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Article
Publication date: 4 February 2021

Nemiraja Jadiyappa, Anto Joseph and Garima Sisodia

The purpose of this paper is to empirically examine the impact of the bank-appointed directors on the agency costs of debt by using the idiosyncratic risk of stock returns…

Abstract

Purpose

The purpose of this paper is to empirically examine the impact of the bank-appointed directors on the agency costs of debt by using the idiosyncratic risk of stock returns as a measure of agency costs of debt.

Design/methodology/approach

We use multivariate panel regression, event study and finally, propensity score matching approaches to test our hypothesis. The robustness of the results is tested for possible endogeneity issues by employing instrumental variable two-stage least square (IV-2SLS) technique.

Findings

Consistent with the efficient monitoring hypothesis, we find a negative relationship between the presence of the bank-appointed director and the idiosyncratic volatility of stock returns among Indian firms. This implies that such firms take up less risky investment projects.

Originality/value

We contribute to the literature from two aspects. First, to the best of our knowledge, this is the first study that examines the monitoring efficiency of creditors' governance. Hitherto, such examinations are done from the shareholders' perspective. Second, we examine the role of the bank-appointed directors on the board of non-financial firms in an emerging world context and find, contrary to the existing evidence in the US context, active monitoring role played by such directors.

Details

International Journal of Managerial Finance, vol. 18 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 5 April 2022

Nemiraja Jadiyappa and Raveesh Krishnankutty

This study aims to examine the impact of green operation (measured using the energy intensity of its operations) on the value of corporate firms in stock markets. The…

Abstract

Purpose

This study aims to examine the impact of green operation (measured using the energy intensity of its operations) on the value of corporate firms in stock markets. The authors also examine the channel of such an impact and its implication on a firm's financing choices.

Design/methodology/approach

The authors conduct various univariate and multivariate regression analyses on a panel of all non-financial Indian firms listed on the National Stock Exchange from 2010 through 2018. The authors use the sensitivity of investments to the cash flows model to test the financial constraints hypothesis.

Findings

The authors’ analysis shows a positive relationship between energy efficiency (firms that consume a lesser amount of energy per unit of sale) and the value of firms in the stock market. The authors empirically attribute this greater valuation to the lesser volatility of stock returns, measured by the standard deviation of daily stock returns. Finally, the authors observe that investments in energy-efficient firms are less sensitive to their internal cash flows.

Practical implications

The results suggest that less green firms face greater constraints in accessing finance from external sources and, therefore, depend more on internal than external capital to finance their investments. Hence, managers of such firms can ease their financing pressures by making their operations greener.

Originality/value

In this study, the authors examine the implications of green operations on the financing choices of firms. This aspect of going green is important because managers will have enough incentives to invest in green technologies as that would increase their access to external finance and, hence, decrease their financial constraints.

Details

International Journal of Managerial Finance, vol. 18 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 12 June 2020

Nemiraja Jadiyappa, Garima Sisodia, Anto Joseph, Santosh Shrivastsava and Pavana Jyothi

The governing role of bank-appointed directors (BADs) on the boards of non-financial firms has a potential to reduce information asymmetry between the firm and non-bank…

Abstract

Purpose

The governing role of bank-appointed directors (BADs) on the boards of non-financial firms has a potential to reduce information asymmetry between the firm and non-bank lenders. This should increase the confidence of other creditors in firm activities, thus performing the certification role. Therefore, the purpose of this paper is to empirically examine the certification role of BADs.

Design/methodology/approach

The authors test their hypotheses by using a panel of Indian non-financial firms. Our approach involves examining whether there is a significant difference in the number of different debt sources, the dispersion of debt among different debt sources, and leverage for BAD and Non_BAD Firms. The authors use univariate analysis and multivariate regression models to test the difference.

Findings

The authors find that firms with BADs on their board have (1) access to a higher number of different debt sources, (2) debt distributed evenly among different sources and (3) a higher debt ratio. Overall, our study provides supporting evidence for the certification role that BADs play on the boards of non-financial firms.

Originality/value

The authors contribute to the literature in two aspects. First, to the best of our knowledge, this is the only study that examines the effect of the governing role of banks on the lending decisions of non-bank lenders. Second, our study is associated with the growing body of the governance literature in the emerging markets context by examining the interaction of financial policies and governance in an institutional framework, which is very different from that of the developed world.

Details

International Journal of Managerial Finance, vol. 17 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 15 October 2019

Nemiraja Jadiyappa, Bhanu Sireesha, L. Emily Hickman and Pavana Jyothi

Prior literature demonstrates that the effectiveness of bank monitoring decreases when multiple banks are involved, due to a free rider problem, leading to lower firm…

Abstract

Purpose

Prior literature demonstrates that the effectiveness of bank monitoring decreases when multiple banks are involved, due to a free rider problem, leading to lower firm value. The purpose of this paper is to investigate whether this free rider problem exists in an emerging market context, and whether the relationship between multiple banking relationships and firm value is conditioned on bankers’ incentives to monitor.

Design/methodology/approach

The authors use multivariate panel regression to examine the hypotheses. The conditioning effect of the incentive to govern (the amount of average bank lending) is modeled using an interaction variable. Based on the result of the Hausman test, the authors employ two-way fixed effects estimator to estimate the coefficients.

Findings

First, the negative relationship between multiple banking relationships and firm value holds true among Indian firms. Second, the authors show that this negative relationship is lessened for firms with high average bank debt or higher free cash flows. The analyses suggest that these moderating effects are related to a reduction in the free rider problem rather than a decrease in financial constraints. However, these results are only significant among larger firms.

Originality/value

Prior literature has not considered the conditioning impact of the “incentives to govern” when examining the free rider problem, inherent in situations where multiple actors are involved. The authors show in this study that the free rider problem disappears when the incentives to govern are considered in the overall research framework.

Details

Managerial Finance, vol. 46 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 3 August 2021

Nemiraja Jadiyappa, L. Emily Hickman, Ram Kumar Kakani and Qambar Abidi

The Indian Companies Act 2013 mandated auditor rotations in the financial year 2018–2019. Similar regulations are being considered in many countries, based on the…

Abstract

Purpose

The Indian Companies Act 2013 mandated auditor rotations in the financial year 2018–2019. Similar regulations are being considered in many countries, based on the assumption that longer tenure is detrimental to audit quality; yet, the evidence from investigations of this assumption is inconclusive. This paper aims to examine the effect of moderating factors on the relation between audit quality and audit tenure, given the regulatory trend and the lack of consensus in extant literature.

Design/methodology/approach

This paper examines the relationship between audit quality and audit tenure among Indian firms from 2001 to 2015 and tests for moderating factors including auditor compensation, business group affiliation and chief executive officer (CEO) duality.

Findings

Contrary to the objective of mandatory rotations, this study finds that longer auditor tenure generally enhanced audit quality among Indian firms prior to mandatory rotations. However, for companies paying abnormally high compensation to auditors, this paper finds that longer tenure decreases audit quality, particularly if the firm is affiliated with a business group or firms where the CEO also serves as the board chair. Thus, the potential benefits of mandated shorter tenure appear to be confined to high-fee paying companies with a business group affiliation and/or a dual-role CEO.

Originality/value

This study is one of the first to examine conditioning factors that affect the relationship between audit quality and auditor tenure. Results suggest that regulations limiting auditor tenure would be beneficial only to the shareholders of a narrow group of firms; while for the majority of firms, limiting auditor tenure may actually be counter-productive.

Details

Managerial Auditing Journal, vol. 36 no. 5
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 15 April 2022

Nemiraja Jadiyappa, Emily Hickman and Namrata Saikia

Energy efficiency is critical for global sustainability (International Energy Agency, 2019). The purpose of this paper is to examine how agency conflicts arising from…

Abstract

Purpose

Energy efficiency is critical for global sustainability (International Energy Agency, 2019). The purpose of this paper is to examine how agency conflicts arising from pyramidal ownership structures impact the energy intensity (EI) of group-affiliated Indian firms. Group-affiliated firms face unique governance challenges. For instance, parent owners (promoters) may transfer profits from one group-affiliated firm to another firm in which they have greater ownership. The authors hypothesize that such governance issues will lead to underinvestment in energy-saving projects among group firms in which promoters have a low ownership stake, resulting in their greater EI.

Design/methodology/approach

The authors measure EI as the ratio of total energy expense to total sales revenue (EI) and as the industry-adjusted version of this ratio. Group-affiliated Indian firms are divided into high- and low-stake firms based on the sample’s median promoter ownership.

Findings

Results support the authors’ prediction: group firms in which promoters have low ownership are more energy intensive, consistent with these firms being exposed to greater governance challenges and agency conflicts that result in operating inefficiencies and/or underinvestment in energy-saving projects.

Practical implications

Given energy efficiency will be key in addressing climate change, this study could raise awareness among activists, motivate regulators to consider agency problems among group-affiliated firms in emerging markets and may underscore the importance of environmental-related corporate disclosures.

Originality/value

To the best of the authors’ knowledge, this study is the first to identify the significant impact that firm ownership structure and associated governance challenges have on corporate EI.

Article
Publication date: 4 March 2019

Nemiraja Jadiyappa, Pavana Jyothi, Bhanu Sireesha and Leila Emily Hickman

The purpose of this paper is to examine the effect of CEO gender on the performance of Indian firms and to explain the economic channel for any such effect.

1695

Abstract

Purpose

The purpose of this paper is to examine the effect of CEO gender on the performance of Indian firms and to explain the economic channel for any such effect.

Design/methodology/approach

Using a panel of 100 Indian firms, the authors test whether there is a significant difference in the performance – measured as return on assets (ROA) and return on equity (ROE) – of firms with male vs female CEOs, in both time and space dimensions, using the difference-in-differences approach.

Findings

The average ROA of the sample firms decrease by about 10 percent after a female enters the CEO role. This negative result remains robust in both the time series as well as cross-sectional analyses. The decline is also observed when using ROE to measure performance. Further, the authors show that this negative effect is associated with an increase in agency costs that is observed following the appointment of a female CEO.

Originality/value

Previous studies have produced mixed results regarding the effect of having a female CEO on firm performance, and the research to date has not explored the economic channel through which this effect occurs. In this study, the authors show that the decline in performance observed among Indian firms flows from an increase in agency costs under female management.

Details

Journal of Economic Studies, vol. 46 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 2 June 2021

Nemiraja Jadiyappa, Bhavik Parikh, Namrata Saikia and Adam Usman

The purpose of this study is to examine whether the choice of a firm to spend resources on corporate social responsibility (CSR) activities is associated with its actual…

Abstract

Purpose

The purpose of this study is to examine whether the choice of a firm to spend resources on corporate social responsibility (CSR) activities is associated with its actual social impacts as measured by its energy consumption and the quality of its financial reporting. Based on legitimacy theory, the authors argue firms in India use CSR expenditures as mere smoke screens to build a positive public image.

Design/methodology/approach

By using energy consumption per unit of sale as a measure of real environmental impact, the authors model firms' CSR investment behavior. Additionally, the authors use earnings management measures to examine whether CSR spenders engage in manipulating reported earnings, a practice socially responsible firms would not engage in. These hypotheses are tested using a panel data set of Indian firms for the period 2012–2014.

Findings

Consistent with legitimacy theory, the authors show firms that participate in socially undesirable activities such as heavy energy consumption and accounting manipulation are more likely to pursue CSR voluntarily. Additionally, the authors find evidence suggesting firms that voluntarily engage in CSR tend to have lower firm values.

Originality/value

This study examines the social and environmental concerns of firms that invest in CSR, especially in an emerging market context. The findings help understand the motivation for CSR behavior of corporate firms and may well explain the observed negative relationship between firm value and voluntary CSR spending observed in many emerging market contexts, especially in India.

Details

Sustainability Accounting, Management and Policy Journal, vol. 12 no. 4
Type: Research Article
ISSN: 2040-8021

Keywords

Content available
Article
Publication date: 3 August 2021

Diogenis Baboukardos, Eshani Beddewela and Teerooven Soobaroyen

Abstract

Details

Sustainability Accounting, Management and Policy Journal, vol. 12 no. 4
Type: Research Article
ISSN: 2040-8021

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