Market Reactions to Tender Offers: An Analysis of Target Companies
-- Amporn Soongswang
The study examines the impact of takeovers on target firms for the period 1992-2002 to determine if successful takeovers on the
Stock Exchange of Thailand (SET) benefit firms' shareholders. The market reactions to the takeover announcements during a period of
12 months before and after the takeover are investigated. Abnormal returns are measured using an event study approach and
applying two models and three parametric test statistics. The results suggest that shareholders of the target firms realize the cumulative
average abnormal returns of 31-32% during the announcement month. The examination of post-takeover announcements shows
significantly positive abnormal returns. This study also provides evidence that the market is likely to respond positively to the takeover news
two months prior to the announcement. The successful takeovers enhance positive abnormal returns for the shareholders of target firms
in each time period—before the announcement, during the announcement and after the announcement month. Thus, this study
provides new evidence on the Thai market, indicating that the returns are persistent until the month after the announcement.
© 2009 IUP. All Rights Reserved.
Impact of Aggressive Working Capital
Management Policy on Firms' Profitability
-- Mian Sajid Nazir and Talat Afza
The present study investigates the traditional relationship between working capital management policies and a firm's profitability. Using
the panel data set for the period 1998-2005, the impact of aggressive working capital investment and financing policies has been
evaluated using return on assets as well as Tobin's q. Managers can create value if they adopt a conservative approach towards working
capital investment and working capital financing policies. The study also finds that investors give weight to the stocks of those firms that adopt
an aggressive approach to managing their short-term liabilities.
© 2009 IUP. All Rights Reserved.
Ownership Structure, Performance
and Risk in Indian Commercial Banks
-- Siva Reddy Kalluru
This paper examines the effect of ownership on performance and risk of commercial banks in India during the period 1995-2007.
The study, using t-test, fixed effects and random effects
models, examines whether there exists any significant difference in the
performance and risk among State-Owned Banks (SOBs), Domestic Private Banks (DPBs) and Foreign Banks (FBs), controlling other factors.
The empirical results show significant differences in the performance and risk, and FBs seem to be more profitable and more
risk-taking than both DPBs and SOBs. Bank capital and demand deposits are positively associated and loans are negatively associated with
bank profitability, whereas size of banks and growth rate of economy are negatively associated with bank risk.
© 2009 IUP. All Rights Reserved.
An Empirical Analysis
of Stock Option Plans in India
-- Amitabh Gupta
Indian companies have also started compensating their managers through the issuance of stock options. This paper tests whether
the issuance of stock option plans by Indian companies is viewed by the market as value enhancing or not. The study, using a
standard event study methodology, analyzes the stock market reaction around the announcement of awarding of 57 employee stock option
plans during the period 2006-2007. The study finds no significant price reaction on the announcement day, but does find a significant
positive reaction two days prior to the announcement.
© 2009 IUP. All Rights Reserved.
Financial Liberalization and Its Impact
on Indian Economy: An Urgent Need
for Public-Private Participation
-- Salil Kumar Mukherjee
Critics of the theory of financial liberalization, with their forceful arguments, have attempted to prove that this theory is
inherently inadequate as it fails to capture the contemporary experiences of the world and hence needs to be revisited or in extreme to be
ignored. Some of these formidable criticisms finally inspired McKinnon (1989) to reformulate his alternative growth strategy and the
theorist finally settled for a more pragmatic approach of `restrained financial liberalization'. All these criticisms, however, not necessarily
imply that financial liberalization does not matter; of course, it does. But we emphasize that there is a need to refurbish and reformulate
the neoclassical approach to accommodate the criticisms made against it, so as to develop a more correct, sensible and enlightened
policy capable of supporting the change processes of Less Developed Countries (LDCs). This study proposes to review the policy of
`financial liberalization' for an economy that is plagued by demand crisis, less than fuller capacity utilization and excess liquidity—ills that
are conspicuously prevalent in the Indian economy. The study refrains from making any detailed analysis of the
reasons—interventionists or changed policy environment contributed to the present state of unwarranted economic development—but prefers to focus on
the following questions: (1) If financial system matters for development, will the continuation of present policy of financial
liberalization help us effectively counter inadequacies of Indian economy; if not, are we the victims of `doctor is the disease' syndrome? (2) Is
it realistic to assume that private initiative, coupled with some enlightened state intervention, can help solve more efficiently the problem
of excess liquidity of our country? (3) And, is there any scope for public authorities to influence or suspend the operation of market
forces to deal efficiently with the problems of macroeconomic management?
© 2009 IUP. All Rights Reserved.
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