Theory of Market Timing
and Asymmetric Information : Empirical Evidence with Dynamic Views
-- Paritosh Chandra Sinha and Santanu Kumar Ghosh
The present study hypothesizes that the firms which follow the Pecking Order Theory (POT) may consistently move towards the
Market Timing Theory (MTT) with dynamic revisions. Here, we argue that the cost of asymmetric information related to the equity (or
debt) financing reduces in the overvalued (or undervalued) equity market. In the absence of significant overvaluation or undervaluation,
firms finance through internal equity. Hence, by applying a time varying "dynamic market timing measure", the study examines firms'
market timing strategy to explain the behavior of the cost of asymmetric information. In the case of debt financing, the study confirms that the
cost of asymmetric information involves dynamic revision in the short run, but the same disappears over the long run periods when firms
tend to follow the MTT consistently. On external equity, the study results suggest that firms' successful market timing lacks persistency and
does not happen consistently over the long run study period.
© 2009 IUP . All Rights Reserved.
Working Capital Requirements and the Determining Factors in Pakistan
-- Mian Sajid Nazir and Talat Afza
Literature on corporate finance has traditionally focused on the study of long-term financial decisions. Researchers have examined,
in particular, the investment decisions, capital structure, dividends or company valuation decisions, among other topics. However,
short-term assets and liabilities are important components of total assets and need to be carefully analyzed. Management of these short-term assets
and liabilities warrants a careful investigation because working capital management plays an important role in a firm's profitability as well
as its value (Smith, 1980). The optimum level of working capital is determined, to a large extent, by the methods adopted by the
management. Continuous monitoring is required to maintain optimum levels of various components of working capital, such as cash
receivables, inventory and payables. In line with the studies of Afza and Nazir (2007 and 2008), the present study examines the factors that
determine the working capital requirements of the firms. For this purpose,
a study of 132 manufacturing firms from 14 industrial groups that
were listed on Karachi Stock Exchange (KSE) between the period 2004-2007 was
undertaken. While the working capital requirement was
used as the dependent variable, various financial and economical factors, such as operating cycle of the firm, level of economic activity,
leverage, growth of the firm, operating cash flows, firm size, industry, return on assets and Tobin's q, were used as the determining factors of
working capital management. Regression analysis was carried out on the panel data for 132 non-financial firms over a period of nine years.
Finally, the study suggests some policy implications for the managers and investors of Pakistani markets.
© 2009 IUP . All Rights Reserved.
Impact of Analyst Recommendations on Stock Prices
-- Yogesh Kumar, Chakrapani Chaturvedula,
Nikhil Rastogi
and Nupur Pavan Bang
The paper studies the impact of buy and sell recommendations issued by analysts on the stock prices of companies listed on the
National Stock Exchange (NSE) of India. Event study methodology is used to compute the abnormal returns around the event window, which is
taken as - 10 to +10. The study finds that buy recommendations issued by analysts on public domains help the investors generate
abnormal returns on the day of the recommendation. On the other hand, sell recommendations do not show significant negative abnormal returns.
© 2009 IUP . All Rights Reserved.
Business and Financial Risks in Indian Corporate Sector : An Empirical Analysis in the Post-Liberalization Era
-- Amit K Mallik and Debasish Sur
In today's challenging and competitive environment, the task of designing appropriate strategies for managing risks in
accomplishing the wealth maximization objective of corporates is of utmost importance. The opening up of Indian economy in 1991 has
injected tremendous competition among business firms. With the significant changes in the business environment, the earning trends and
the financing policies in the Indian corporate sector have also changed remarkably. It leads to notable changes in the pattern of business
as well as financial risks associated with the corporates. Although much attention has been paid to analyze the issue relating to
business and financial risks during the last few decades, the same has not been addressed with due importance in the post-liberalization
period, particularly in the Indian context. In this backdrop, the present study seeks to analyze the business and financial risks in the
Indian corporate sector during the period 1995-96 to 2006-07 and also to examine whether its findings conform to the theoretical
arguments. The sample size of the study consists of 50 companies which have been selected by taking the top five companies (based on net
sales revenue) from each of the 10 selected industries.
© 2009 IUP . All Rights Reserved.
Structure and Reform of Capital Gains Taxation in India
-- Rajni Uppal
Taxation of capital gains has been a controversial issue. The controversy revolves around the issue as to whether capital gains are
income or not. Income tax is a tax on income and is not meant to be a tax on anything else. The argument against the taxation of capital
gains, according to accounting and commercial concepts, is that it is not an income and that capital gains are unexpected and unsought, and
as such cannot form part of taxable income. The argument for taxing capital gains is based on equity and efficiency considerations. Despite
the controversy surrounding the chargeability of capital gains, tax on capital gains is levied in India. The issue, therefore, is how the
capital gains tax is computed. The present paper attempts to evaluate the structure and reforms of capital gains taxation in India. After
going through the evaluation of tax on capital gains, the study concludes that the taxation of capital gains in India has failed in its real
objective to raise revenue in an efficient manner, to plug the possible leakages in tax collections, to use the capital gains tax provisions as
social welfare measure and also as an incentive to give direction and growth to the economy.
© 2009 IUP . All Rights Reserved.
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