Redefine Properties limited and Truworths International Limited leads in
disclosure pattern of intellectual capital.
Table 5: Disclosure Pattern of Human Capital
S. Name of Form of
KPI Value Creation
1. Liberty Narrative and • Total No of Staff- skilled, semi • Recruiting and Developing
Holding Monetary skilled, professionals and staff to fit in the role
permanent • Training of staff
• No of Training and • Retaining and rewarding
development sessions employees
• Variable Remuneration • Fair Pay
• Voluntary Staff Turnover • Opportunity for career
• Cost of Training and advancement
Development
2. Anglo Narrative • Voluntary labor turnover • Talent Management
American • Gender Diversity • Protecting labor rights
• Total recordable case • Ensuring safe work
frequency rate environment
• Work related fatal injury
frequency rate
• New cases of occupational
disease
3 Barclay Africa Monetary and • Sustained engagement of • Evaluating performance of
Narrative Colleagues Score employees
• Total no of women in senior • Promoting internal promotions
management • Develop colleague curriculum
• Total no of permanent along with Barclay’s
employees Leadership academy.
• Women in senior leadership • Training and development
• Employee opinion survey programmes
• Turnover rate
• Total no of training
programme
• No of learnerships
4 Sasol Monetary and • Product Transportation • Skill Development Programme
Narrative Incidents • HIV Counseling and Testing
• Broad Based Black economic • Safety Programme
Empowerment
• No of Training and
development
5 MTN Group Monetary and • Staff cost • Retaining talented employees
Narrative • Cost of Training • Providing training
• Net promoter score
6 Redefine Narrative • No of Learnership programme • Launching E- learning
Properties And • Employee engagement capital platform
Monetary score • Conducting Leadership
• Types of rewards and Conference
recognition • Proactive succession
• Types of benefits management
• Improving organizational
structure
• Proactive change management
• Accurately assessing employee
performance.
• Prevention of unfair
discrimination
• Conducting Wellness
Programme
7 Standard Bank Narrative and • Employee turnover • Employee Wellness
Monetary • Employee survey • Managing diverse team
• % of women in top • Rewarding Employees
management • Improving the supplier
• No of training and payment process
development programmes • Talent management
• Wellness Matrix • Women Leadership
• No of Permanent Employees Programme
• Leadership development
• Improving staff interactions
8 Truworths Narrative • Employee Turnover rate • Provide a stimulating work
International • No of Training and environment which enables
Limited Development Programmes employees to be creative and
energized
• Attract, develop and retain top
industry talent
• Create a values-driven culture
• Reward individual and team
performance
9 Gold Field Narrative • No of Training and • Talent Management,
Limited Development, • Employee engagement,
• Performance Management
10 Kumba Iron Narrative • Total no of incidents • High level of safety
Ore • Total lost time management
• Total no of disabilities • Heath awareness programme
• Developing leadership team
The above table reveals the disclosure pattern of human capital among top ten companies of South
Africa. The table shows that all companies have chosen to disclose their human capital in narrative terms and
few have disclosed in monetary terms as well. It is important to note that all companies have clearly defined
human capital, its key performance indicators and how this helps in creating value for the organisation.
Through content analysis asset total no of training and development programmes, total no of leranerships,
total no of incidents, total no of employee grievances, balanced scorecard, employee survey, total no of heath
awareness programme, employee turnover rate, attrition rate etc came out to be major KPI’s. Many companies
have also prepared Human Capital report. Thus companies are realizing that intangible assets valuation has
increase which demands better reporting. Generally companies adopt strategies like talent management,
performance management, employee engagement, safety management, E- learning programmes to enhance
human capital. Among top ten, Liberty holdings, Barclay Africa, MTN group, Redefine Properties limited,
Standard Bank, Truworths International Limited leads in disclosure pattern of human capital.
Table 6: Disclosure Pattern of Social and Relation Capital
S. Name of Form of
KPI Value Creation
1. Liberty Narrative • Net Customer cash Flows • Responding to individual query
Holding • Cost of education programme • Awareness about the policies
• Cost of Financial literacy • Publishing of interim and
Programme annual reports
• Necessary Flexibility in
schemes to customers
• Improving access to education
to empower self-fulfillment;
• Ensuring the workplace is
representative of the
communities
• Behaving as a responsible
corporate citizen and, in
particular, act with integrity
• Providing job opportunities
and products and services that
genuinely assist in financial
freedom; and
• Managing the business
sustainably to ensure delivery
of all promises.
2. Anglo Narrative • Corporate social Investment • Handling Complaints
American • Total no of business supported • Handling supply chain
• Jobs created through enterprise management
3 Barclay Africa Narrative • Total no of banking customers • Direct interaction with the
• No of complaints customers
• Net Promoter score • Management of socio
• Total community investment environmental risk and
• Treating customer fairly opportunities through our
outcome score lending, investing and
• Conduct Index procurement practices
• Social responsibility including
community investments, access
to financial services and
financial education
4 Sasol Narrative • Community investment • Employee mentorship circle
• Employee turnover rate • Enhancing social value
• Payment of Direct and Indirect • Improving customer
Taxes engagement
• Workshops for managers and
employees
• Social Investment in education
, economic development and
environment
• Revising code of ethics
• Establishing a dedicated
Enterprise Supplier
Development function
5 MTN Group Narrative • Community social investment • Ensuring agility and speedy
• Total data users go-to-market capability.
• Total Mobile subscribers • Providing digital world
• Providing quality service
6 Redefine Narrative • Community investment and • Enhancing Brand Awareness

Properties relation • More regional projects with
• BASA Development category staff involvement
award • Re launching corporate website
• Evolution of marketing
strategy
• Pocket of Excellence within
communities
7 Standard Bank Narrative • Corporate Social Investment • Resolving Claims
• No of education awareness • Raising level of services
programme • Improving staff Interactions
• No of customer base • Refined Client coverage Model
• Providing unsecure credit to
SME’s
• Using digital banking
8 Truworths Narrative • Community investment and • Focus on mass middle income
International relation market
Limited • 2.6 million active account • Maintain Employee equity
customers
• Broad Based Black economic
Empowerment score
9 Gold Field Narrative • Community investment and • To create share value
Limited relation • Improving community
relations
10 Kumba Iron Narrative • Community investment and • Developing social objectives
Ore relation
• Balanced scorecard
The above table reveals the disclosure pattern of human capital among top ten companies of South
Africa. The table shows that all companies have chosen to disclose their social and relation capital in narrative
terms and few have disclosed in monetary terms as well. It is important to note that all companies have clearly
defined social and relation capital, its key performance indicators and how this helps in creating value for the
organisation. Through content analysis asset total no of education programme, no of job opportunities
created, total no of customers, no of suppliers, suppliers scorecard, customer surveys, net promoter score, total
no of complaints etc came out to be major KPI’s. Companies have generally disclosed total community
investment in integrated reports. Generally companies adopt strategies like developing social objectives,
conducting education programmes, maintaining equity, treating customer fairly, handling complaints,
handling customer queries, to create value through social and relation capital. Among top ten, Liberty
holdings, Barclay Africa, Sasol, MTN group, Redefine Properties limited, Standard Bank, Truworths
International Limited leads in disclosure pattern of human capital.
Table 7: Disclosure Pattern of Natural Capital
S. Name of Form of
KPI Value Creation
1. Liberty Holding Narrative • Not explained • Not explained
2. Anglo Narrative • Total energy consumption • Adopting water management
American • Total Green house gas strategies
emissions
• Total water Consumption
3 Barclay Africa Narrative • Total water consumption • Making environment policies
• Total energy consumption
• Total carbon footprints
4 Sasol Narrative • Total Energy Used • Setting target for reducing
• Volatile Organic Compounds carbon emission
• Total carbon Emissions • Using energy efficient system
• Total Water used
5 MTN Group Narrative • Allocation of Spectrum • Sharing of infrastructure
• Total carbon emission
6 Redefine Narrative • Total carbon emission (Scope1, • Solar Project Implemented
Properties Scope2 and Scope3) • Green Building
• Carbon disclosure Leadership • Redefining sustainability Policy
Index • Developing water and waste
• Total Water Withdrawal policy
• Total Cost of Energy used • Compliance with environment
norms
• Climate change awareness
programme
• Conduct Detailed Audit and
assessments of standard
benchmarks
7 Standard Bank Narrative • Investment in renewable • Signed global Investor
projects statement
• Climate performance • Reduction of greenhouse gas
leadership Index through carbon financing
• Investment in clean development • Using electronic statement
mechanism projects
8 Truworths Narrative Not mentioned • Imported merchandise shipped
International (Not to Cape Town
Limited explained • Outsourced transport service
clearly) providers
• Recycling
9 Gold Field Narrative • Total carbon emission, • Reducing energy and carbon
Limited • Total Mining Waste, emission
• Total Water Withdrawal • Enhanced water management
10 Kumba Iron Narrative • Total carbon emission • Waste management
Ore • Mining Waste • Pollution prevention
• Water Withdrawal • Awareness of environment
The above table reveals the disclosure pattern of natural capital among top ten companies of
South Africa. The table shows that all companies have chosen to disclose their natural capital in narrative
terms. It is important to note that Liberty Holdings and Truworths International Limited have not clearly
disclosed the information regarding natural capital. They have not described how natural capital helps in
creating organization’s value. Through content analysis asset total carbon emission, total water
withdrawal, total investment in renewable projects, etc came out to be major KPI’s. Companies have
generally disclosed total community investment in integrated reports. The analysis shows that strategies
like waste management, carbon finance, pollution prevention, water management etc are adopted to
create value through natural capital.
Findings
Integrated report concept of six capitals basically wants to make organisation realize the value of
intangible assets. Financial, manufactured capitals have been part of balance sheet since from ages. Then
slowly organizations realized the value of human, social and intellectual capital and started accounting
for these capitals. Then came the concept of natural or environmental capital which has gained a lot of
importance. Thus it is required by the organisation to show how they define such capitals and how they
measure them. These capitals help in creating long term value of the organisation. Thus organisation
needs to integrate these capitals into their business model and explain the stakeholder the outcome of
such integration. The analysis of the integrated reports shows that out of ten companies, seven
companies have clearly defined the capital in their organizational context. All companies have clearly
defined their value creation through financial, manufactured capital, human, social and relation capital.
Only six have clearly defined how value is created through intellectual capital and only five companies
have defined how value is created through natural capital. The result is shown in below Table.
Table 8: Holistic View
Particulars Number
• Companies who have defined all capitals 7
• Companies who have clearly defined how value is created through Financial capital 10
• Companies who have clearly defined how value is created through Manufactured capital 10
• Companies who have clearly defined how value is created through Intellectual capital 6
• Companies who have clearly defined how value is created through Human capital 10
• Co.'s who have clearly defined how value is created through Social and Relation capital 10
• Companies who have clearly defined how value is created through Natural capital 5
• Industry which has given high degree of importance to Financial Capital Basic Material
• Industry which has given high degree of importance to Manufactured Capital Oil and Gas
• Industry which has given high degree of importance to Intellectual Capital None
• Industry which has given high degree of importance to Human Capital Financial Services
• Industry which has given high degree of importance to Social and Relation Capital Financial Services
• Industry which has given high degree of importance to Natural Capital None
Conclusion
All organizations who have provided integrated report have disclosed quality information in one
or other way. The concept of explicitly considering multiple capitals when reporting is relatively new.
One is using the capitals concept to benchmark how much attention the six capitals get in its current
reporting on performance; another has aligned its strategic objectives with the capitals, which has
changed the company’s materiality analysis and helped it focus on value creation. Considering the
capitals has led many companies to change the way they work across departments, use technology to
integrate information, and change their reporting to strengthen the connectivity of information. The key
benefit: the capitals concept has helped them establish the causal relationship between their business
models, strategy and performance. Businesses use the capitals model as a benchmark for ensuring they
consider all forms of capital they use or affect, and as part of the theoretical underpinning for the concept
of value. Report preparers are still experimenting with how to categorize and define the capitals for their
own circumstances, as well as the appropriate narrative and metrics to report. Report users are also
exploring what information they will find most useful, how they would like it delivered, and in what
form. While the concept of Integrated Reporting is new, it is clear that reporting on the capitals is set to
evolve considerably over the coming years.
References
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paper for 30th round table on Sustainable Development
Bayron, H. (2011). The Bigger Picture: The challenges of Integrated Reporting.
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reporting by South African listed companies in mining sector.
Imoleayo, O. (2015). Should Integrated Reporting be incorporated in Management Accounting
Curriculum? International Journal of Education and Research, 3 (1).
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Integrated reporting. Business Strategy and Environment, 21, 299-316.
KPMG. (2011). Integrated reporting performance insight through better business reporting. 1.
Maria, D. (2013). How can the global reporting initative G4 guideline improve environmental,
social & governance disclosure. Central European University .
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reporting: Perspectives of senior executives at South African Listed companies. Sustainability
Accounting Management and Policy, 5 (4), 476-503.
Stubbs, W., & Higgins, C. (2012). Sustainability & Integrated Reporting :A study of inhibitors and
enablers of Integrated Reporting. Institute of Chartered Accountant in Australia .
http://www.pwc.de/de/rechnungslegung/assets/integrated_reporting.pdf
http://www.oecd.org/sdroundtable/papersandpublications/The%20Evolution%20of%20Corpor
ate%20Reporting%20for%20Integrated%20Performance.pdf
http://www.theiirc.org/companies-and-investors/
http://apps.liberty.co.za/IntegratedReport2014/default.asp
http://www.angloamerican.com/~/media/Files/A/Anglo-American-PLC-V2/report-builder-
2014/annual-report/aa-ar14-interactive-final.pdf
http://www.barclaysafrica.com/deployedfiles/Assets/Richmedia/PDF/Reports/2014/Barclays
_Africa_Group_Limited_Integrated_Report_2014.pdf
http://www.sasol.com/investor-centre/financial-reporting/annual-integrated-reporting-set
https://www.mtn.com/Sustainability/Documents/MTN_Group_Integrated_Report_2014.pdf
http://examples.integratedreporting.org/organisation/144
http://annualreport2014.standardbank.com/downloads/Standard-Bank-Group-Annual-
integrated-report-2014.pdf
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ntegrated%20Report_2014.pdf
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2014/kumba-iron-ore-integrated-report%202014.pdf
https://www.goldfields.com/reports/annual_report_2014/integrated/pdf/full.pdf

AN EMPIRICAL ANALYSIS OF PRICE SENSITIVITY WITH RESPECT TO

DECLARATION OF DIVIDEND OF INDIAN COMPANIES
Dr. Soheli Ghose∗

Mudit Gupta∗∗
ABSTRACT
Dividend Decision affects the goodwill and the price of the company’s shares and it is affected by a lot of
parameters. In this paper we have selected a random sample of companies of 7 different sectors of the National Stock
Exchange and analysed the effect of dividend paid on the share prices of these companies over a period of 7 years
starting from 2009. The data has been collected from secondary source of authentic website of The National Stock
Exchange. (www.nseindia.com). We have considered the final, interim and special dividend paid by these companies
over the sample period. The objectives of the study are to analyse the traded volume volatility on the date of dividend
announcement and ex-dividend date and its reasons, to analyse the Price sensitivity on declaration of dividend
(both on announcement date and ex-dividend date) and to recognize the dividend policy followed by the companies.
These prices have been looked up from the Price Database using the Vertical lookup (VLOOKUP) formula of
Microsoft Excel. We concluded that amongst 7 sectors of the National Stock Exchange, the most stable of all has
been the IT – Software sector. Compared to other sectors, IT – Software sector has paid exceptionally high dividends
and has been strong in Capital appreciation. Cement sector also seemed to be stable enough but when it came to the
test of the leaders of the sector, IT – sector has proved to be more stable (because of the leader Tata Consultancy
Services). The study would help potential investors to get an idea about the effect of dividend decision on the
volatility and price sensitivity of the sample companies and the overall sectors as a whole. Secondly the
categorization of the type of dividend policy take up by the sample companies in the study period would help
investors in deciding appropriate investment avenues based on their long term goals.
KEYWORDS: Bonus Share, Capital Appreciation, Dividend, Stock Split.

JEL classification: Code: G35.
_______________
Introduction
Dividend is a part of profit paid by the company to the owners i.e. shareholders. Dividend is one of
the sources of income from the company (other being capital appreciation). The company is not legally
obligated to pay dividend to the shareholders. A company can use its profits in two ways: (i) reinvesting the
same (then called Retained Earnings) in the company to create wealth and provide proper returns to the
stakeholders or (ii) paying out the profits earned to the general or equity shareholders. Dividends are
usually settled on a cash basis (electronic fund transfer), as a payment from the company to the shareholder.
∗
Assistant Professor, Department of Commerce, St. Xavier’s College, Kolkata, W.B.
∗∗
Ex. Student, Department of Commerce, St. Xavier’s College, Kolkata, W.B.
Dr. Soheli Ghose & Mudit Gupta : An Empirical Analysis of Price Sensitivity with respect to ..... 103
They can take other forms, such as store credits (common among retail consumers' cooperatives) and shares
in the company (either newly-created shares or existing shares bought in the market). Further, many public
companies offer dividend reinvestment plans, which automatically use the cash dividend to purchase
additional shares for the shareholder. On the basis of the time of payment, dividends can be categorized as -
Final Dividend (Paid annually), Interim Dividend (Paid during the year), Special Dividend (Paid
occasionally, comparatively high amount). The different types of dividend are Cash Dividend, Stock
Dividend (Bonus Shares) and Stock Split.
Literature Review
In their paper Paul M. Healy and Krishna G. Palepu (1988), studied that firms that initiate dividend
payments have positive earnings changes both before and after the dividend policy change, while those
omitting dividend payments have negative earnings changes. Subsequent earnings changes are positively
related to the dividend announcement return and stock price reactions at subsequent earnings
announcements are smaller than usual, suggesting that these earnings changes are partially anticipated at
the dividend announcement. The results indicate that investors interpret announcements of dividend
initiations and omissions as managers' forecasts of future earnings changes. In their paper Merton H. Miller
and Kevin Rock (1985), extended the standard finance model of the firm's dividend/investment/financing
decisions by allowing the firm's managers to know more than outside investors about the true state of the
firm's current earnings. The extension endogenizes the dividend (and financing) announcement effects
amply documented in recent research. But once trading of shares is admitted to the model along with
asymmetric information, the familiar Fisherian criterion for optimal investment becomes time inconsistent:
the market's belief that the firm is following the Fisher rule creates incentives to violate the rule. They
showed that an informationally consistent signalling equilibrium exists under asymmetric information and
the trading of shares that restores the time consistency of investment policy, but leads in general to lower
levels of investment than the optimum achievable under full information and/or no trading. In their paper
Harry Deangelo and Linda Deangelo (1990), studied the dividend policy adjustments of 80 NYSE firms to
protracted financial distress as evidenced by multiple losses during 1980–1985. Almost all sample firms
reduced dividends, and more than half apparently faced binding debt covenants in years they did so.
Absent binding debt covenants, dividends are cut more often than omitted, suggesting that managerial
reluctance is to the omission and not simply the reduction of dividends. Moreover, managers of firms with
long dividend histories appear particularly reluctant to omit dividends. Finally, some dividend reductions
seem strategically motivated, e.g., designed to enhance the firm's bargaining position with organized
labour. In his paper James A. Brickley(1983), examined common stock returns and dividend and earnings
patterns surrounding specially designated dividends labeled by management as ‘extra’, ‘special’ or ‘year-
end’ and compares them to those surrounding regular (unlabeled) dividend increases. The results support
the notion that management uses the labeling of dividend increases to convey information to the market
about the future potential of the firm. Unlabeled increases appear to contain the most positive information.
Contrary to the sometimes suggested view, specially designated dividends appear to convey positive
information about future dividends and earnings beyond that relating to the current period.
Objectives
• To analyse the traded volume volatility on the date of dividend announcement and ex-dividend
date and its reasons.
• To analyse the Price sensitivity on declaration of dividend (both on announcement date and ex-
dividend date)
• To recognize the dividend policy followed by the companies.
Research Methodology and Data Collection
This research has been conducted in the period of December, 2015 to April, 2016.
Sample: 32 companies of 7 different sectors of the National Stock Exchange have been selected as
sample for the analysis. The sample has been chosen on a random basis.
Exhibit 1: List of Companies
Company Name Sector NSE Code
ICICI Bank ICICI BANK
AXIS Bank AXIS BANK
Kotak Mahindra Bank KOTAK BANK
BANKING
State Bank of India SBI
Punjab National Bank PNB
Syndicate Bank SYNDI BANK
J K Cement JK CEMENT
Deccan Cement DECCAN CEM
CEMENT
Ambuja Cement AMBUJA CEM
UltraTech Cement ULTRA CEM
MindTree Mindtree
WIPRO WIPRO
Tata Consultancy Services IT - SOFTWARE TCS
Infosys INFY
Oracle Fin Ser Softwares OFSS
Bharti Airtel BHARTI ARTL
IDEA IDEA
Tata communications TELECOM TATA COMM
Reliance communications R COM
Mahanagar Telephone Nigam MTNL
BIOCON BIOCON
Dr. Reddy's Laboratories DR REDDY
PHARMACEUTICALS
CIPLA CIPLA
Sun Pharmaceutical Inds. SUN PHARMA
SOBHA SOBHA
Sunteck SUN TECK
REAL ESTATE
Oberoi Realty OBEROIRLTY
DLF DLF
Neyveli Lignite Corpn. NEYVELILIG
Tata Power TATA POWER
POWER
CESC CESC
Reliance Infrastructure REL INFRA
Note: The company name in the Analysis is given in NSE codes.
Data Collection
The data has been collected from secondary source of authentic website of The National Stock
Exchange. (www.nseindia.com).The data of the above mentioned sample is collected for 7 years starting
from 1st April, 2009 till 31st March, 2016 (2009-2010 to 2015-2016). The information in the data collected
from the above source is Company Name, Face Value of Shares, Details, Ex-Dividend Date and
Percentage of Dividend declared. The financial statements of all the companies with different ratios and
profitability indexes are also collected for the analysis. The data source for the same is Value research
online (www.valueresearchonline.com)
Methodology
In the analysis, prices of different companies in different dates are used as a raw data to be processed.
These prices have been looked up from the Price Database using the Vertical lookup (VLOOKUP) formula of
Microsoft Excel. The Price Database is a data base which has daily prices of all 32 companies of last 7 years.
This database is created by downloading the data from the NSE official website. (https://www1.nseindia.com
/products/content/equities/equities/eq_security.htm) The details in the above database are: 1.Company
name; 2.Date; 3. Opening price; 4. High; 5. Low; 6. Closing price; 7. Traded Volume.
Analysis: Effect of Dividend on Share Price (Sensitivity Analysis)
Declaration and payment of dividend includes 4 important dates which are Announcement Date,
Ex-Dividend Date, Record Date and Dividend Payment Date.
Announcement Date– It is the day when the investors in the market come to know about the Ex-
Dividend date, Record date and the percentage of dividend to be paid.
Record Date–The shareholder is entitled to dividend only if he is present in the company’s
shareholders record book on the record date.
Ex-Dividend Date–The delivery of the shares takes 2 days for processing (in general parlance T+2).
Ex-Dividend date is the date on and before which the shareholders have to purchase the share in
order to be entitled to dividend. Technically ex-dividend date is 2 days prior to the record date.
Dividend Payment Date – The day when the company pays the dividend to the shareholders
present in company’s records on the record date.
Sub Analysis (A)- Traded Volume Analysis- This analysis is directed towards finding the significant
increase in the traded volume of shares on the announcement date and the ex-dividend date.
Pre-Analysis Perception- Since the ex dividend date is the date on or before which purchasing the
share will make the investor entitled to the dividend, the trades in the ex dividend date will be
significantly high compared to normal trading sessions. The trade volume on the announcement
date will also be high but not significant.
Process of Analysis
• Summarizing all the dividend details of all 32 companies for the last 7 years.
• Looking up for the traded volume on the trading sessions in last 3 weeks from the announcement date
and post 3 weeks from the announcement date using vertical lookup function of Microsoft Excel.
• Looking up for the traded volume on the trading sessions in last 3 weeks from the ex-dividend date
and post 3 weeks from the ex-dividend date using vertical lookup function of Microsoft Excel.
• Looking up for the traded volume on the announcement date and ex-dividend date.
• Computing 3 weeks (Pre and Post) average, 2 weeks (Pre and Post) average and 1 week (Pre and
Post) average of the traded volume of each company.
• Dividing the volume traded on the announcement date with their respective averages calculated
above. Same is done with the volume traded on the ex dividend date. By this we get the volume
traded on the specific (announcement and ex dividend) date as a multiple of the normal 1, 2 and 3
weeks average. The outcome of this analysis for each Sector (average of all companies’ each year
multiple) is shown below.
Exhibit 2: Traded Volume on the Announcement Date as a Multiple of the Average
of Different Weeks (Sector-Wise)
Announcement Date
Sector Avg. of last 3 Avg. of last 2 Avg. of last 1 Avg. of post Avg. of post Avg. of post All over
weeks weeks week 1 week 2 weeks 3 weeks average
Banking 2.5639 2.5382 2.4998 2.2332 2.3824 2.3900 2.4346

Cement 3.6884 3.8724 3.4952 1.8330 1.9495 2.0367 2.8125
IT- 3.1720 3.6584 4.5076 2.1077 2.2527 2.3852 3.0139
Software
Telecom 1.8087 1.8019 1.6709 1.5899 1.8315 1.9286 1.7719
Pharma 2.0494 2.2226 2.3482 2.1573 2.1841 2.1138 2.1792
Real Estate 2.3612 2.4129 2.7466 2.1653 1.8890 1.7339 2.2182
Power 1.9645 1.9739 2.1179 1.8476 1.7182 1.7377 1.8933
Exhibit 3: Traded Volume on the Ex-Dividend Date as a Multiple of the Average

of Different Weeks (Sector-Wise)
Ex-Dividend Date
Sector Avg. of last Avg. of last Avg. of last Avg. of post Avg. of post Avg. of post All over
3 weeks 2 weeks 1 week 1 week 2 weeks 3 weeks average
Banking 1.0898 1.0939 1.0899 1.3027 1.2397 1.1738 1.1650
Cement 1.0917 1.0608 1.1344 1.2236 1.0018 1.0253 1.0896
IT- Software 0.9776 0.9115 1.0244 1.2484 1.2771 1.3077 1.1244
Telecom 1.1253 1.2033 1.1998 1.0175 0.9957 1.0194 1.0935
Pharma 1.2853 1.3050 1.3091 1.2596 1.1356 1.0627 1.2262
Real Estate 0.9729 0.9770 0.9926 1.1091 1.1041 0.8236 0.9966
Power 1.1125 1.0882 1.1441 1.1523 1.0711 1.1019 1.1117
From the above results we may conclude that traded volume on announcement date is
significantly high compared to the pre and post weeks’ averages. In case of cement sector and the IT –
Software sector the traded volume on the announcement date is almost thrice of the weekly averages and
in case of other sectors the ratio is around 2. In case of the ex dividend date the traded volume is not
significantly high compared to the weekly averages. Thus, the Pre-Analysis perception about the market
sentiment has been proved to be wrong. On further analysing the volume volatility on the announcement
date, we find the company wise data of volume volatility in Exhibit 4.
Exhibit 4: Volume Volatility Analysis on the Announcement Date (Company Wise)
Traded Vol. on Ann. date as multiple of the average of
Company
Last 1 week Post 1 week Last 2 week Post 2 week Last 3 week Post 3 week
ICICI BANK 2.3676 1.9940 2.1481 2.1911 2.1597 2.2485
AXIS BANK 1.8245 1.4329 1.7118 1.4368 1.7533 1.5197
KOTAK BANK 2.2207 2.5694 2.5002 2.6366 2.4831 2.5158
SBI 1.5822 1.2483 1.6416 1.1979 1.6376 1.2827
PNB 4.0682 3.5442 4.5785 3.9621 4.5405 4.0538
SYNDI BANK 2.9359 2.6110 2.6494 2.8703 2.8093 2.7194
JK CEMENT 5.6321 1.8880 6.9932 2.2987 7.7620 2.4954
DECCAN CEM 4.4926 2.7164 4.5411 2.7361 3.3209 2.7739
AMBUJA CEM 1.4563 1.3690 1.4744 1.3288 1.4086 1.2896
ULTRA CEM CO 2.3998 1.3589 2.4809 1.4347 2.2621 1.5882

Mindtree 2.4715 2.0988 1.9508 2.1408 1.7334 2.1609
WIPRO 2.5331 1.9576 2.2174 2.0705 2.2903 2.2129
TCS 1.7812 1.7553 1.9278 1.8061 1.9611 1.9211
INFY 4.3380 2.2448 4.0547 2.6028 4.1117 2.7117
OFSS 11.4142 2.4821 8.1417 2.6437 5.7638 2.9197
BHARTIARTL 1.4175 1.7299 1.4638 1.8643 1.5092 1.7173
IDEA 1.7403 1.0264 1.8852 1.3031 1.6520 1.4079
TATA COMM 1.3979 0.6401 1.4532 0.7732 1.3532 0.8216
RCOM 1.1587 1.0466 1.3105 1.1402 1.3339 1.0975
MTNL 2.6403 3.5066 2.8968 4.0772 3.1955 4.5988
BIOCON 3.4876 3.2924 2.9617 3.9005 3.0447 3.8500
DRREDDY 2.9960 2.0543 2.7954 2.2913 2.7506 2.3316
CIPLA 1.5631 1.8749 1.4819 1.6447 1.4942 1.4604
SUNPHARMA 1.6349 1.4351 1.5697 1.6424 1.5724 1.6332
SOBHA 1.8871 1.8585 1.4587 1.5871 1.6694 1.5483
SUNTECK 5.3864 3.6942 4.2537 3.1334 3.9478 2.9879
OBEROIRLTY 4.4892 3.8346 4.5924 3.3288 4.5033 2.6711
DLF 1.3182 1.2595 1.2552 1.2786 1.2819 1.3258
NEYVELILIG 2.6435 1.5002 2.1741 1.3661 2.1992 1.4934
TATAPOWER 1.7689 1.6321 1.5816 1.4339 1.5839 1.5179
CESC 2.3824 2.7244 2.3254 2.5994 2.2239 2.4735
RELINFRA 1.6769 1.5338 1.8148 1.4738 1.8513 1.4663
We observe that Punjab National Bank in the Banking sector has the highest volatility of around 4
times the average of weeks. The history of Punjab National bank is given below.
Exhibit 5: History of Punjab National Bank’s Volume Volatility
Traded Ratio of Traded vol. on announcement date and averages
Announcement
volume on Last 1 Post 1 Last 2 Post 2 Last 3 Post 3
date
Ann. date week week weeks weeks weeks weeks
08-05-2015 24007184 6.2783 2.5529 6.0936 3.5874 5.8317 4.0618
31-01-2014 6674795 4.7420 4.3535 5.6103 5.4952 5.7511 6.1353
09-05-2013 6378038 8.2588 6.3134 10.2240 7.0840 10.3096 7.6864
09-05-2012 1683415 3.4951 3.3920 4.4388 3.1678 4.7363 2.8558
04-05-2011 1048237 4.4476 6.3133 4.9086 5.7510 4.2879 4.6715
06-05-2010 604690 2.1730 1.5488 1.8877 1.9815 1.8479 2.0499
27-01-2010 785133 2.1798 1.8113 2.3588 2.5191 2.5138 2.7170
20-05-2009 1865804 0.9710 2.0687 1.1063 2.1111 1.0460 2.2530
From the dividend history in Exhibit 5, we notice that volume was most volatile on
09-05-2013 i.e. around 9 times the normal averages. On further looking at the dividends announced on
and before that date, we find the following details shown in Exhibit 6.
Exhibit 6: History of Dividend details of Punjab National Bank
Announcement Effective Dividend Dividend Dividend Amount
Face Value
Date Date Type (%) Per Share
08-05-2015 22-06-15 Final 165 2 3.3
31-01-2014 11-02-14 Interim 100 10 10
09-05-2013 13-06-13 Final 270 10 27
09-05-2012 14-06-12 Final 220 10 22
04-05-2011 16-06-11 Final 220 10 22
06-05-2010 08-07-10 Final 120 10 12
27-01-2010 04-02-10 Interim 100 10 10
20-05-2009 04-06-09 Final 200 10 20
On analyzing the table we can observe that in the year 2011 when the dividend was increased
from Rs. 12 per share (in 2010) to Rs. 22 (increase of 83.33%), the volume on that announcement date was
around 5 times, which is high compared to other dividend announcement dates. In case of 2013 when the
dividend was again raised from Rs. 22 to Rs. 27, the traded volume was around 9 times the normal
average. From Exhibit 4 we also observe that Oracle Fin Ser Software in the IT- Software sector has the
highest volatility of around 6 times the average of weeks with an 11 times volatility in case of Last 1 week
average. The history of OFSS is given in Exhibit 7.
Exhibit 7: History of Oracle Fin Ser Software’s Volume Volatility
Traded vol. Ratio of Traded Vol. On Announcement Dt. And Averages
Announcement
on ann. Last 1 Post 1 Last 2 Post 2 Last 3 Post 3
date
Date week week weeks weeks weeks weeks
15-05-2015 10706 0.1386 0.0618 0.1494 0.1067 0.1944 0.1476
12-09-2014 394619 22.6896 4.9022 16.1340 5.1806 11.3331 5.6917
From the above dividend history we notice that Volume was most volatile on 12-09-2014
i.e. around 12 times the normal averages. On further looking at the dividends announced on and before
that date, we find the following details shown in Exhibit 8.
Exhibit 8: History of Dividend details of Oracle Fin Ser Software
Announcement Effective Dividend Dividend Face Dividend Amount
Company
Date Date Type (%) Value Per Share
OFSS 15-05-2015 03-09-2015 Final 3600 5 180
OFSS 12-09-2014 24-09-2014 Interim 9700 5 485
On analyzing the company’s history for dividends, it was found that the company never paid
dividend until 12-09-14. The percentage of dividend was 9700% which is indeed a significant amount.
The dividend yield in 2014 was 14.06% (i.e. price at that time was Rs. 3449.7). From the Exhibit 4 we also
observe that Sunteck in the Real Estate sector has the highest volatility of around 5 times the average of
weeks. The history is given in Exhibit 9.
Exhibit 9: History of Sunteck Reality’s Volume Volatility
Ratio of Traded Vol. on Announcement Dt. and Averages
Announce Traded vol. on ann.
date date Last 1 Post 1 Last 2 Post 2 Last 3 Post 3
week week weeks weeks weeks weeks
26-05-2015 303039 10.7658 9.0928 11.8293 8.5640 11.1176 9.0019
30-05-2014 723270 21.1476 12.9991 14.5802 11.1720 15.4546 10.9638

31-05-2013 13712 2.1574 1.6752 1.4330 0.8405 0.9226 0.9914
31-05-2012 2487 0.6128 0.4709 0.5590 0.6147 0.6156 0.2044
15-08-2011 20565 3.3941 1.9330 1.9339 1.0620 0.8538 0.4681
16-08-2011 20565 3.3941 1.6733 1.9339 0.9773 0.8538 0.3905
12-08-2010 45329 1.1054 1.0766 1.0883 1.1128 1.0738 1.1138
31-03-2010 45321 0.5133 0.6326 0.6715 0.7234 0.6903 0.7687
From the above dividend history we notice that Volume was most volatile on 30-05-2014
i.e. around 16 times the normal averages. On further looking at the dividends announced on and before
that date, we find the following details shown in Exhibit 10.
Exhibit 10: History of Dividend Details of Sunteck Reality
Announcement Effective Dividend Dividend Dividend Amount
Face Value
Date Date Type (%) Per Share
26-05-2015 23-09-2015 Final 50 2 1
30-05-2014 18-09-2014 Final 50 2 1
31-05-2013 20-09-2013 Final 9 2 0.18
31-05-2012 12-09-2012 Final 6 2 0.12
15-08-2011 22-09-2011 Final 9 2 0.18
16-08-2011 25-08-2011 Interim 6 2 0.12
12-08-2010 16-09-2010 Final 6 2 0.12
31-03-2010 21-04-2010 Interim 6 2 0.12
High traded volume signifies the number of times the script has been bought and sold, so
whether the buyers were dominant or the sellers will be known by comparing the opening and closing
price of that day. If the price in the day has fallen, the sellers were dominant and if the price in the day
has risen, the buyers were dominant. On observing the above table, we find that Sunteck was following a
constant dividend policy since 2009-2010 but on 30-05-2014 it announced dividend which is almost 6
times that in the previous year. Thus in such high volume, the buyers are expected to be dominant.
In this case of PNB, OFSS and SUNTECK, it seems that the buyers were dominant on the dividend
announcement date as the dividend announced was high compared to the previous dividends. (Reason
for the same to be discussed in Sub-Analysis B). Thus, on looking further on the price details of these
three stocks on the announcement date, we find the following:
Exhibit 11: Price Details on the Announcement Date
(Figures in Rupees Per Share)
Ann. Op. Cl. High - Cl.-
Company Dividend High Low Op-Low % Change
Date Price Price Op. Op.
a b C d (b-a) (c-a) e=(d-a) (e/a)
PNB 09-05-13 27.00 752.70 793.75 733.20 783.30 41.05 (19.50) 30.60 4.07
OFSS 12-09-14 485.00 3,710. 4,072. 3,696. 3,937.1 362.00 (13.80) 227.15 6.12
SUNTEC 30-05-14 1.00 327.10 374.00 327.00 347.60 46.90 (0.10) 20.50 6.27
Op. Price – Opening Price; Cl. Price – Closing Price
Thus, we can see that the price in all the three cases had risen which signifies that the buyers were
dominant. (Reason to be discussed in Sub-Analysis B).
Conclusion of Sub Analysis (A)
The investors in the market do not purchase the shares on the ex-dividend date just to earn the
dividend; this can be interpreted in two ways:
• Majority of the investors do not have very short term investment horizon or their investment
decision is affected by the dividend declared.
• Investors already know that the amount of the dividend declared will automatically get adjusted
in the stock price so there is no real value addition to shareholder’s wealth.
Since the traded volume is significantly high on the announcement date, this signifies that the
investors have a long term investment strategy and the dividend announcement affects the investment
decision, which is exactly opposite of the Pre – Analysis perception.
Sub Analysis (B)-Sensitivity Analysis
This analysis is directed towards finding the price effect of dividend and the sensitivity of price
on declaration of dividend of Re. 1.
Process of Analysis
• Summarising all the dividend details (Announcement date, Record date and amount of dividend)
of all 32 companies for the last 7 years.
• Looking up the closing prices of the 2 trading session before and after the announcement date.
• Looking up the closing prices of the 2 trading session before and after the ex dividend date.
• Looking up the closing prices of the announcement date and the ex dividend date.
• Finding the price change from 2 trading sessions to the announcement and ex-dividend date, and
1 trading session to the announcement and ex dividend date.
Pre-Analysis Perception
Since the ex dividend date is the date on or before which if an investor purchases the share, he will
be entitled to dividend. This means that just after the ex dividend date, the investor purchasing the share
will not be entitled to that same dividend. Thus, any rational investor will pay less to purchase the share on
the day next to the ex-dividend date. The quantum of that less amount will be exactly the dividend amount.
Example: XYZ company trades at Rs. 330 before the ex dividend date. It has declared a dividend of
Rs. 50. So the investors purchasing the shares today at Rs. 330 per share will enjoy a dividend of Rs. 50 but
those share holders who will purchase the share just one day after the ex dividend date will not be able to
enjoy that Rs. 50 dividend. Thus, being a rational investor, the investor will be ready to pay Rs. 280 on the
next day (Rs. 330 – Rs. 50). This was about those investors having a short term investment horizon and who
actually care to earn dividend. The investors having a long term perspective will trigger their investment
decision on the announcement date itself and will not wait for the ex dividend date.
Exhibit 12: Changes in Share Prices–Announcement Date
(Figures in Rupees Per Share)
Announcement Before After Before After
Company Name
Date 1 Trading Session 1 Trading Session 2 Trading Session 2 Trading Session
27-04-2015 (5.95) 24.55 (9.55) 27.85
25-04-2014 (29.05) 5.00 (19.40) (7.70)
26-04-2013 (32.85) 8.70 (16.80) 19.15
ICICIBANK 27-04-2012 19.40 7.90 22.45 21.50
28-04-2011 10.65 (3.05) (3.95) (19.20)
26-04-2010 (17.55) (13.20) 16.30 (40.70)
27-04-2009 33.45 (28.35) 43.15 11.65
AXISBANK 29-04-2015 16.95 15.85 27.75 16.40

25-04-2014 12.90 (3.15) 32.60 (4.30)
25-04-2013 58.60 (17.05) 62.25 (28.00)
27-04-2012 17.35 17.20 9.25 2.95
22-04-2011 (0.45) (70.25) 38.20 (91.20)
20-04-2010 27.70 50.40 38.60 37.95
20-04-2009 6.60 (15.90) 37.75 (37.70)
05-05-2015 84.45 (72.05) 90.35 (115.05)
30-04-2014 (4.40) 0.10 (21.35) 5.00
02-05-2013 10.35 5.80 8.45 (5.85)
KOTAKBANK 08-05-2012 (21.60) (21.95) (8.55) (13.85)
05-05-2011 9.05 10.25 9.45 6.90
11-05-2010 (14.55) 22.15 34.00 30.30
12-05-2009 43.00 0.55 51.15 14.35
22-05-2015 (7.80) (4.80) (10.15) (5.30)
14-05-2014 6.45 (3.30) 39.85 134.65
04-03-2014 32.00 26.25 17.10 27.05
14-05-2013 15.35 89.70 (12.65) 126.30
SBIn 12-05-2012 10.45 (13.85) (29.50) 6.80
11-05-2011 48.00 (33.55) 51.75 (25.35)
11-05-2010 (20.00) 36.35 61.70 29.90
25-01-2010 4.25 (103.95) (32.50) (88.35)
11-05-2009 (66.35) 36.95 (111.30) 3.20
08-05-2015 (10.25) 3.40 (14.30) (2.95)
31-01-2014 29.95 2.05 7.10 18.25
09-05-2013 34.50 (12.35) 35.35 (10.55)
09-05-2012 (16.50) (14.25) (27.95) (22.60)

PNB
04-05-2011 25.40 (50.45) (35.35) (17.00)
06-05-2010 1.25 (29.85) 4.35 (27.80)
27-01-2010 (39.65) 20.05 (38.70) 37.85
20-05-2009 (12.75) (7.90) 18.90 (13.50)
11-05-2015 3.35 (4.55) 7.85 (0.60)
07-05-2014 (7.70) (0.50) (6.35) 2.70
09-01-2014 (3.25) (3.05) 3.90 (2.30)
02-05-2013 9.15 0.30 11.15 0.35
05-05-2012 (6.50) 1.75 (8.40) (2.15)

SYNDIBANK
12-05-2011 2.20 (0.40) 2.05 (1.40)
05-05-2010 1.65 (0.85) (0.90) (3.75)
28-04-2009 (0.45) 0.05 0.40 0.80
20-03-2009 (0.55) 2.35 (0.55) 2.75
06-04-2009 2.20 1.05 4.60 1.05

Exhibit 12 shows (only banking sector) the changes in the prices 1 and 2 trading sessions earlier and
later the announcement date for all the dividend declaration of the last 7 years. On the analysis of the above
given data and that of all other companies, we find that, both in case of announcement date and ex dividend
date, no pattern whatsoever is found in the change in the prices in any of the sectors. Sometimes the price has
fallen and some times the price has risen. On further analysis it was found that these price changes are the
result of two changes, daily fluctuations and the effect of dividend. Thus, to find the effect of dividend we have
to filter the above finding and remove the daily fluctuations from the above price changes.
Computation of Daily fluctuation
Daily fluctuation has been computed by taking three 5-day moving average prior to the
announcement and ex dividend date respectively. Taking the moving average of the prices smoothens
the fluctuation. Now, the change in those moving averages is computed and the average of those changes
is considered to be the daily fluctuation.
Refining the Data
After adjusting the daily fluctuation from the previous date, we got the price change due to dividend.
On analyzing the data, still no specific pattern was found in any sector. On further analysis of data, we found
that the prices were not following any pattern the reason of which can be the market expectation.
Market Expectation
It is the golden rule in Finance that the price of any asset is the present value of all its future cash
flows. Based on this rule, the Dividend discount model was formulated. The future cash flows of a stock
is the dividend it will pay. Thus on computing the present value of all the future dividends from a stock
we get the intrinsic value to the stock. Intrinsic value of any asset is the price at which investor is ready to
purchase any asset. Thus, we know that P0 = D1 / Re (where P0 is the price today, D1 is the expected
dividend to be paid next year and Re is the desired rate of return)
Note: The above formula is the formula of perpetuity, i.e. it is assumed that the company will pay
constant dividend throughout the life. Since the D1 is pulled by Re (desired rate) the result P0 should
better be seen as an intrinsic value rather than the price.
How does the Market Expectation work?
Example: If TCS has announced today that their quarterly profit has grown up by 30%, what
would be the effect in the share price of TCS?
Majority of non-sophisticated investors would think that the price would definitely rise. Here comes
the role of the market expectation. In the above case the price of TCS may or may not rise. This depends on
the market expectation. If the market was expecting 40% growth then the share price of TCS will fall and
vice-versa. Reason being the current value of TCS i.e. current share price has the effect of the market
expectation and as it is declared that the result is not up to mark the price of the stock is automatically
adjusted as per the new information. This can be explained properly with an example of Dividend.
Example: Mr. X, a sophisticated investor has an expectation that ICICI Bank will pay a dividend
of Rs. 30 (i.e. D1) and the desired rate of return of Mr. X is 8% (i.e. Re). So from the DDM we will be able
to compute the intrinsic value of ICICI Bank for Mr. X
P0 = 30 / 8%.
From the above equation the intrinsic value of ICICI Bank is Rs. 375. Assume that current market
price of ICICI Bank is Rs. 370. (If X would think of buying more shares, he will buy as he is ready to pay
Rs. 375). Now suppose ICICI Bank has paid dividend of Rs. 18, now the revised P0 = 18 / 8%. The
intrinsic value comes to Rs. 225. Thus, Mr. X will sell the share as he is only willing to pay Rs. 225. This
will be done by majority of the players in the market which would in turn result the price of ICICI Bank
to fall to Rs. 225.
Conclusion of Sub Analysis (B)
Since no specific pattern was captured after intense data analysis we can say that the uneven
fluctuations are due to the market expectation. If the company had paid dividend according to the
market expectation, the price would have risen and vice – versa. To prove this thing, we need to find out
the market expectation and compare it with the actual dividend paid and check whether the price
movement is as per the above explained logic. To find out the market expectation, we first need to find
out the dividend policy followed by the company. According to the dividend policy followed by the
company we will then see the history of the dividend paid and the financials of the company. After
finding the market expectation we can compare it with the reality and see the price effect.
Sub Analysis C: Determination of Dividend Policy
Following is the process of the analysis:
• Summarizing the details of dividend paid in the last 7 years.
• Collecting the Earnings per share for all respective years from the financials of the company.
• Computing the standard deviation of the dividends paid over 7 years.
• Computing the mean of the dividends paid over last 7 years.
• Computing coefficient of variation by dividing S.D by Mean.
• Computing co relation between the dividend per share and the Earnings per share.
After conducting the above stated steps, the outcome is shown in Exhibit 13.
Exhibit 13: Statistical analysis of DPS and EPS
Company Name SD SD/Mean Correlation
ICICI BANK 5.684801 0.404253 0.968279
AXIS BANK 5.504738 0.437753 0.982117
KOTAK BANK 0.13076 0.178817 0.256914
SBI 16.3017 0.591445 -0.04123
PNB 11.46604 0.576183 0.13782
SYNDI BANK 2.299689 0.554142 0.409281
JK CEMENT 1.529472 0.349594 0.058912
DECCAN CEM 0.799888 0.338577 -0.49174
AMBUJA CEM 1.090871 0.371888 0.420486
ULTRA CEM 1.807722 0.253715 0.125085
Mindtree 9.291653 0.971676 0.918639
WIPRO 2.815772 0.388382 0.873001
TCS 9.841376 0.413286 0.919215
INFY 14.84981 0.332536 0.48516
BHART IARTL 0.956564 0.628727 0.042697
IDEA 0.152753 0.352506 0.862044
TATA COMM 1.832251 0.563769 0.588518
RCOM 0.273252 0.482209 0.617593
BIOCON 2.117107 0.413094 0.944268
DR REDDY 5.516109 0.444623 0.983785
CIPLA 0.282843 0.134687 -0.51121
SUN PHARMA 5.187446 0.786722 -0.88098
SOBHA 2.401636 0.492643 0.722665
SUNTECK 0.412343 0.871147 0.089182
OBEROIRLTY 1.397276 0.889176 0.068801
DLF 0.707107 0.31427 -0.38777
NEYVELILIG 1.268224 0.476328 0.663058
TATA POWER 0.05164 0.04187 -0.08183
CESC 5.139136 0.747511 0.20875
REL INFRA 0.483292 0.066892 0.260322
Types of Dividend Policy
• Constant Dividend. Ex – Company paying Rs. 2 for the last 5 years.
• Constant growth. Ex – Dividend paying history of the company Rs.10, Rs.12, Rs.14.4, Rs.17.28,
Rs.20.74 (growth rate being 20%). In this case the company will continue to pay such dividend even
if it faces a loss in any financial year.
• Dividend as per EPS. Ex - When earnings is high Dividend is high, when earning is low, dividend
is low.
• Volatile policy. In this case, no such pattern is found.
Policy Determination criteria:
The following rules for determination of dividend policy are set:
• For Dividend as per EPS, The correlation between dividend and EPS should be more than 0.9
• For Constant Dividend, The coefficient of variation should be less than 0.3.
• The remaining companies who do not fall in the above two criteria, the graph of the DPS and EPS is
seen and upon personal judgment the companies following the dividend growth policy is sorted.
• The companies not falling under any will have Volatile policy.
Categorization
• The companies which Passed in the 1st criteria are: ICICI Bank, Axis Bank, Mindtree, Tata Consultancy
Services, Biocon and Dr. Reddy labs.
• The companies passed the 2nd criteria are: Kotak Bank, Ultra tech Cements, CIPLA, DLF, Tata power
and Reliance Infra.
• On analyzing the graph of the remaining companies, the companies falling under constant growth
dividend policy are: Ambuja Cement, Sobha, CESC, ICICI Bank (being in 1st category as well and Axis
Bank (being in 1st category as well).
• All other companies were assumed to be having volatile policy but on further analyzing the dividend
history manually we find that companies Wipro and IDEA falls under the Dividend as per EPS
category (having correlation of 0.87 and 0.86 respectively). On further analysis we find that JK Cement,
Deccan Cements, Bharti Airtel, Tata Communications, Reliance communications, and Oberoi realty
were falling under the Constant dividend model (See Exhibit 14).
• The remaining companies SBI, PNB, Syndicate Bank, Infosys, Sun Pharma, Sunteck, and
Neyvelilig were left to fall under the volatile dividend policy category.
Exhibit 14: showing the Dividend History of the Companies Falling in Constant Dividend
Company Announcement Date Effective Date Dividend Per Share
25-05-2015 20-07-2015 4
19-05-2014 14-07-2014 3
13-05-2013 15-07-2013 6.5
26-05-2012 23-07-2012 5
JK CEMENT
30-05-2011 18-07-2011 2
31-05-2010 16-07-2010 3.5
03-11-2009 11-11-2009 2.5
25-05-2009 20-07-2009 3.5
01-06-2015 14-09-2015 2.5
20-05-2014 18-09-2014 1.2

DECCAN CEM
21-05-2013 06-08-2013 2
15-05-2012 30-07-2012 3
02-06-2011 04-08-2011 1.2
03-06-2010 05-08-2010 3
25-06-2009 10-09-2009 3
13-08-2014 21-08-2014 1.63
29-04-2014 21-08-2014 1.8
02-05-2013 23-05-2013 1
02-05-2012 16-08-2012 1
BHARTI ARTL
05-05-2011 17-08-2011 1
28-04-2010 18-08-2010 1
29-04-2009 24-07-2009 1
28-07-2015 23-09-2015 5.5
13-05-2014 30-07-2014 4.5
28-05-2013 17-07-2013 3
TATA COMM
22-05-2012 16-07-2012 2
30-05-2011 28-09-2011 2
26-05-2009 22-07-2009 4.5
10-05-2013 14-08-2013 0.25
28-05-2012 23-08-2012 0.25
R COM 31-05-2011 15-09-2011 0.5
17-05-2010 13-09-2010 0.85
24-07-2009 04-08-2009 0.8
09-03-2016 17-03-2016 2
04-05-2015 25-06-2015 2
12-05-2014 21-08-2014 2
OBEROIRLTY
22-04-2013 11-07-2013 2
26-04-2012 21-06-2012 2
04-05-2011 16-06-2011 1
Conclusion of Sub Analysis (C)

Thus, we find that majority of the companies in IT – Software sector follow DPS as per EPS policy.
In case of remaining sectors majority of the companies do not follow any similar dividend policy.
Note: Oracle Fin Ser Software's have been omitted from the above analysis as it has paid
exceptionally high dividend of Rs. 485 and Rs. 180 which made it pass one of the criterion.
MTNL did not have any dividend history in the past 7 years, thus omitted from the analysis. On further
analysis of the dividend history, dividend policy followed and the earnings per share of the companies
for the last 7 years, we found that Market expectation can only be computed by applying higher level of
statistics and mathematics thus limiting the scope of this analysis.
Overall Conclusion of the Analysis
Thus, we conclude that the direct effect of dividend on stock price is impossible to find as in the
price change the daily volatility of the stock is usually more than the amount of dividend paid. Hence,
removing the volatility is very difficult. However, owing uneven fluctuation, we found that Market
expectation is the major determinant of the effect in the stock price. However computation of the market
expectation (considering the dividend policy followed, dividend history, and company’s financials)
requires high level of mathematics and statistics, thus limiting the scope of study.
Limitations
The corporate actions (i.e. Dividend, stock splits, Bonus and rights issue) in the NSE’s official
website were only available from 2005. The financials of the companies were only available in
Valueresearchonline.com was only for last 6 years. Many historical details like market capital of
companies, and dividend yield of the companies in the past is not available. While computing the
standard deviation of the dividend history we have not taken the effect of the stock split/bonus share.
After the stock split the dividend per share may decreases, so the Standard Deviation calculated may
differ by a few decimal places. The effect of Bonus shares is not considered as the face value of the share
remains the same.
Final Conclusion
We conclude that amongst 7 sectors of the National Stock Exchange, the most stable of all has
been the IT – Software sector. Compared to other sectors, IT – Software sector has paid exceptionally high
dividends and has been strong in Capital appreciation. Cement sector also seemed to be stable enough
but when it came to the test of the leaders of the sector, IT – sector has proved to be more stable (because
of the leader Tata Consultancy Services). Our perception towards investors trading the stock near ex
dividend date just to earn the dividend was proved wrong. Instead dividend had an effect on the
investment decision of the potential investor and that too with a long term perspective. The direct effect
of dividend on stock price is impossible to find as in the price change the daily volatility of the stock is
usually more than the amount of dividend paid. Hence, removing the volatility is very difficult.
However, owing uneven fluctuation, we found that Market expectation is the major determinant of the
effect in the stock price. However, some of the determinants which affect the stock prices are: Quarterly
results, Inflation Rate, Fundamental news and Impact on Asian markets among others.
References
Harry De Angelo and Linda De Angelo (1990). Dividend Policy and Financial Distress: An
Empirical Investigation of Troubled NYSE Firms. The Journal of Finance, 45(5), 1415-1431.
James A. Brickley (1983). Shareholder wealth, information signaling and the specially designated
dividend: An empirical study. Journal of Financial Economics, 12(2), 187-209.
Merton H. Miller and Kevin Rock (1985). Dividend Policy under Asymmetric Information. The
Journal of Finance, 40(4), 1031-1051.
Paul M. Healy and Krishna G. Palepu (1988). Earnings information conveyed by dividend
initiations and omissions. Journal of Financial Economics, 21(2), 149–175.
http://www.nber.org/papers/w17760
http://people.stern.nyu.edu/adamodar/pdfiles/papers/divtaxes.pdf
http://people.stern.nyu.edu/adamodar/pdfiles/papers/fininnov.pdf

NEW ECONOMIC REFORMS AND INDIAN CAPITAL MARKET:

AN ANALYTICAL STUDY
Dr. Anshuja Tiwari ∗

Parray Firdous Ahmad∗∗
ABSTRACT
Several studies have suggested economic reforms as a turnaround in Indian economy, by analyzing various
key parameters of it. The question about the impact of new reforms on Indian Capital Market, which is one of the
vital components of Indian economy, is still unreciprocated. In order to study and access the impact of economic
reforms on Indian Capital Market, the researchers have studied and analyzed some important components relating
to the Indian Capital Market. During the study, the secondary data have been collected from various official website
like SEBI, RBI, BSE, NSE and many others as well. With a view to find out the significance of economic reforms on
Indian capital market, various statistical tools have been used, and for testing hypothesis, the researchers have
applied Single Factor ANOVA. It has been retrieved during the study that there is significant impact of new
economic reforms on Indian Capital Market.
KEYWORDS: Economic Reforms, FIIs, Foreign Exchange Reserves, BSE, NSE.
_______________
Introduction
In India the practice of economic reformation was initiated with the aim of accelerating the
economic growth and eradicating the poverty. The process of economic liberalization in India can be
traced back to the late 1970s. However, the reform process began in earnest only in July 1991. It was only
in 1991 that the Government signaled a systemic shift to a more open economy with greater reliance
upon market forces, a larger role for the private sector including foreign investment, and a streamlining
of the role of Government. The vital point of the reforms was liberalization of the economy, giving more
roles to the private sector and opening up of the economy to competition. New industrial policy of 1991
is the heart of the new economic reforms. The philosophy of the new economic policy was enhancing
competition based upon more market orientation. During the last twenty-five years, the economic reform
has produced significant impact on the economy—mostly positive. The Indian capital market has also
observed major reforms in the decade of 1990s and thereafter. It is on the verge of the growth.
Government of India and SEBI has taken a number of measures in order to improve the working of the
Indian stock exchanges and to make it more progressive and vibrant. This research study is an effort by
the researcher to analyze the impact of economic reforms on the Capital Market of India with the help of
various parameters.
∗
Senior Faculty, Department of Commerce, Barkatullah University, Bhopal, M.P.
∗∗
Research Scholar, Department of Commerce, Barkatullah University, Bhopal, M.P.
Bhole L.M.1 (1992) throws light on some of the drawbacks existing in the Indian stock markets. It
is also observed by him that the drawbacks, instead of being reduced, are increased over the period. The
working of stock markets suffers from serious draw backs. These drawbacks are of different magnitude
and have increased over the period. These drawbacks include dominance of few scrip's liquidity,
speculation, volatility, lower dividend yield.
Avadhani V.A.2 (2002) stressed on impact of liberalization on emergence of capital markets in
India. The financial sector reforms also led the development of the capital market in India. Beginning
with the devaluation of rupee by about 20% in July, 1991, industrial policy was totally reshaped to
dispense with licensing of all industries except 18 scheduled industrial groups. Further, removals of
MRTP Act, emergence of FEMA instead of FERA, were some of the other reforms. The stock exchange
surveillance system and their trading control system aim at imposing margins, operate the circuit
breakers, impose limits on brokers in respect of any scripts or total for all scripts and convert trade in any
scrip to rolling settlement or for spot trading and cash delivery etc. are other major changes, as narrated
by the researcher.
Gaba Prakash3 (2003) endeavored to put before the importance of NSE in the Indian markets.
Right from the innovative trading practices to investor awareness campaigns, NSE has put its mark in the
development of the market. The arrival of NSE has its own contribution to the growth of the investors
interested in capital markets. The dramatic rise of NSE is being attributed to its aggressive positioning as
an exchange for the next revolution. Right from its inception, NSE has been undertaking several investor
awareness campaigns to enhance the general understanding of the investors.
• To analyze the impact of new economic reforms on Indian Capital Market
• To provide suggestive measures on the basis of findings of the study.
This study is micro in nature and is based on the secondary data gathered from official websites of
various departments of Govt. of India and various stock exchanges especially Bombay Stock Exchange
(BSE) and National Stock Exchange (NSE). An attempt has been made to depict the position of Indian
Capital Market during pre and post reforms period. For the purpose of study, various secondary sources
such as journals, magazines, a newspaper, Annual Reports etc. has also been reviewed. While studying
the impact of economic reforms on Indian Capital Market various aspects of Indian Capital market has
been analyzed decade wise and interpreted. For the purpose of analysis, the researcher from the data
available and after its compilation has used various statistical tools such as, Mean, Standard
Deviation(SD), Average Annual Growth Rate(AAGR), Compound Annual Growth Rate(CAGR) and for
the purpose of hypothesis testing ANOVA has been used with the help of MS. Excel (2007).
Ho : There is no significant impact of Economic Reforms on the Indian Capital Market.
Ha : There is significant impact of Economic Reforms on the Indian Capital Market.
Parameters of the Study
For the purpose of analysis following parameters of Indian Capital Market have been studies and
analyzed:
1 Bhole, L. M. (1992). Financial Institutions and Markets- Growth Structure and Innovations. New Delhi, IInd
Edition, Tata Mc. Graw Hill.
2 Avadhani, V. A. (2002). Investment Management. Himalaya Publishing House.
3 Gaba, P. (2004). Derivative Market- New Opportunities. Indian Financial Markets: An Introduction, ICFAI
University Press,149-160.
Dr. Anshuja Tiwari & Parray Firdous Ahmad : New Economic Reforms and Indian Capital ...... 119
Foreign Exchange Reserves

Table 1: Foreign Exchange Reserves during Pre-Reforms and Post-Reforms Period (Decade wise analysis)
(US $ million)
Pre-Reforms Period Post-Reforms Period
1980-81 to1989-90 1990-91 to 1999-2000 2000-01 to 2009-10 2010-11 to 2014-15
Foreign Foreign Growth Foreign Growth Foreign Growth

Growth
Year Exchange Year Exchange Rate Year Exchange Rate Year Exchange Rate
Rate (%)
Reserves Reserves (%) Reserves (%) Reserves (%)
1980-81 6823 -7.31 1990-91 5834 47.25 2000-01 42281 11.16 2010-11 304818 9.23
1981-82 4390 -35.66 1991-92 9220 58.04 2001-02 54106 27.97 2011-12 294397 -3.42
1982-83 4896 11.53 1992-93 9832 6.64 2002-03 76100 40.65 2012-13 292047 -0.80
1983-84 5649 15.38 1993-94 19254 95.83 2003-04 112959 48.43 2013-14 304224 4.17
1984-85 5952 5.36 1994-95 25186 30.81 2004-05 141514 25.28 2014-15 320649 5.40
1985-86 6520 9.54 1995-96 21687 -13.89 2005-06 151622 7.14
1986-87 6574 0.83 1996-97 26423 21.84 2006-07 199179 31.37
1987-88 6223 -5.34 1997-98 29367 11.14 2007-08 309723 55.50
1988-89 4802 -22.83 1998-99 32490 10.63 2008-09 251986 -18.64
1989-90 3962 -17.49 1999-00 38036 17.07 2009-10 279057 10.74
Average 5579.10 -4.60 21732.90 28.54 161852.70 23.96 303227.00 2.92
Std. Dev. 1004.46 10702.20 95037.38 11291.73
CAGR -5.29 20.62 20.77 1.02
Source: Central Statistic Office and Various Issues of Economic Survey
Interpretation
While examining the above table dealing with foreign exchange reserves, it is determined that
during pre-reforms period the AAGR is -4.60% and CAGR is -5.29%, which indicates a significant
decrease in the amount of absolute figures. The SD during this period is 1004.46 million US $, signifying
more deviation from the average. During first decade after reforms, a significant growth is observed as
AAGR has increased up to 28.54% and CAGR up to 20.62%, but the SD deviation has also increased from
what it was during last decade of pre-reforms period figuring 10702.20 million US $ , indicating that data
is spread more wide from average than that of previous decade.
During second decade after reforms, AAGR has decreased down to 23.96%, resulting out of a
significant decline in the amount of absolute figures during 2008-09, due to which Growth Rate (GR) has
dropped down to -18.64%. The CAGR has also reduced to 20.77%, not significantly but has. The SD
during this period is 95037.38 million US $, which is higher than preceding years, indicating that the data
is widely spread from the average. While analyzing AAGR and CAGR during the current decade, it is
observed from the data that the former is significantly decreased down to 2.92%, as is case of later
depicting 1.02%, keeping the fact in view that this decade is still in progress and this information is based
on first five years (2010-11 to 2014-15). The SD during this period is 11291 million US $, depicting a low
range of deviation from average as compared to preceding years.
Bonds issued by PSUs during Pre-Reforms and Post-Reforms Period
Table 2: Bonds issued by PSUs during Pre-Reforms and Post-Reforms Period (Decade wise analysis)
( in Billion)
1986-87 to 1995-96 1996-97 to 2005-06 2006-07 to 2015-16
Year Total Growth Year Total Growth Year Total Growth

(1) Bonds Rate (%) (2) Bonds Rate (%) (3) Bonds Rate (%)
1986-87 16.74 372.94 1996-97 33.94 48.15 2006-07 103.25 113.09

1987-88 23.34 39.42 1997-98 29.83 -12.13 2007-08 134.04 29.82
1988-89 28.68 22.88 1998-99 43.63 46.28 2008-09 205.46 53.28
1989-90 42.29 47.44 1999-00 86.97 99.34 2009-10 484.09 135.62
1990-91 56.63 33.91 2000-01 166.32 91.24 2010-11 604.33 24.84
1991-92 57.11 0.84 2001-02 144.36 -13.20 2011-12 880.65 45.72
1992-93 10.63 -81.39 2002-03 75.29 -47.84 2012-13 527.17 -40.14
1993-94 55.86 425.73 2003-04 54.43 -27.70 2013-14 508.65 -3.51
1994-95 30.70 -45.04 2004-05 75.91 39.45 2014-15 372.83 -26.70
1995-96 22.91 -25.37 2005-06 48.46 -36.16 2015-16 525.05 40.83
Average 34.49 79.14 75.91 18.74 434.55 37.28
Stand. Dev. 17.35 46.10 237.79
CAGR 3.19 3.62 17.66
Sources1 : 1. Respective public sector undertakings for years up to 1997-98 and merchant bankers and prospectus thereafter. 2. SEBI.
Interpretation
While analyzing the above table, it is revealed that during the period (1986-87 to 1995-96), the
AAGR is 79.14%, indicating a significant increase in the amount of absolute figures. The CAGR during
this period is 3.18% and SD is ₹ 17.35 billion, depicting deviation from the average. During next ten years
after reforms(1996-97 to 2005-06), AAGR has significantly decreased down to 18.74%, indicating very low
increase in the amount of absolute figures, however CAGR has increased up to 3.62%. While examining
the bonds issued during (2006-07 to 2015-16) , it is ascertained that AAGR has increased up to 37.28%,
indicating a significant increase in the amount of absolute figures, the CAGR has also increased up to
1 Data for 2015-16 are provisional.

The data for the table include both public issues of bonds and privately placed bonds
The data for the table also contains issues wherein tax benefit in provided under either of section 80CCF or
section 10 of Income Tax Act, 1961.
17.66% during this period. The SD during this period is ₹ 237.79 billion, signifying more deviation from
the average. It is revealed that during last decade, there is significant increase in the amount of absolute
figures of bonds issued by PSUs as depicted by AAGR (37.28 %), as compared to last decade.
Market Capitalization-BSE during Pre-Reforms and Post-Reforms Period
Table 3: Market Capitalization - BSE during Pre-Reforms and Post-Reforms Period (Decade wise analysis)
( in Billion)
1980-81 to 1989-90 1990-91 to 1999-2000 2000-01 to 2009-10 2010-11 to 2016-17*
Market Market Market Gro Market
Growth Growth Growth
Capital- Capital- Capital- wth Capital-
Year Rate Year Rate Year Year Rate
ization ization ization Rate ization
(%) (%) (%)
BSE BSE BSE (%) BSE
1980-81 NA NA 1990-91 908.36 39 2000-01 5715.53 -37 2010-11 68390.84 11
1981-82 NA NA 1991-92 3233.63 256 2001-02 6122.24 7 2011-12 62149.12 -9
1982-83 97.69 NA 1992-93 1881.46 -42 2002-03 5721.98 -7 2012-13 63878.87 3
1983-84 102.19 5 1993-94 3680.71 96 2003-04 12012.07 110 2013-14 74152.96 16
1984-85 203.78 99 1994-95 4354.81 18 2004-05 16984.28 41 2014-15 101492.90 37
1985-86 216.36 6 1995-96 5264.76 21 2005-06 30221.91 78 2015-16 94753.28 -7
1986-87 259.37 20 1996-97 4639.15 -12 2006-07 35450.41 17 2016-17 P 110994.23 17
1987-88 455.19 75 1997-98 5603.25 21 2007-08 51380.15 45
1988-89 545.60 20 1998-99 5453.61 -3 2008-09 30860.76 -40
1989-90 652.06 20 1999-00 9128.42 67 2009-10 61656.20 100
Average 317 35 4415 46 25613 31 82259 10
Std.Dev. 208.44 2264.05 19831.25 19799.13
CAGR 26.78 25.95 26.85 7.16
Sources1 : 1) Bombay Stock Exchange Limited (BSE). 2) Reserve Bank of India.
Interpretation
While examining the above table, it is ascertained that during post-reforms period, the Market
Capitalization –BSE is continuously increased during (1980-81 to 1989-90), as depicted from AAGR 35% and
CAGR 26.78%. The SD during this period is 208.44 billion, indicating the quantum of deviation from the
average amount. During the first ten years after economic reforms, the absolute amount of market
capitalization is significantly increased, particularly during 1991-92 amounting 3233.63 billion which is
256% more than what it was during 1990-91, reflecting the impact of new economic reforms. After 1991-92,
this amount is dropped down to 1881.49 billion during (1992-93) resulting decrease in GR down to -42%.
The AAGR during this period is 46%, which is 11% more than previous decade. While assessing the second
decade after reforms, the AAGR is decreased down to 31%, indicating less increase in the amount of
absolute figures. The CAGR and SD during this period is 26.85% and `19831.25 billion respectively. The
AAGR during the current decade, although in progress has decreased down to 10%, the lowest among all
the decades under study and CAGR has also decreased down to 7.16%, recording the lowest rate as well.
The SD during third decade is 19799.16 billion, indicating more deviation from the average.
1 Market capitalization data are as at end-December up to 1987-88 and at end-March from 1988-89 onwards.
NA: Not Application ( No data Available) P: Provisional
Table 4 : Market Capitalization - NSE during Post-Reforms Period (Decade wise analysis)
Post-Reforms Period
` in Billion
1994-95 to 2003-04 2004-05 to 2013-14 2014-15 to 2016-17*
Market Market Market
Year Capitalization Year Capitalization Year Capitalization
Rate (%) Rate (%) Rate (%)
- BSE - BSE - BSE
1994-95 3633.50 NA 2004-05 15855.85 41.45 2014-15 99301.22 36.45
1995-96 4014.59 10.49 2005-06 28132.01 77.42 2015-16 93104.71 -6.24
1996-97 4193.67 4.46 2006-07 33673.50 19.70 2016-17 P 108660.63 16.71
1997-98 4815.03 14.82 2007-08 48581.22 44.27
1998-99 4911.75 2.01 2008-09 28961.94 -40.38
1999-00 10204.26 107.75 2009-10 60091.73 107.49
2000-01 6578.47 -35.53 2010-11 67026.16 11.54
2001-02 6368.61 -3.19 2011-12 60965.18 -9.04
2002-03 5371.33 -15.66 2012-13 62390.35 2.34
2003-04 11209.76 108.70 2013-14 72777.20 16.65
Average 6130.10 21.54 47845.51 27.14 100355.52 15.64
Std. Dev. 2601.44 19700.74 7831.37
CAGR 11.93 16.46 3.05
Source: National Stock Exchange of India Ltd. (NSE)
Interpretation
During the analysis of above table it is revealed that the market Capitalization–NSE is
continuously but not significantly increased during the period (1994-95 to 2003-04), as depicted from
AAGR and CAGR i.e. 21.54% and 11.93%. The SD during this period is ₹ 2601.44 billion, indicating the
amount of deviation from the average. The AAGR and CAGR during the period (2004-05 to 2013-04) are
increased up to 27.14% and 16.46% respectively, as compared to previous decade. The SD deviation
during this period is 19700.74 billion, indicating less deviation from what it was during the previous
decade. During the current in progress, the AAGR and CAGR have dropped down to 15.64% and 3.05%,
than what it was during preceding years. The SD during this period is ₹ 7831.37 billion, indicating
deviation from the average.
Investment by FII
Table 5: Net Investment by FIIs in the Indian Capital Market during Post-Reforms Period
(Decade wise analysis) Post-Reforms Period
` in Billion
1990-91 to 1999-2000 2000-01 to 2009-10 2010-11 to 2016-17*
Net Net Net
Year Investment Year Investment Year Investment
Rate (%) Rate (%) Rate (%)
by FIIs by FIIs by FIIs
1990-91 NA NA 2000-01 96.82 -0.85 2010-11 1107.59 -3.61
1991-92 NA NA 2001-02 82.73 -14.55 2011-12 499.16 -54.93
1992-93 0.04 NA 2002-03 26.69 -67.74 2012-13 1406.25 181.72
1993-94 54.45 136025.00 2003-04 440.01 1548.59 2013-14 855.22 -39.18
1994-95 47.75 -12.30 2004-05 414.18 -5.87 2014-15 1102.43 28.91
1995-96 67.21 40.75 2005-06 486.50 17.46 2015-16 P -48.82 -104.43
1996-97 73.87 9.91 2006-07 237.55 -51.17 2016-17P 358.70 -834.74
1997-98 59.10 -19.99 2007-08 625.83 163.45
1998-99 -7.29 -112.34 2008-09 -433.36 -169.25
1999-00 97.65 -1439.51 2009-10 1149.02 -365.14
Average 49.10 19213.07 312.60 105.49 754.36 -118.04
Std. Dev. 35.89 421.34 507.91
CAGR 165.13 28.07 -14.88
Source1 : Reserve Bank of India.
Interpretation
During the analysis of above table it is revealed that during first decade after post-reforms period,
the amount of net investment by FII in the Indian Capital Market has significantly increased, especially
during 1993-94, where growth rate (GR) has increased up to 136025.00% form what it was during 1992-93.
The AAGR during this decade is 19213.07% and CAGR is 165.13%, indicating significant increase in the
amount of absolute figures. While examining the second decade after reforms, the AAGR and CAGR have
reduced down to 105.49% and 28.07% respectively, indicating less increase in the amount of absolute
figures. The SD during this period is `421.34 billion, indicating more deviation from the average. The AAGR
and CAGR has further dropped down to -118.04% and -14.88% respectively during the current decade( in
progress), signaling very low increase in the amount of absolute figures. However SD during this period is
`507.91 billion, indicating less deviation from the average than what it was during previous decade.
Findings
• During the study of Foreign Exchange Reserve(FER), it is depicted that the amount of FER has shown
a fluctuating trend during pre-reforms period as this fact is supported by AAGR, which is only -4.60%,
indicating diminution in absolute figures. However , during the first decade after new economic
reforms (1990-91 to 1999-2000), AAGR has tremendously increased up to 28.54% and slightly dropped
down to 23.96% in second decade after new economic reforms, as during this decade, in the year 2008-
09, the amount has decreased down to -18.64%, as what it was during the preceding year i.e. 2007-08.
The annual growth rate during 2014-15 is 5.40%, as revealed during the analysis.
• While analyzing the issue of bonds by PSU’s , it is found that the annual growth rate during 1986-87
has remarkably increased up to 372.94% and 425.73% during 1993-94, indicating a hefty growth in
absolute figures. However, while analyzing AAGR, it is ascertained that during the current decade i.e.
2006-07 to 2015-16, it has increased up to 37.28%, highest among previous decades.
• Regarding Market Capitalization–BSE, it is revealed that during the first decade after reforms, the
AAGR has increased up to 46%, which was only 35% during the last decade before reforms, indicating
1 The data relate to investment in equities only.

From June 01, 2014, Foreign Institutional Investors (FIIs), Sub Accounts and Qualified Foreign Investors (QFIs)
have been merged into a new investor class termed as Foreign Portfolio Investors (FPIs).
a significant increase in the amount of absolute figures. However, this rate has dropped down to 31%,
during the second decade after reforms, resulting because of 40% decrease in absolute figures during
the year 2008-09. During the current decade, although in progress, AAGR is only 10%.
• National Stock Exchange (NSE) was established after new reforms and the date available from its
establishment reveals that during the first decade the AAGR was 21.54%, besides facing a major
downfall during 2008-09 it has still increased up to 27.14% during the second decade, indicating a
significant increase in the amount of absolute figures.
• During the analysis of investment by Foreign Institutional Investors(FII), it is discovered that annual
growth rate during the year 1993-94 has increased up to 136025%, indicating a huge increase in the
amount of absolute figures. However, it is found that the investment by FII’s during the study period is
quit fluctuating, as the AAGR during the period 2000-01 to 2009-10 is 105.49%, which has further
dropped down to -118.04% during the current decade, although in progress.
Hypothesis Testing
For the purpose of hypothesis testing, Market capitalization–BSE has been used as a
parameter/variable, to analyze the impact of economic reforms during last two and a half decade.
Market Capitalization - BSE during Pre-Reforms and Post-Reforms Period
(Decade wise analysis)
` in Billion
1980-81 to 1989-90 1990-91 to 1999-2000 2000-01 to 2009-10
Market Capitalization Market Capitalization Market Capitalization

Year Year Year
- BSE - BSE - BSE
1980-81 NA 1990-91 908.36 2000-01 5715.53

1981-82 NA 1991-92 3233.63 2001-02 6122.24
1982-83 97.69 1992-93 1881.46 2002-03 5721.98
1983-84 102.19 1993-94 3680.71 2003-04 12012.07
1984-85 203.78 1994-95 4354.81 2004-05 16984.28
1985-86 216.36 1995-96 5264.76 2005-06 30221.91
1986-87 259.37 1996-97 4639.15 2006-07 35450.41
1987-88 455.19 1997-98 5603.25 2007-08 51380.15
1988-89 545.60 1998-99 5453.61 2008-09 30860.76
1989-90 652.06 1999-00 9128.42 2009-10 61656.20
Sources: 1) Bombay Stock Exchange Limited (BSE). 2) Reserve Bank of India
ANOVA: Single Factor (Summary)
Groups Count Sum Average Variance
Decade Wise 1980-81 to 1989-1990 10 2532.24 253.22 51603.61
Analysis 1990-91 to 1999-2000 10 44148.16 4414.82 5125900.06
2000-01 to 2009-2010 10 256125.53 25612.55 393278419.49
ANOVA
Source of Variation SS df MS F P-value F crit.
Between Groups 3699194897.42 2 1849597448.71 13.93 0.00 3.35
Within Groups 3586103308.44 27 132818641.05
Total 7285298205.86 29
Results and Conclusion

Form the above description of various tables, it is depicted that new economic reforms has played
an important role in the development of Indian Capital Market. Due to these reforms, the capital market
of India has developed a lot by making it possible to compete with international capital markets. SEBI,
the regulator of Indian Capital Market has brought greater transparency in the affairs of organizations
and stock exchanges, though not to the optimum mark yet. However, all the variables used for study
have shown growth with satisfactory speed. Although this growth has declined because of global
meltdown in the year 2008-09, during the second decade after reforms, but after this jolt of recession,
Indian Capital Market has well coped, and has again put itself on progressive track. This description is
supported by hypothesis as well, as it is clear that calculated value of F is more than critical value, i.e. F=
13.93 >F crit. = 3.35, and p-value = 0.00. Hence it is worth concluding that null hypothesis (Ho) is rejected
and alternate hypothesis (Ha) is accepted, revealing that there is significant impact of new economic
reforms on Indian Capital Market. It is very apparent that the Capital Market encourages economic
growth. The various institutions which operate in the Capital Market give quantitative and qualitative
direction to the flow of funds and bring realistic allocation of resources. They do so by converting
financial assets into productive physical assets. This leads to the development of commerce and industry
through the private and public sector, thereby inducing economic growth.
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FIXED ASSETS UTILIZATION IN SELECTED MANUFACTURING

INDUSTRIES IN INDIA: AN EMPIRICAL STUDY
Dr. Santimoy Patra∗
ABSTRACT
Procurement of funds from appropriate sources and deployment of those funds to the various priorities of
assets are considered to be the prima facie requirement for achieving the objective of a corporate entity. Ultimate
success depends on how efficiently assets are utilized over a period of time. Thus effective utilization of assets are
considered to provide the basic foundation for survival and long term growth of a corporate entity. In a backdrop of
such corporate destination, the present paper makes an attempt to judge the efficiency of some selected
manufacturing industries in India in utilizing fixed assets, the highest income generating assets in the business,
over a period of ten years. For this purpose eight manufacturing industries in India are selected covering a sample
size of 3,268 companies. Fixed assets turnover ratio and percentage of fixed assets to the total assets along with
some statistical measures have been employed in the study to judge the efficiency in utilizing fixed assets. Empirical
evidences showed that majority of the sample could not utilize fixed assets in the effective manner during the period
under review. Some suggestions are also laid down in the study for better utilization of fixed assets in future.
KEYWORDS: Fixed Assets Turnover, Utilization, Industry, Corporate Entity, Statistical Measures.
_______________
Introduction
It is one of the basic tasks, often challenging one, on the part of financial management to procure
funds at minimum cost and to utilize those funds for financing fixed assets and currents assets in an
effective and judicious manner so as to ensure that return on assets is sufficient enough to satisfy the
stakeholders. A great deal of attention must be given to the optimum investment in fixed assets and
effective utilization thereof since they involve sizable outlay, longer life cycle and difficulty in replacement.
Production is not possible without fixed assets. A firm can meet all sorts of commitment and fulfill all types
of expectations by way of earning return which is mostly generated from the utilization of fixed assets. Thus
effective utilization of assets is considered to provide the basic foundation for survival and long term
growth of a corporate entity. So, all firms in general and manufacturing firms in particular require special
attention for proper management of fixed assets. In fact, manufacturing industry plays a significant role in
accelerating industrial growth and thus contributing towards economic development of the country. The
present field of study appears to be more important for manufacturing industry as there is a scope for
manufacturing industry to reduce cost and increase profit through better utilization of assets. In this
perspective the present researcher finds it necessary to conduct a study for judging the efficiency in utilizing
fixed assets for achieving the ultimate objective of a company.
∗
Associate Professor, Department of Commerce, Garhbeta College (Affiliated to Vidyasagar University),
Paschim Medinipur, West Bengal.
Dr. Santimoy Patra : Fixed Assets Utilization in Selected Manufacturing Industries in India: An ..... 127
The effective utilization of fixed assets would enable a firm to generate greater amount of sale
against investment in those assets. Hence management must strive for using those assets at optimum level
to achieve higher return on investment. This, in turn, will lead to all round development of the company in
particular and the industry concerned and the economy in general. Keeping all these in view, if a study on
effective utilization of fixed assets is made and certain meaningful inferences be drawn on the basis of
empirical evidences, the same may be of use and importance for the improvement of the sample companies
and industries concerned and also for the economic development of the country as a whole.
Survey of Literature
For conducting an empirical study on judging efficiency in utilizing fixed assets, a quick look
through the existing literature in connection with the present study seems to be desirable. So far a
considerable number of research studies has been carried out on the related areas of the present study;
important among those are briefly reviewed below:
Ghosh and Maji (2003) made an empirical study on the relationship between utilization of
current assets and operating profit considering twenty companies belonging to Indian Cement and Tea
Industries. The study concluded that the degree of utilization of current assets was positively associated
with the operating profitability for all the companies under study.
A study was conducted by Sur and Rakshit (2005) to investigate the linkage between assets
management and profitability taking twenty five companies in the Indian industries for the period from
1993-94 to2002-03. The traditional view of positive relationship between assets turnover and corporate
profitability did not fully conform to this study.
Patra, Santimoy (2005) has undertaken a research study to examine the impact of liquidity on
profitability considering the case of a private sector steel giant viz. Tata Steel and found that four ratios
namely, current ratio, acid test ratio, current assets to total assets ratio and inventory turnover ratio
showed negative correlation with profitability ratio. The remaining three ratios namely, working capital
turnover ratio, receivable turnover ratio and cash turnover ratio showed positive association with the
profitability ratio.
The influence of liquidity aspect on profitability of corporate sector is of keen interest to many
researchers like Sarkar and Saha(1987), Dutta, A. (1993), Vijayakumar and Venkatachalam (1995),
Mallick, A. and Sur, D. (1998) etc.
Reddy,Reddy and Reddy (2006) carried out a research study to know the financing pattern and
utilization of fixed assets in large scale paper industry in Andhra Pradesh taking two large mills as
representative to the industry. A wise financing pattern was found in the study but the efficiency in
utilizing fixed assets was not found satisfactory.
A two tier analysis was conducted by Khatik, S. K. and Singh, P.K. (2006) on assets turnover and
Profit margin considering the case of BHEL. It was observed in the study that ROI of BHEL was
satisfactory, but fixed assets of the company were not utilized effectively.
Bhayani, J. Sanjoy (2006) conducted a research study to assess the combined effect of assets
utilization on profitability by the use of fixed assets turnover, inventory turnover, debtor's turnover and
return on capital employed. The study reported that utilization of corporate assets was the most
influencing factor on profitability of Indian industry.
Research Gap
An investigation of the existing literature, as discussed above, reveals that a host of research work
has been undertaken which was mainly concentrated on liquidity and working capital management and
to find out their impact on profitability. So works on the allied areas of the present study occupy a place
in the existing literature. But it seems that there is hardly any research work conducted earlier which has
focused on the efficiency on utilization of fixed assets although work on these area deserves attention of
researcher for achieving corporate growth. The same study on a number of manufacturing industries at a
time has perhaps been kept untouched by the researchers although this type of work on manufacturing
industries demands special attention for accelerating corporate and industrial growth and thus achieving
the broader objective of economic development of the country. This very fact has inspired the present
researcher to select the field for the present study.
Objectives of the Study
The present study attempts to achieve the following objectives:
• To measure level of investment made in fixed assets as a proportion to the total assets of the
selected industries.
• To measure the efficiency of the selected industries by the use of fixed assets turnover ratio.
• To identify the industries suffering from underutilization of installed capacity during the period
of study.
• To summarize the main findings of the study and to offer some suggestions for better utilization
of fixed assets of the selected industries.
Database and Methodology
Selection of Sample
With a view to achieving the objective of the present study eight manufacturing industries
operating in Indian economy having significant contribution in the growth pattern of industrialization
during post-liberalization period have been selected. These industries include automobile industry,
cement industry, fertilizer industry, paints & varnishes industry, paper industry, real estate industry,
steel industry and textile industry.
The study has attempted to analyze the efficiency of the selected industries in the utilization of
fixed assets based on the data collected from CMIE PROWESS database package. All companies under
each of the selected industries included in PROWESS database have been taken into consideration for the
purpose of present study. Thus the present study consists of a sample size of3,268 companies belonging
to eight selected industries. For instance, PROWESS database covers 39 companies operating under
automobile industry, 147 companies under cement industry, 64 companies under fertilizer industry, 268
companies under paper industry,38 companies under paints & varnishes industry1,131 companies under
real estate industry, 370 companies under steel industry and 1211 companies under textile industry. The
relevant data of all these companies have been taken into consideration for the purpose of present study.
As the sample size under each category of industries selected for the present study are significant, these
companies may be presumed to be the proper representative of the selected industries and the results
derived from the study based on the aggregates and averages of the sample companies may deem to
reflect true picture of the selected industries.
Period of Study
A moderately lengthy period is required to reach at meaningful and purposeful inferences from
the analysis of empirical data. So a period of latest ten years starting from 2005-06 to 2014-15 has been
taken into consideration for the purpose of present study.
Tools and Techniques of Analysis
For analyzing the data simple mathematical tools like ratios, percentages etc. have been used. The
most powerful and commonly used techniques for judging the efficiency in assets utilization are the uses
and analysis of financial ratios. Hence for judging efficiency in utilizing fixed assets, fixed assets turnover
ratio has been used. Percentage of fixed assets to total assets has also been used for judging the level of
investment made in fixed assets. Due care has been taken in computing ratios and percentages which are
based on the aggregates and averages of the sample companies considered under each category of the
selected industries. Statistical techniques like measures of central tendency, measures of dispersion etc.
have been used to analyze the behavior of computed ratios of the selected industries. Analysis of huge
volume of data collected from the said sources has been done by using a personal computer. Microsoft
Excel package has been used for computation of different ratios.
Efficiency in Utilization of Fixed Assets
According to Finny and Miller, “Fixed assets are the assets of a relatively permanent nature used
in the operation of a business and which are not intended for sale.”Fixed assets represent both intangible
and tangible assets. While intangible assets represent goodwill, patent, copyright etc. tangible assets
comprise land and building, plant and machinery, furniture and fixtures etc. Efficiency of the selected
industries in utilizing fixed assets can be judged with the help of fixed assets turnover ratio. Fixed assets
turnover ratio is calculated as net sales divided by net fixed assets. Intangible assets are excluded from
the net fixed assets in the computation of fixed assets turnover ratio. Fixed assets turnover ratio shows
the speed at which net fixed assets are used to generate sales and thus measures the efficiency in the
usage of fixed assets. Higher the ratio, greater is the efficiency with which net fixed assets are operated.
The lower ratio, on the other hand, reflects inefficient use of fixed assets, underutilization of those assets
and presence of idle capacity. According to Mahasin, M., the standard norm of fixed assets turnover ratio
is five times in manufacturing industry.
Now, this section deals with measuring efficiency of selected industries in utilizing their
investment in fixed assets by the use of fixed assets turnover ratio as presented in Table 1 in the next
page .Industry-wise fixed assets turnover ratios of eight selected industries over the period of ten years
have been presented in the Table. The average, standard deviation and co-efficient of variation relating to
the fixed assets turnover ratios of ten years for each industry have been calculated and also presented in
the last three columns of the table.
Table 1 : Fixed Assets Turnover Ratios of Selected Industries Over Ten Years From 2005-06 to 2014-15
Name of the 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014-
Average S.D. C.V.
Industries 06 07 08 09 10 11 12 13 14 15
Automobile 5.52 5.96 5.12 3.85 4.31 4.97 5.12 4.76 4.1 4.27 4.80 0.67 0.14
Cement 1.35 1.64 1.75 1.58 1.47 1.18 1.29 1.35 1.29 1.25 1.42 0.19 0.13
Fertilisers 2.42 2.63 3.06 5.8 3.86 4.73 5.54 4.37 3.86 4.24 4.05 1.14 0.28
Paints & Varn. 7.37 7.95 7.81 7.15 7.42 7.25 7.89 5.15 5.23 5.72 6.89 1.10 0.16
Paper 1.46 1.54 1.42 1.35 1.26 1.32 1.51 1.5 1.36 1.36 1.41 0.09 0.07
Real Estate 2.07 2.27 5.15 2.48 2.42 2.49 2.25 2.15 2.17 2.48 2.59 0.91 0.35
Steel 1.84 2.04 2.22 2.16 2.02 1.85 1.72 1.47 1.37 1 1.77 0.39 0.22
Textiles 1.9 1.85 1.78 1.65 1.83 2.12 2.16 2.21 2.35 2.25 2.01 0.24 0.12
Source: Computed from Prowess Database S.D. means Standard Deviation C.V. means Co-efficient of Variation
Results and Discussions
It is observed from the table that the fixed assets turnover ratio of automobile industry varied
between 3.85 times in 2008-09 and 5.96 times 2006-07 showing an average of 4.80 times throughout the
study period of ten years. The ratio showed a minor fluctuation during first three years and reached the
lowest in the fourth year and after that it gradually increased for the next three years and again showed
deterioration for the last three years. However, the industry under reference was able to maintain the
standard fixed assets turnover ratio of 5 times for five years. Average ratio of the industry also appears to
be closer to the standard. The cement industry registered an average fixed assets turnover ratio of 1.25
times over the study period ranging from 1.18 times in 2010-11 to 1.78 times in 2007-08. The industry was
far below the standard norm of 5 times throughout the entire study period of ten years. The ratio showed
increasing trend during first three years, then decreasing trend during next three years and fluctuating
trend during last four years of study. Fertilizer industry witnessed the highest fixed assets turnover ratio
at 5.8 times in the year 2008-09 and the lowest at 2.42 times in the year 2005-06. The average ratio came to
4.05 times throughout the entire study period of ten years. The fixed assets turnover ratio in case of
paints & varnishes industry was extremely high i.e. 7.95 times in the year 2006-07 and extremely low i.e.
5.15 times in the year 2012-13 recording an average of 6.89 times over the study period. The ratios were
excessive for the first seven years of study and recorded a value above seven times as against standard
norm of five times. However, the ratios were nearest to the standard for the last three years of study. The
paper industry experienced lowest fixed assets turnover ratio of 1.26 times in the year 2009-10 and the
highest of 1.54 times in the year 2005-06 with an average of 1.41 times over the study period. The
industry witnessed very poor fixed assets turnover ratios which were far below the standard norm
throughout the entire study period. The fixed assets turnover ratios of real estate industry fluctuated
between 2.07 times in 2005-06 and 5.15 times in 2007-08 with an average of 2.59 times. The industry could
not reach the standard throughout the whole period of study except one year. Steel industry recorded an
average fixed assets turnover ratio of 1.77 times throughout the period under reference showing the
lowest at 1.00 in 2014-15 and the highest at 2.22 in 2007-08. The industry showed an increasing trend in
maintaining the ratio for the first three years and declining trend for the last seven years of study. The
fixed assets turnover ratio in case of textile industry appears to be the highest at 2.35 in the year 2013-14
and lowest at 1.65 in the year 2008-09with an average of 2.01 times. The ratio marked declining trend for
the first four years and increasing trend for the remaining six years of the study.
It reveals from the foregoing analysis based on empirical data that only one industry, viz. paints &
varnishes industry could satisfy the standard norm of fixed assets turnover ratio over the study period.
However, the ratios for this industry were more than the standard for a majority period of the study.
Another industry i.e. automobile industry registered an average fixed assets turnover ratio nearest to the
standard over the study period. Among the remaining six industries, performance in maintaining
average fixed assets turnover ratio was somewhat better in case of fertilizer industry followed by real
estate industry, textile industry, steel industry, cement industry and paper industry. An effort has also
been made to measure the consistency of these industries in maintaining fixed assets turnover ratios over
the years by considering the co-efficient of variation. The variables for which the co-efficient of variation
is greater is said to be less consistent i.e. more fluctuating and vice-versa. From this angle, highest
consistency was observed in case of paper industry in maintaining fixed assets turnover ratios over the
study period of ten years followed by textile industry, cement industry, automobile industry, paints &
varnishes industry, steel industry, fertilizer industry and real estate industry.
Relative Share of Fixed Assets to the Total Assets
All industries selected for the purpose of present study are manufacturing in nature. As a matter
of fact manufacturing industries require heavy investment in fixed assets to operate its level of activity.
But when investment in fixed assets appears to be excessive coupled with low fixed assets turnover
things become unhealthy. It represents blockage of funds and may adversely affect on the earning power.
Normally the upward sales trend justifies the progressive investment in fixed assets. So, it is relevant to
judge the level of investment made in fixed assets as a percentage to the total assets to reach at a better
conclusion from the analysis of fixed assets turnover ratio.
Table 2: Percentage of Fixed Assets to Total Assets of Selected Industries
Over Ten Years from 2005-06 to 2014-15
2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014
Name of the Average S.D. C.V.
06 07 08 09 10 11 12 13 14 -15
Industries
Automobile 28 25 25 27 26 25 27 27 28 28 26.60 1.26 0.05
Cement 56 50 44 44 46 51 50 50 49 51 49.10 3.63 0.07
Fertilisers 40 38 33 24 26 25 21 23 25 23 27.80 6.71 0.24
Paints & Varn. 20 18 16 18 16 20 19 28 29 28 21.20 5.12 0.24
Paper 50 46 46 48 50 46 42 41 46 44 45.90 3.00 0.07
Real Estate 8 7 5 6 6 6 7 8 7 7 6.70 0.95 0.14
Steel 42 38 32 30 28 28 33 35 35 43 34.40 5.32 0.15
Textiles 37 36 40 43 41 38 38 37 35 37 38.20 2.44 0.06
Source: Computed from Prowess Database S.D. means Standard Deviation C.V. means Co-efficient of Variation
The investment made in fixed assets as a percentage of total assets by the eight selected industries
has been presented in table 2 shown as above. A quick look at the table reveals that cement industry
reported highest percentage of investment in fixed assets to the total assets on average throughout the
study period of ten years followed by paper industry, textile industry, steel industry, fertilizer industry,
automobile industry, paints & varnishes industry and real estate industry. Relatively higher proportion
of investment in fixed assets to the total assets made in case of cement, paper, textile and steel industry is
not justified as these industries yielded low fixed assets turnover ratios during the period of study.
Rather with the moderate level of investment in fixed assets the remaining sample industries viz. paints
& varnishes, automobile, fertilizer and real estate industry were able to generate better fixed assets
turnover ratios during the study period.
Main Findings
Drawing reference from the empirical evidences and foregoing discussions relating to eight
selected industries, it is observed that:
• Efficiency in utilizing fixed assets was highest in case of paints & varnishes industry. It indicates
that fixed assets of this industry were able to generate enough sale to sustain their operating
structure. This industry was very efficient in utilizing its full capacity and might be required to
make additional capital investment to operate at a higher level of activity in future.
• Automobile industry, as evident from the average fixed assets turnover ratio, was lying nearest to
the standard and so the sample companies belonging to this industry were also able to operate at
almost full capacity level.
• The efficiency in utilizing fixed assets was very poor in case of paper industry. The efficiency was
also poor in case of cement, steel, textile and real estate industries. These industries could not
utilize their full capacity during the period of study. They should expand their activity level
without further capital investment and strengthen their marketing functionaries to utilize their
idle capacity. The management of the sample companies belonging to three industries like paper,
cement and steel having alarming signal in the fixed assets turnover should devote serious
attention on these aspects.
• However a moderate level of efficiency was observed in utilizing fixed assets in case of fertilizer
industry as the ratio was approaching to the standard.
• All industries under study were more or less consistent except real estate and fertilizer industry
which had relatively high degree of variability in maintaining the ratio.
• Excessive level of investment coupled with low fixed assets turnover was not justified in case of
cement industry, paper industry, textile industry and steel industry.
Conclusion
It is may be concluded from the study that majority of the sample industries could not utilize
fixed assets in effective manner as evident from their fixed assets turnover during the period of study.
Good turnover rate of fixed assets for paints & varnishes industry and automobile industry indicates
their efficiency in utilizing fixed assets. High level of investment in fixed assets but low turnover rate
indicate underutilization and presence of idle capacity in case of cement, paper, textile and steel
industries.
Two industries i.e. paints & varnishes industry and automobile industry showed commendable
efficiency in utilization of fixed assets. These industries are utilizing to the full capacity level and hence
the sample companies under these industries are advised to make additional capital investments for
expanding capacity level to operate at a larger volume of activity. But the situation was challenging for
paper, steel and cement industries as these industries have the symbol of under utilization and idle
capacity of fixed assets. Moderate level of efficiency was found in case of fertilizer industry and real
estate industry.
The industries having low fixed assets turnover rate, as identified by observation, suffer from
underutilization of capacity. It may be due to several reasons like shortage of working capital, shortage
of raw material and other inputs, labour problem, power cuts, deterioration in technical capacity of
assets, product obsolescence, failure in marketing function, defective pricing policy and so on. The
management of the concerned companies belonging to these industries is advised to detect the reasons,
on case-to-case basis, for such unhealthy situation and make possible effort to solve those as far as
practicable. The companies under reference should expand their activity levels without further capital
investment to take the full benefit of existing capacity of past investments.
Acknowledgement
This paper is a portion of Minor Research Project sanctioned by the University Grants Commission Vide Memo No.
PHW 210/13-14 (ERO) Dated 18.03.2014 and the author gratefully recognizes the contribution of UGC for providing financial
support in carrying out this Project.
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Analysis. The Management Accountant, 30 (10), 748-750.

IMPACT OF PROFITABILITY ON THE SHARE PRICE:

A STUDY ON COMPUTER SOFTWARE TRAINING COMPANIES IN INDIA
Dr. Bhaskar Biswas∗
ABSTRACT
The Computer software training companies provide a blend of traditional and digitized content to the
schools, colleges and retail industries. The companies operate also curriculum based E-learning portal. In this paper
an attempt has been made to analyze the profitability of the five selected computer software training companies in
India and to show the impact of the profitability on the share price movement for a period of nine years. It is
observed that profitability and share price move in the same direction. Share price is a mirror image of the financial
performance of the companies.
KEYWORDS: Computer Software Training, E-Learning Portal, Financial Performance, Profitability.
_______________
Introduction
Computer training refers to resources, companies and services dedicated to helping educate users
on computer related topics. Computer training professionals instruct and help users acquire proficiency
in a wide array of areas including software, hardware, database management, programming, networking
and more. Many Computer training services are designed to help students acquire certification in specific
areas in order to attain job placement or advancement. Computer software training companies offer
computer education and also sale the computer education related equipment. The Company provides a
blend of traditional and digitized content to the schools, colleges and retail industries. The companies
operates also curriculum based E-learning portal. The software training companies address education
needs of the government, institutional and corporate customers. The Company conducts commercial
training, coaching, tutorial classes and activities incidental and ancillary thereon. These companies give
education support and coaching services provider for students in the secondary and higher secondary
school and for students pursuing graduation degree in commerce, preparing for various competitive
examinations and undertaking chartered accountancy examinations.
The objective of the paper is to check the trend of the net sales, total income, total expenses,
operating profit, reported net profit, earning per share of the selected five computer software training
companies for the period from March, 2007 to March, 2015 and the impact of these parameters on the
average price of the share of the selected five computer software training companies for the period from
March, 2007 to March, 2015.
∗
Assistant Professor, Department of Commerce, Raja Rammohan Roy Mahavidyalaya, Radhanagar, P.O.:
Nangulpara, Hooghly, West Bengal.
Limitations of the Study
The study has some limitations, they are:
• The study is based on the secondary data only.
• The study is based on only five companies due to the availability of the data.
• The study is limited to period of nine years due to the availability of the data.
There is eleven computer software training companies listed in national stock exchange (NSE) and
there is also eleven companies listed in Bombay stock exchange (BSE). Out of which I have taken five
companies viz, NIIT LTD, APTECH LTD., EDUCOMP SOLUTION, EVERONN EDUCATION, CORE
EDUCATION for my study due to availability of the nine years data. My study is based on secondary data and
data is collected from the websites moneycontrol.com, www.nseindia.com and www.bseindia.com.
Analysis
Table 1: Showing the Net Sales (Rs. in crores) of the Selected Computer Software Training
Companies in India from Financial Year, 2007 to Financial Year, 2015
Name of Co.'s 2007 2008 2009 2010 2011 2012 2013 2014 2015
NIIT LTD. 390.27 467.38 545.62 625.17 648.01 738.13 641.47 520.19 348.54
APTECH 81.21 99.26 112.91 123.79 94.15 90.95 100.39 107.38 100.42
EDUCOMP SOLUTION 106.57 262.10 501.17 832.22 1020.66 1076.51 733.11 282.30 198.18
EVERONN EDUCATION 43.04 91.23 121.38 210.65 301.63 303.82 115.01 43.23 28.33
CORE EDUACTION 69.70 199.97 346.63 417.95 515.59 878.39 1122.84 627.53 343.76
Source: moneycontrol.com
The net sales of the NIIT LTD., EDUCOMP SOLUTION, EVERONN EDUCATION has increased
from year 2007 to 2012 then it started to reduce. The net sales of the APTECH LTD. have increased from
year 2007 to 2013 then it started to reduce. The net sales of the CORE EDUCATION have increased from
year 2007 to 2014 then it started to reduce.
Table 2: Showing the Total Income (Rs. in crores) of the Selected Computer Software Training
Name of Co.'s 2007 2008 2009 2010 2011 2012 2013 2014 2015
NIIT 399.38 500.05 584.38 650.87 694.55 867.67 705.72 579.91 298.69
APTECH 84.26 100.35 107.49 216.43 99.02 103.20 120.27 115.94 105.22
EDUCOMP SOLUTION 111.64 276.90 517.53 863.55 1068.79 1133.04 812.18 237.21 -633.6
EVERONN EDUCATION 43.33 93.43 126.94 211.70 306.79 310.00 -116.98 -21.38 22.28
CORE EDUACTION 70.12 198.29 351.47 440.36 529.33 888.62 1232.90 196.38 -42.22
The total income of the selected five computer software training companies showing the same
trend as the net sales of the companies. The total income of the NIIT LTD., EDUCOMP SOLUTION,
EVERONN EDUCATION has increased from year 2007 to 2012 then it started to reduce. The total income
of the APTECH LTD. has increased from year 2007 to 2013 then it started to reduce. The total income of
the CORE EDUCATION has increased from year 2007 to 2014 then it started to reduce.
Table 3: Showing the Total Expenses (Rs. in crores) of the Selected Computer Software Training
Name of Companies 2007 2008 2009 2010 2011 2012 2013 2014 2015
NIIT 319.93 400.28 458.61 520.21 554.61 663.13 602.74 496.37 355.24
APTECH 75.97 84.08 110.73 100.62 79.34 77.68 83.09 81.72 79.18
EDUCOMP SOLUTION 55.28 135.77 226.05 362.19 525.70 754.17 667.87 376.37 248.52
CORE EDUACTION 54.68 143.56 244.44 267.85 311.19 485.61 780.81 395.64 341.11
Dr. Bhaskar Biswas : Impact of Profitability on the Share Price: A Study on Computer Software ..... 135
The total expense of the selected eight computer software training companies are showing the
same trend as the total income and net sales of the companies. The total expense of the NIIT LTD.,
EDUCOMP SOLUTION, EVERONN EDUCATION has increased from year 2007 to 2012 then it started to
reduce. The total expense of the APTECH LTD. has increased from year 2007 to 2013 then it started to
reduce. The total expense of the CORE EDUCATION has increased from year 2007 to 2014 then it started
to reduce.
Table 4: Showing the Operating Profit (Rs. in crores) of the Selected Computer Software Training
NIIT 73.49 66.25 85.13 105.85 96.91 72.63 36.18 19.83 -8.71
APTECH 5.24 15.18 2.26 23.17 14.81 13.27 17.30 25.66 21.24
EDUCOMP SOLUTION 51.29 126.33 275.12 470.03 501.98 363.34 57.02 -104.04 -54.75
EVERONN EDUCATION 18.09 33.24 53.30 95.99 153.04 68.56 -59.98 5.08 -4.72
CORE EDUACTION 16.33 56.07 116.99 163.93 215.18 357.81 418.33 178.89 -26.09
The operating profits of the NIIT LTD. and APTECH have shown a mixed trend during the period
of study. But the operating profit of the other two companies' i.e EDUCOMP SOLUTION and EVERONN
EDUCATION have increased from year 2007 to year 2011 then started to decreased and become negative
in 2015. The operating profit of the CORE EDUACTION has increased from year 2007 to year 2013 then
started to decreased and become negative in 2015.
Table 5: Showing the Reported Net Profit (Rs. in crores) of the Selected Computer Software Training
NIIT 32.93 32.77 47.21 31.17 49.74 96.25 1.16 -7.78 -116.10
APTECH -6.74 2.46 4.75 86.43 7.89 18.20 25.27 23.39 16.49
EDUCOMP SOLUTION 28.65 70.06 131.59 221.87 388.87 188.90 -40.72 -312.23 -1165.44
EVERONN EDUCATION 4.08 13.79 23.84 43.40 72.97 -16.51 -255.42 -120.82 -84.39
CORE EDUACTION 11.53 44.30 80.88 111.84 123.70 188.07 158.60 -502.13 -1074.67
The reported net profit of the NIIT LTD. and APTECH have shown a mixed trend during the
period of study. But the reported net profit of the other two companies' i.e EDUCOMP SOLUTION and
EVERONN EDUCATION has increased from year 2007 to year 2011 then started to decreased and become
negative in 2012. The reported net profit of the CORE EDUACTION has increased from year 2007 to year
2012 then started to decreased and become negative in 2014. In 2015 the EDUCOMP SOLUTION and
CORE EDUACTION are shown huge losses.
Table 6: Showing the Earning Per Share (Rs. in crores) of the Selected Computer Software Training
NIIT 16.67 1.99 2.86 1.89 3.01 5.83 0.07 -0.47 -7.03
APTECH -1.78 0.56 1.02 18.57 1.62 3.73 5.18 5.86 4.13
EDUCOMP SOLUTION 17.92 40.62 76.12 23.35 40.70 19.66 -3.33 -25.50 -95.16
EVERONN EDUCATION 3.97 9.95 15.77 28.70 38.34 -7.55 -116.79 -52.62 -35.09
CORE EDUACTION 8.26 5.34 9.38 11.34 11.33 16.72 13.85 -43.86 -93.87
The earnings per share of the NIIT (EPS adjusted for stock split and bonus issue), EDUCOMP
SOLUTION, EVERONN EDUACTION and CORE EDUCATION has shown an uptrend till the year 2011
and stated to decline to negatives. APTECH has shown a mixed trend during the period of study.
Table 7: Showing the Average Share Price (Rs. in crores) of the Selected Computer Software Training
NIIT 690.00 89.20 46.00 64.85 47.53 42.30 23.60 44.43 71.10
APTECH 302.35 240.00 180.13 160.93 106.33 83.55 62.13 88.48 63.45
EDUCOMP SOLUTION 2884.50 3599 2894.50 621.03 359.00 195.43 85.85 32.68 20.08
CORE EDUACTION 361.775 247.00 129.15 249.23 298.43 297.50 167.55 18.38 8.28
Source : nseindia.com and bseindia.com
In the above table the average share price was calculated by averaging the 52 week high and low
price of the share of a company during the year. The average share price of the NIIT (share price adjusted
for stock split and bonus issue), EDUCOMP SOLUTION has increased till the year 2010 and then started
to decrease. The share price of the other three companies showed a mixed trend. But the share price of
the EDUCOMP SOLUTION, EVERONN EDUACTION and CORE EDUCATION has fallen very sharply and
touched the ground level.
Conclusion
It can be said from the above analysis that net sales, total income and total expenses of the NIIT
LTD., EDUCOMP SOLUTION, EVERONN EDUCATION has increased from year 2007 to 2012 then it
started to reduce, the operating profit and the reported net profit and earnings per share of the other two
companies i.e EDUCOMP SOLUTION, EVERONN EDUCATION have increased from year 2007 to year
2011 then started to decreased and become negative in 2015 and the effect of the financial result of the
companies can be seen in their share prices as the of the NIIT (share price adjusted for stock split and
bonus issue), EDUCOMP SOLUTION, EVERONN EDUACTION has increased till the year 2010 and fell
very sharply and touched the ground level. The net sales, total income, total expenses, operating profit
and reported net profit and earnings per share shown a mixed trend and the share price of the CORE
EDUCATION and APTECH also shown a mixed trend.
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Presidential Address
Delivered by Prof. D Prabhakara Rao of Andhra University
XXXIX All India Accounting Conference & International Seminar
December 16-17, 2016
Bangalore University, Bangalore
Ladies and Gentlemen!

First, let me take this opportunity to wish you all a Happy New Year 2017.
I congratulate the Conference Secretary and his team for making this event a grand success. This is for
the second time, we are visiting Bangalore University. We are thankful to the Honourable Vice-
Chancellor of Bangalore University for supporting this event.
Today, IAA is one of the top influential associations in the world of Accounting and Finance globally,
because of the dedicated efforts of our Past Presidents, EC members, office bearers, Branch Chairpersons
as well as Secretaries and members at large. I know the value of your contribution as General Secretary
during the last two decades. Inaugurated on February 14, 1970 (four and half decades ago) our
Association crossed several milestones like building a sizeable amount of corpus under the dynamic
leadership of Prof Pratapsinh Chauhan, with a wide network of branches in every nuke and corner of the
country, besides major metropolitan cities. Our strength is our research-resourceful membership of
around 5000 which may cross 10,000 by 2020 when we celebrate fifty years.
In this context, I place hereunder a press release of 20th August 1969, for your information:
Varanasi August 20: A meeting of the executive committee of the newly founded Indian Accoiunting
Association, was held on Saturday at the Faculty of Commerce, Banaras Hindu Unviersity. Dr. S.K.
R.Bhandari, Vice President of the Association Presided. Other members present were Sri A. Chatterjee,
Sri U. Ramachandra Rao, Prof. V. N. Gautham and Prof H.S. Kulshreshta. The committee decided to have
its inaugural function and a seminar on Development of Accounting Principles in India, towards the end
of October l969. Indian Accounting Association had been recently organised at the initiative of some
members of the faculty of commerce, Banaras Hindu University, with Shri Raghunath Rai, an Ex-
president of Indian Institute of Chartered Accountants, as its President. Other office bearers include, two
vice presidents – Dr. S.K.R. Bhandari and Principal G.D.Roy and shri H. S. Kulshreshta as Secretry and
Treasurer. The association aims at promoting research in and disseminating the knowledge of
accounting and related subjects for industrial, commercial and overall progress of the people of India.
Dear friends, let me also refer to the letter dated 28th Aug. 1985, from STEPHEN A ZEFF, American
Accounting Association President in 1985-86, wherein he conveyed the approval of AAA Executive
Committee, recognising Indian Accounting Association along with seven other prominent Accounting
Associations around the world. Later we also joined International Association for Accounting Education
and Research (IAAER).
IAA is an excellent family of devoted members from academic organisations, professional bodies as well
as Government departments, with enthusiasm and initiative to effect sustainable policy in the financial
frontiers of nation building. The academic institutions are providing the much needed teaching and
research support while the professional bodies are accredited with applied knowledge in the ever
changing legal and behavioural framework for better governance. Our association strives to reduce the
ii Indian Journal of Accounting (IJA) Vol. XLVIII (2), December, 2016
gap between theory and practice while focusing on the emerging developments and financial markets
around the globe, thus fostering confidence of various stakeholders by disseminating high quality of
research findings in different All India Conferences and International Seminars.
My colleagues from Udaipur are doing a nice job of organizing the Accounting Talent Test at national
level, which needs our attention for further promotion among the aspirants of accounting career. The
Test may become a barometer of measuring knowledge in the field, similar to that of NET or SLET etc.
We need to give constitutional status to this activity.
Another great achievement of our Indian Accounting Association is relating to the formation of IAA
Research Foundation to promoting research in accounting and allied with special focus on Research.
In the Meeting of the Executive Committee of the Indian Accounting Association held in the Institute of
Cost and Works Accounts of India, Calcutta, on the 25th January, 1987 at 2.00P.M which was Presided
by Prof. Dool Singh, the then President of the Association, the following was resolved:
The members desired that efforts be made to implement the proposal of the IAA General Body to set up
the Indian Accounting Association Research Foundation at an early date so that the research activities of
the Association could be stepped up further.
Resolved that Sri Sukumar Battacharya, the immediate past President of IAA, be requested to draft the
Constitution of the proposed Research Foundation in consultation with Prof. S.K.R. Bhandari, Prof. K.S.
Mathur, Prof. Dool Singh and other Past Presidents of the Association and the draft he sent to the
Executive Committee members for their consideration and comments, so that the final draft covered be
placed before the meeting of the general Body for its approved.
Later in the Executive Committee meeting of the Indian Accounting Association held in the guest House
of Angar Mahpalika on 2nd April ’88 at 5.45. pm under the President ship of Prof. Dool Singh, the
following development took place:
Prof. Sukumar Bhattacharya traced the developments that had take place and reported the formation of
the Indian Accounting Association Research Foundation. He also placed before the members, the
Constitution of the Research Foundation by taking into consideration the suggestions of the
distinguished members Prof. S.K.R. Bhandari, Prof. K.S. Mathur, Prof. Dool Singh and other Past
Presidents of the Association. The members of the Executive Committee thanked Prof. Sukumar
Bhattachary for giving a concrete shape to the Research Foundation of the Indian Accounting
Association. Thanks were also expressed to other members who extended their valued help and
cooperation to Prof. Bhattacharya in finalising the Constitution.
Resolved that the Constitution of the Indian Accounting Association research Foundation be approved
and put up before the General Body of the Association for its final approval.
Thus, the Executive Committee and the General Body of the Indian Accounting Association at their
meetings endorsed the proposal to set up a Research Foundation to promote Accounting Education and
Research in India and abroad. Accordingly the IAA Research Foundation was registered on 16th January,
1990 with office at Calcutta and was inaugurated on January 23, 1991.
After the departure of the great man Prof. Sukumar Bhattacharya, the IAA Research Foundation, at
present, is being managed under the leadership of one of our valued past Presidents. As the present
President of IAA, I place on record for his valuable services in the management of the IAA Research
Foundation so far.
It is time for IAA members to re-examine both constitutions to establish coherence and also to take care
of the future of the Research Foundation. I request the Chairman, Prof. Nageswar Rao and members of
the Constitution amendments’ committee to look into the provisions of both constitutions and ensure
steps for continuity and succession of the IAA Research Foundation. If necessary, IAA Research
Foundation should be supported in all respects including financially by the Indian Accounting
Association.
Dr. Bhaskar Biswas : Impact of Profitability on the Share Price: A Study on Computer Software ..... iii
Simultaneously, some of our past Presidents like Prof. Sugan C Jain and Prof. S. S. Modi floated
organisations like Research Development Association (RDA), Inspira Research Association (IRA) and
making a lot of academic and research contribution to the academic world. I congratulate them for their
successful endeavours in this regard. These associations also have their own problems and prospects. But
these are not floated by Indian Accounting Association with resolutions like IAA Research Foundation.
Therefore, I am silent about their continuity or succession issues, although I wish them a grand success.
The academic plan of this 39th Conference includes three technical sessions viz., (1) Goods and Services
Tax; (2) IFRS; (3) Ethical Issues in Accounting and (4) an International Seminar on Accounting Education
and Research.
The President of India, Pranabh Mukherjee has approved the Constitution Amendment Bill for Goods
and Services Tax (GST), post its passage in the Parliament (Rajya Sabha on 3 August 2016 and Lok Sabha
on 8 August 2016) and ratification by more than 50 percent of state legislatures. The Government of India
is committed to replace all the indirect taxes levied on goods and services by the Centre and States and
implement GST by April, 2017. Goods and Services Tax is the one of the biggest indirect tax reforms since
India’s independence. Present structures of VAT across states lack uniformity. The differences are there
with respect to definition of goods, capital goods, threshold limits, classification, exemptions, and
procedures. This leads to increased complexities for entities having operations in multiple States. As the
powers of Central and State Governments to levy and collect taxes are complementary, there is a chance
of tax evasion. There is lack of cross verification of returns filed under various State as well as Central
Taxation Rules and there are differences in the returns filed by the assessed by paying Central and State
taxes simultaneously. GST is a proposed system of indirect taxation in India subsuming most of the
existing indirect taxes into single system of taxation. GST is a value-added tax levied at all points in the
supply chain with credit allowed for any tax paid on inputs acquired for use in making the
supply/providing the services. GST is basically an indirect tax that brings most of the taxes imposed on
most goods and services, on manufacture, sale and consumption of goods and services, under a single
domain at the national level. GST in India proposes to remove the geographical barriers for trading, and
transform the entire nation to ‘One Common Market Place’. GST is “one indirect tax” for the whole
nation, which will make India one unified common market. It is a single unified tax system aims at
uniting India’s complex taxation structure to a ‘One Nation- One Tax’ regime. Prime Minister Narendra
Modi's announcement of 8th November 2016, to scrap 500 rupee and 1,000 rupee banknotes has
attracted the attention of the whole world. May be the Honourable Prime Minister is aiming to create a
cashless economy while launching a new tax regime of GST. Prof KV Achalapathi committee on GST
will enlighten the delegates with its report. I congratulate Prof KV Achalapathi and CA K Ch CVS
Murthy for accepting this challenging assignment.
International Financial Reporting Standards (IFRS), is gaining prominence around the world in the
context of producing financial data uniformly across different nations. The professional accounting
bodies are busy in establishing convergence of the accounting standards. While USA is not having any
such plan, as there is a little amount of convergence required to restate their financial statements in line
with the IFRS, several other countries implemented IFRS and reporting favourable effects in their
financial reporting practices. In such nations, research studies reported positive results of the capital
market decisions at different levels. In some of the India Rs. 500 cr. turnover companies implemented
IFRS in 2016, while it is mandatory for all the companies by 2017. A number of important decisions on
mergers and acquisitions, off-shore mutual funds etc., are supposed to be more efficient once the IFRS
regime starts functioning on a large scale. Indian Accounting Association did a lot of concrete work in
the area of Accounting Standards. Prof. N.M. Khandelwal committee will enlighten the delegates with
its report on Accounting Standards. I thank Prof. NM Khandelwal and other members of the committee
for their devotion in producing the report.
The role of accounting professionals is not complete without referring to what the profession owes to the
society. While maintaining high standards they have a role to play in helping organizations to act ethically.
Protection of public interest is the notion that accountants need to deliver value to the public. Accountants
iv Indian Journal of Accounting (IJA) Vol. XLVIII (2), December, 2016
will lose their legitimacy as protectors of public interest if there is no public trust. The accountancy
profession has a wide reach in global capital markets. In the most basic way, confidence in the financial data
produced by professionals in businesses forms the core of public trust and public value.
Accountants often face conflicts between upholding values central to their profession and the demands
of the business world. Balancing these competing demands forms the very heart of being a professional
in contrast to simply having a job or performing a function. Professionals are expected to exercise
professional judgment in performing their roles so that when times get challenging, they do not
undertake actions that will result in the profession losing the public trust as protectors of public interest.
Ethical codes for professional accountants globally compels professional accountants, regardless of the
roles that they perform, to uphold values of integrity, objectivity, professional competence and due care,
confidentiality and professional behaviour. Objectivity and independence are important ethical values in
the accounting profession. Accountants must remain free from conflicts of interest and other
questionable business relationships when conducting accounting services. There are a number of cases
where CFOs are questioned of their ethics. Objectivity and independence are also important ethical
values for auditors.
On behalf of all of us, I Congratulate our Past Presidents--Prof. Nageshwar Rao, Prof. Pratapsinh
Chauhan, Prof. Bhirav S Raj Purohit for occupying the coveted position of Vice-Chancellor. Prof.
Nageswar Rao is Vice-Chancellor for three universities in a row, which is a pride for every member of
the Indian Accounting Association.
I acknowledge the strong support of our General Secretary, Treasurer and Chief Editor. I fall short of words
to admire Prof. Sanjay Bhayani for the excellent work of IAA Website—www.indianaccounting.org. I am
thankful to all the Past Presidents, Branch Chairpersons/Secretaries, EC members and the Resource Persons
associated with this grand Conference event. All the delegates deserve a lot of appreciation for attending in
large numbers, in spite of cash crunch due to the demonetisation decision of our Honourable Prime
Minister Narendra Modi and the challenging International scenario due to the newly elected US President
Donald Trump effect. Let us wish all things will work positively in the long run for a prudent and
sustainable growth of the Indian Economy.
Thank you ladies and gentlemen !
Aum Poornamadha Poornamidam ! Poornatpurna mudatyathee

Poornasya Poornamaadaya ! Poornamee vaa vasishyathee !
Aum Santhi ! Santhi ! Santhihi !
16thDecember, 2016
Prof. D Prabhakara Rao

President, Indian Accounting Association
INDIAN ACCOUNTING ASSOCIATION
PAST GENERAL SECRETARIES
Prof. HS Kulshreshtha (Late) Prof. Mukund Lal (Late) Dr. SK Singh
(1969-1978) (1978-1993) (1993-1994)
Prof. D Prabhakara Rao Prof. G Soral
(1994-2013) (2014-2016)
BRANCH SECRETARIES
AGRA AHMEDABAD AJMER
Prof. Pramod Kumar Dr. Ajay Soni Dr. RK Motwani
(M) 09412261810 (M) 09825448347 (M)
AKOLA AMARKANTAK AVADH
Dr. AM Raut Dr. SS Bhadoria Dr. Krishna Kumar
(M) 09403872151 (M) 09425737109 (M) 09415471235
BAREILLY BHOPAL BHUVANESHWAR
Dr. AK Saxena Dr. Sharda Gangwar Prof. RK Bal
(M) 09411470074 (M) 09893384038 (M) 09437077178
CHANDIGARH DELHI DIBRUGARH
Dr. Karamjeet Singh Dr. Anil Kumar Dr. AB Saha
(M) 09876107837 (M) 09810857745 (M)
GOA GUWAHATI GWALIOR
Dr. B Ramesh Prof. Sujit Sikidar Dr. R. C. Gupta
(M) 09421246981 (M) 09864138864 (M) 09425339306
HYDERABAD JABALPUR JAIPUR
CA K Ch. AVSN Murthy Dr. NC Tripathi Dr. Ashok Agarwal
(M) 09848050475 (M) 09425383514 (M) 09928366240
JAMMU & KASHMIR JODHPUR JORHAT
Prof. Syed Javed Kamili Dr. ML Vedera Dr. BC Saikia
(M) 09419095039 (M) 09314240541 (M)
KARNATAKA KERALA KOLKATA
Dr. BA Karunakara Reddy Dr. Gabril Simon Thattil Prof. Sunil Kumar Gandhi
(M) 09945421819 (M) 09496275305 (M) 09433437147
KOTA LUCKNOW MEGHALAYA
Dr. Meenu Maheshwari Prof. Arvind Kumar Dr. KC Kabra
(M) 09461073979 (M) 09415028817 (M) 09436309498 / 09436336235
SOUTH BENGAL MIRZAPUR MUMBAI
CMA Arundhati Basu Dr. Anita Kumari Dr. P. G. Gopalakrishnan
(M) (M) 09721907369 (M) 09967211744
NORTH MAHARASHTRA PATIALA PATNA
Dr. AM Agrawal Dr. GS Batra Dharen Kumar Pandey
(M) (M) 09855028013 (M) 09576628882 / 08900652564
PONDICHERRY PUNE RATLAM
Dr. R Azhagaiah Dr. Anil Pandit Dr. Abhay Pathak
(M) 09952474095 (M) (M) 09827301320
SAGAR SALEM SAURASHTRA
Prof. JK Jain A. Vinayagamoorthy Dr. Sanjay Bhayani
(M) 09425436471 (M) 09443203766 (M) 09687355199
TIRUPATI THANE UDAIPUR
Dr. Suresh Babu Dr. Nishikant Jha Dr. Shurveer S. Bhanawat
(M) 09393607035 (M) 090048 83439 (M) 09414156021
VARANASI VISHAKHAPATNAM GORAKHPUR
Dr. M. B. Shukla Prof. D. Prabhakar Rao Prof. AK Tiwari
(M) 09415225004 (M) 09440131863 (M)
NCR SHIMLA
Dr. JL Gupta Prof. K Pathania
(M) (M)

INDIAN ACCOUNTING ASSOCIATION (IAA)
EXECUTIVE COMMITTEE
BENGALURU, DECEMBER- 2016
PRESIDENT VICE PRESIDENT (Sr) VICE-PRESIDENT (Jr)
Prof. Arvind Kumar Prof. Karamjeet Singh Prof. M Muniraju

Department of Commerce University Business School Department of Commerce
University of Lucknow Panjab University Bangalore University
Lucknow–226 007 (UP) Chandigarh – 160014 Bengaluru-560001 (Karnataka)
GENERAL SECRETARY TREASURER CHIEF EDITOR
Prof. Gabriel Simon Thattil Prof. Sanjay Bhayani Prof. SS Modi

Department of Commerce Department of Business Former Head
School of Business Management Department of Accountancy &
Management and Legal Studies Saurashtra University Business Statistics
University of Kerala Rajkot – 360 005 Faculty of Commerce
Thiruvananthapuram - 695581 (Gujarat) University of Rajasthan
(Kerala) Jaipur - 302004 (Rajasthan)
JOINT SECRETARY JOINT TREASURER EDITORS
Dr. Prakash Sharma Prof. Arindam Gupta Dr. Daksha Pratap Sinh
Department of Accountancy & Dept. of Commerce with Farm Chauhan
Business Statistics Management Professor, Head & Dean
University of Rajasthan Vidyasagar University Saurashtra University
Jaipur – 302004 (Rajasthan) Midnapore – 721102 (WB) Rajkot – 360 005 (Gujarat)
Member (Ex-Officio) Member (Ex-Officio)
Prof. B Banerjee Prof. G Soral Dr. MC Sharma

President Coordinator, NATS & Professor, Head & Dean
IAA Research Foundation Conference Secretary University of Rajasthan
Kolkatta (WB) 40th All India Accounting Jaipur - 302004 (Rajasthan)
Conference, Udaipur (Rajasthan)
Lucknow Elected Members
Central Zone West Zone East Zone
Dr. Pushpendra Mishra, Lucknow Dr. Chandresh L Usadadia, Junagadh Dr. Anand M Pal, Kolkatta
Dr. LR Paliwal, Jodhpur Dr. RK Swain, Bhubaneswar
North Zone South Zone
Dr. Mukesh Chouhan, Chandigarh None
Dr. Rajnikant Verma, Delhi
Chandigarh Elected Members
West Zone South Zone
Prof. Lalit Gupta, Jodhpur Prof. V. Appa Rao, Hyderabad
Bengaluru Elected Members
Central Zone West Zone East Zone
Dr. Vijay Dubey : 3 Yrs Dr. Anil M. Raut : 3 Yrs Dr. Parimal Kumar Sen : 3 Years
Prof. Awadhesh Kumar Tiwari : 3 Yrs Prof. Daksha Pratapsingh Chauhan : 3 Yrs Dr. Anil Kumar Swain : 3 Years
Dr. Sharda Gangwar : 2 Yrs Dr. Sunil Kumar Mangal : 2 Yrs Dr. Pradipta Banerjee : 2 Years
Dr. Kajal Baran Jana : 2 Years
North Zone South Zone
Dr. JL Gupta : 3 Yrs Dr. S Resia Beegam : 3 Yrs
Dr. T Rajesh : 3 Yrs
Dr. M.Ramachandra Gowda : 2 Yrs
Bengaluru Co-opted Members
Central Zone West Zone South Zone
Prof. Avdhesh Kumar Prof. Vijay K Patel Prof. M. Jayappa
Prof. Bimal Jaiswal Prof. Shurveer S. Bhanawat, Udaipur Prof. C. Ganesh
Prof. Abhay Pathak Prof. Hitesh Shukla CA K. Ch.A.V.S.N. Murthy
North Zone East Zone 40th Conference Secretary
Dr. Kamal Kant Prof. PK Pradhan

Prof. G Soral
Dr. Abdul Aziz Ansari Dr. Atri Bhowmik Mohanlal Sukhadia University
Udaipur
Dr. Jitendra K. Sharma

40TH ALL INDIA ACCOUNTING CONFERENCE AND INTERNATIONAL SEMINAR (NOV 18-19, 2017)
organised by
University College of Commerce and Management Studies
MOHANLAL SUKHADIA UNIVERSITY, UDAIPUR AND IAA UDAIPUR BRANCH
CALL for PAPERS and REGISTRATION
Technical Session One:

Demonetization: Issues and Challenges with special reference to accounting and finance
Chairman: Prof. JK Jain
Dr. HS Gaur University, Sagar
Technical Session Two:

Accounting for Local Government
Chairman: Prof. K Eresi, formerly University of Bangalore, Bangaluru
Technical Session Three:

Cloud Computing and Accounting
Chairman: Prof. Sunil Gandhi, University of Kalyani, Kalyani (WB)
International Seminar on Accounting Education and Research

Chairman: Prof. D Prabhakar Rao
Formerly Andhra University, Vishakhapattanam
Last date for Paper Submission: July 31, 2017
Last date for Registration: Aug 31, 2017
Prof. G Soral
Conference Secretary
Dean and Faculty Chairman
University College of Commerce and Management Studies
Mohanlal Sukhadia University, Udaipur (Rajasthan)

Call for Papers
Indian Journal of Accounting is an official publication of Indian Accounting Association. It is

a blind reviewed refereed indexed journal published twice a year, in June and December
respectively with an ISSN-0972-1479 (Print) & 2395-6127 (Online). The scope of journal
encompasses all areas of Accounting including Corporate Accounting, Auditing, Taxation,
Management Accounting, Cost Accounting, finance and Information Systems. Manuscripts
should be addressed to Prof. (Dr.) S.S. Modi, Chief Editor, Indian Journal of Accounting
(IJA), Former Head, Department of ABST, Faculty of Commerce, University of
Rajasthan, Jaipur, Rajasthan, India at Email: chiefeditorija@gmail.com (Mobile no.
+91-98293-21067). Mailing Address: 25, Modi Sadan, Sudama Nagar, Opp. Glass Factory,
Tonk Road, Jaipur 302018, Rajasthan (India).
Guidelines for Submission

1. All submitted manuscripts must be original. Paper submission must accompany a
certificate/ declaration by the author(s) that the paper is his/ their original work and has
neither been published nor submitted for publication elsewhere.
2. Manuscript must be in MS Word processor in Calibri font 12 pt font size on A-4 size
paper with 1" margin from all sides with 1.5 line spacing, and justified.
3. References should appear at the end of the paper printed in single space with 10pt. font
size. References should be listed as per theAPACitation Format latest Edition.
4. The length of the paper should be limited to approximately 12 pages including references
(as per the specified layout) excluding tables and figures.
5. Tables, figures, etc. should be serially numbered and duly acknowledged. Sources of the
data need to be given below each table or figure.
6. All but very short mathematical expressions should be displayed on a separate line and
centered. Equations must be numbered consecutively on the right margin, using Arabic
numerals in parentheses.
7. Papers should have an abstract of about 150-250 words.
8. The cover page of the paper should contain-Title of the paper, Name of author(s),
Professional affiliation of author(s), Address for correspondence with email and
telephone numbers.
9. The name of the author(s) should not appear on the manuscript to facilitate blind review.
10. Editorial decision regarding publication will be communicated within a month from
receipt of the manuscript.
The views expressed in the papers do not reflect the opinions of Indian Accounting
Association.
Prof. (Dr.) S.S. Modi

Chief Editor
Indian Journal of Accounting (IJA)
INDIAN JOURNAL OF ACCOUNTING (IJA)
India Outside India

Life Membership Life Membership
Annual Annual
(Permanent) (Permanent)
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Please send your subscription through Bank Draft to “Treasurer, Indian Accounting Association Rajkot” addressed to Dr. Sanjay Bhyani,
Professor, Smt. R. D. Gardi Dept. of Business Management, Saurashtra University, Rajkot- 360 005.
Book Post Educational Printed Book

To,
If undelivered please return to:
Prof. (Dr.) S. S. Modi

Chief Editor, Indian Journal of Accounting
25, Modi Sadan, Sudama Nagar, Opp. Glass Factory, Tonk Road, Jaipur-302018
Web: indianaccounting.org | Email:- chiefeditorija@gmail.com | Mobile :- 09829321067
This Journal is sent free of charge to all members of Indian Accounting Association
Printed in India by Prof. (Dr.) S. S. Modi at Photomac, Jaipur, Rajasthan and Published
by him on behalf of the Indian Accounting Association, Udaipur -313001, Rajasthan.

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RNI No.

(Indexed in COSMOS Foundation & Electronic Journal Library EZB, Germany)

Vol.XLVIII (2) December, 2016

Dr. Pushpendra Misra Dr. Vinod K. Bhatnagar Dr. R. K. Tailor

ADVISORY CUM REVIEWERS BOARD

Prof. M. B. Shukla Prof. Ranjan K. Bal Prof. B.S. Rajpurohit

Prof. Harish Oza Prof. G. L. Dave Prof. K.V. Achalapati

Prof. K. Sasi Kumar Prof. B. Ramesh Prof. Umesh Holani

Prof. Arvind Kumar Prof. Karmajeet Singh Prof. Rajendra P.Srivastava

Prof. K.S. Thakur Prof. H. K. Singh Prof. M. Raju

Prof. G. Soral Prof. Ram Milan Prof. Prashant Kumar

Prof. M. Ramachandra Gowda Prof. J.K. Jain Prof. Govind Pareek

Prof. Sanjay Bhayani Prof. Arindam Gupta Prof. S. K. Khatik

Editorial: Message from the Chief Editor

Dear friends and colleagues,

Prof. (Dr.) SS Modi

INDIAN JOURNAL OF ACCOUNTING

(Indexed in COSMOS Foundation & Electronic Journal Library EZB, Germany)

Volume XLVIII (2) December, 2016

S. No. Title of the Research Paper Page No.

1. Accounting Education in India: A Comparative Analysis 01-06

2. An Impact of IFRS on the Value Relevance of Financial Statements: A Study 07-17

3. Performance Appraisal of HPCL Through Free Cash Flow 18-24

4. Contributing Factors to the Cost of Faculty Attrition in Technical Institutions 25-31

5. Discretionary Accruals and Earnings Management by Oil Companies in India 32-36

6. Benefits and Shortcomings of Ethics Education: An Empirical Analysis of 37-49

9. Impact of Financial Leverage on Firm's Performance and Valuation: A Panel 73-80

12. An Empirical Analysis of Price Sensitivity with respect to Declaration of 102-116

14. Fixed Assets Utilization in Selected Manufacturing Industries in India: An 126-132

ACCOUNTING EDUCATION IN INDIA: A COMPARATIVE ANALYSIS

KEYWORDS: CBCS, IFRS, Accounting System, Prescriptive Model, Accounting Standards.

AN IMPACT OF IFRS ON THE VALUE RELEVANCE OF

Dr. Shilpa Vardia∗

PERFORMANCE APPRAISAL OF HPCL THROUGH FREE CASH FLOW

Table 7: One-Sample Test

CONTRIBUTING FACTORS TO THE COST OF FACULTY

KEYWORDS: Faculty Attrition, Indirect Costs, Opportunity Cost, Technical Institutions.

Table 1: Rotated Component Matrix and Cronbach

DISCRETIONARY ACCRUALS AND EARNINGS MANAGEMENT

Gnyana Ranjan Bal∗

BENEFITS AND SHORTCOMINGS OF ETHICS EDUCATION:

Dr. Ajay Kumar Singh∗

KEYWORDS: Accounting Scandals, Ethics Education, Demand, Accounting Professionals.

Singh and Dhingra, 2013 basis ofwas

The emphasis on ethical and

Thus, the three most important benefits identified are:

Table 6: Mean Averages, Standard Deviation, t Values and

4. The accounting ethical values Not Significant

6. Accounting ethics taught to Not Significant

INSIDER TRADING AND BANK MERGER ANNOUNCEMENTS IN INDIA:

Dr. Sony Kuriakose∗

KEYWORDS: Insider Trading, Bank Merger Announcements, MAAR, Event Study.

1 Nishith Desai Associates, a research based international law firm (2013)

1 M Damodaran (Business Today, November 25 2005), Former chairman of SEBI.

Source: Calculations are based on Secondary Data

Source: Calculations are based on Secondary Data

Source: Calculations are based on Secondary Data

Source: Calculations are based on Secondary Data

Table 9: Analysis of Trade Volume Pattern – United Western Bank

-0.020819 -0.401* -0.223804 0.247868* -0.126736 -0.441314***