CNX NIFTY Index Reorganizations and Firm Performance

--Abdul Rahman and Prabina Rajib

Stock index reorganizations are monitored by the investors, since the firms’ earnings are expected to be impacted by these reorganizations, which in turn affect the firm performance. This study examines the extent of change in firm’s performance attributed to revisions to the CNX NIFTY index during the period 1998 to 2011. The results report a decrease (increase) in change in the absolute Earnings Per Share (EPS) and the standardized EPS for inclusions (exclusions) compared with their matching peers. Further, the study also examines the firm performance with the help of performance measurement parameters like EPS, Return on Assets (ROA), Return on Equity (ROE), Price to Earnings (P/E) ratio, and Tobin’s Q. There was a decrease in firm performance of inclusion firms, whereas the opposite was true with the exclusions.

© 2017 IUP. All Rights Reserved.

Deposit Money Banks’ Efficiency and Financial Inclusion in Nigeria: A DEA Approach

--Taofeek O Ayinde

This study investigates the effect of deposit money banks’ efficiency on financial inclusion in Nigeria for the period 2006 to 2013. A non-parametric output-oriented variable return-to-scale Data Envelopment Analysis (DEA) approach is employed to ascertain the technical efficiency of these banks, from which the efforts at ensuring financial inclusion are inferred. The study found that deposit money banks in Nigeria are technically efficient, but individually inefficient, as an industry as well as a sector of the economy in ensuring financial intermediation. This result of technical inefficiency is also complemented by the findings of profit inefficiency for the period under investigation through the use of Financial Ratio Analysis (FRA) approach. On the whole, the results show that both the DEA and the FRA approaches are found complementary rather than competing measures. The study shows that even though the number of depositors and the number of bank branches have reasonably improved, the financial intermediation drives of the deposit money banks are still weak. Therefore, the study recommends that the central bank should regulate the deposit money banks in employing a stakeholder’s perspective to financial inclusion and not a selective one which is currently being undertaken by the banks. Also, socioeconomic infrastructure should be developed by the government to enhance banking spread far and wide, while proper orientation and incentive, if need be, should be given to encourage the savings habit of the populace.

© 2017 IUP. All Rights Reserved.

External Commercial Borrowing in India and its Sensitivity to Macroeconomic Factors: An Empirical Analysis

--Surya Dev

The share of External Commercial Borrowing (ECB) in the total external borrowing is rising in India. The government is also progressively relaxing the rules to raise ECB. The present study empirically examines ECB in India and its relationship with the exports, imports, Index of Industrial Production (IIP), Foreign Investment (FI), Exchange Rate (ER) and Interest Rate Differential (IRD) for the period September 1999 to September 2012 on a quarterly basis. It also tries to ascertain the cost of ECB, which normally is believed to be cheaper, against the three currencies—US Dollar (USD), Japanese Yen (JPY) and Great Britain Pound (GBP)—for the period 1978-2011. The methodology adopted for this study is based on the application of time series econometrics. It is observed, on application of Augmented Dicky Fuller test and Phillips-Perron test, that the time series of each variable is non-stationary at level and stationary at first difference and, therefore, is subjected to the analysis as a Vector Error Correction Model (VECM). From the cointegrating vector it is found that there is a significant long-term positive relationship with IIP, IRD and ER and a negative relationship with imports and FI. In the short run, imports, IRD, ER and FI have positive relationship with ECB, while exports and IIP show a negative relationship. The Granger causality test shows that there is a unidirectional causality. The variance decomposition analysis shows that most of the movements in ECB are explained by the IRD, followed by IIP. The ECB in JPY has been found to be cheaper than in the GBP or in USD in most of the years.

© 2017 IUP. All Rights Reserved.

An Analysis of Portfolio VaR: Variance-Covariance Approach

--Poornima B G and Y V Reddy

With the growing exposure and linkages of Indian financial markets with the international financial markets, a rational investor (individual or institutional) would opt to reap the benefits of international investment opportunities by constructing a portfolio which would generate good returns with least risk. At the same time, the investor is unaware of the expected degree of return and risk inherent in the portfolio. This requires predicting the market risk of a portfolio using appropriate model. As such, the study attempts to calculate the portfolio market risk of domestic and international hypothetical portfolio using VaR-CoVaR (Variance-Covariance) model. The daily closing prices for a period ranging from 2000 to 2014 of Nifty Spot (NSR), Nifty Future (NFR), INRUSD currency pair Spot (USR) and INRUSD currency pair Future (UFR) are considered for building hypothetical domestic portfolio. The daily closing prices of BRICS nations, US and UK equity market indices from January 2000 to December 2014 have been considered for international portfolio. The investors are classified as risk-averse, risk-neutral and risk-takers. The study concludes that VaR-CoVaR model provides accurate results at 95% and 90% confidence intervals.

© 2017 IUP. All Rights Reserved.