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2755 items in total found

Working Papers | 2024

Pay Inequality and Firm Performance

Avinash Arya and Neerav Nagar

The rising pay inequality between CEO and rank and file employees has attracted considerable attention from the public, activists, regulators, and academic researchers. High CEO pay may incentivize employees to work hard for promotions and/or can help a firm attract talented CEO. Alternatively, high CEO pay may lead to inequity aversion and decrease employees’ work effort and/or signal rent extraction. We employ an advanced DuPont return on assets (ROA) decomposition to empirically test the predictions of these competing theories about the effects of pay inequality on firm performance. Using a sample of 1,321 Indian firms during 2017-2019 period, we find that pay inequality leads to better future performance as measured by the ROA, providing prima facie support for tournaments and talent assignment. However, an analysis of drivers of ROA reveals that the source of ROA improvement is better asset utilization (ATO). Further decomposition of ATO reveals that pay inequality leads to a significant decrease in labor productivity consistent with inequity aversion. Labor intensity increases significantly and is the sole driver of gains in asset utilization that in turn leads to ROA improvement. In other words, the observed improvements in ROA are simply the result of hiring more employees. Although it makes sense to hire more employees in an economy with low labor costs, it is hard to see as a reflection of executive talent.

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Working Papers | 2024

Impact of Economic Cycles on the Use of Performance Measures in Executive Compensation: An Empirical Examination

Avinash Arya and Neerav Nagar

An extensive body of literature documents the central role played by management accountants in the development of performance measures. However, little research exists on the temporal evolution of performance measures in response to changes in the macroeconomic environment. This study examines the impact of economic cycles on the use of sales and income, two widely used performance measures, in executive compensation. We find that during normal periods income receives greater weight than sales in the Chief Executive Officer (CEO) compensation. When recession strikes firms reduce the weight on income but not on sales, resulting in an increase in relative weight on sales. Further investigations reveal that the cross-sectional variations in the weight on sales and income are conditioned by the life cycle stage of the firm. Growth and mature firms assign more weight to income during normal times and also reduce the weight on income most during recessionary period. In contrast, introductory firms increase weight on sales while decline firms leave weights on sales and income unchanged during recession. We also analyze the compensation of the Chief Sales Officer (CSO). Our results indicate that during normal periods both sales and income receive equal weight. However, during a recession the weight on sales rises significantly while the weight on income falls significantly. These findings indicate that the firms dynamically adjust the weights on sales and income in response to phases of economic cycles. To our knowledge, this is the first study to look at the impact of recession on the use of sales and income performance measures in executive compensation.

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Working Papers | 2024

Busy Directors and Firm Life Cycle

Sakina H. Poonawala and Neerav Nagar

In this paper, we focus on the presence and effectiveness of busy directors. We propose that the presence and effectiveness of busy directors is associated with the life cycle stage of the firm. While firms in the introduction, growth and decline stages of firm life cycle are more likely to demand the services of busy directors as compared to the mature stage firms given the critical needs of such firms, busy directors may prefer to be on the boards of mature firms on account of the attached reputation benefits. We find evidence in support of the ‘supply side’ argument. We find that busy directors are less likely to be present in the introduction and growth stage firms as compared to the mature stage firms. We also find that the presence of busy directors is positively associated with firm performance in the growth and decline stage firms. Overall, we believe that a regulatory limit on the number of directorships held by a director is not a good idea. The directors are talented and knowledgeable enough to choose a firm and the amount of time and effort to exert.

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Working Papers | 2024

Multi-Duty Structures in India’s Gold Import Policies: Evidence of blatant flaws using Trade data of 2023-24

Sundarvalli Narayanaswami and Anumeha Saxena

Policy initiatives to manage gold imports in India have historically relied on the use of customs duty. However, the presence of a multi-duty structure essentially offers gold traders a legal channel to re-route imports with little risk of punitive action. In this paper, we present multiple instances from FY 2023-24 where importers have significantly exploited these loopholes to import at lower rates. We also observe that exhaustive identification of alternative routes that traders can potentially exploit is infeasible. Reactive interventions to curb the traders taking advantage of the loopholes or gaps in policies are also not helpful in the long run. Traders are quick enough to snoop out the best possible channels to maximize their outcomes, which systemically leads to uneven playing fields for different types of traders. Subsequently, we show that the use of multiple taxation structures as a tool to contain Current Account Deficit (CAD) and to facilitate a level-playing market for importers of various sizes, in-fact is counter-effective. Traders are able to quickly discover more loopholes and are able to legally increase their import volumes at lesser imports duty. The current multi-duty structures to manage gold imports and in turn, India’s current account deficit, continue to be weak. To curb such unintended discounts and imports arbitrage in the domestic gold market, it is recommended that a single import duty is levied on all variants of the precious metal.

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Working Papers | 2024

An Empirical Analysis of ‘Scandalous’ and ‘Obscene’ Trade Marks in India

M P Ram Mohan, Aditya Gupta and Vijay V Venkitesh

Morality-based restrictions on trademarks have gained widespread acceptance since their statutory recognition in 1875, appearing in the domestic statutory language of 163 out of 164 WTO member states. Building upon earlier conceptual work, this study empirically examines the administration of India's iteration of moral-based trademark limitations, which prohibit the registration of scandalous or obscene marks. Expanding on a prior anecdotal and purposive study, the authors create a novel dataset to analyze the implementation of the provision. The dataset examines 1.6 million trademark examination reports filed between 2018-2022. Through auto-coding, the authors identify 140 applications objected for containing scandalous or obscene matter. A systematic analysis classifies the objections into three categories - those concurrently raising relative and absolute grounds of refusal, successful circumvention of morality objections through ambiguity, and an alarming lack of objections for potentially offensive marks. The findings provide empirical evidence in the administration of morality-based proscriptions in India.

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Working Papers | 2024

The price of honesty: Indian firms’ response to stringent disclosure regulations

Shubhankar Mishra

Using a regulation implemented by SEBI in November 2016 as an exogeneous shock, I test whether firms with bad quality of information disclosures attempt to conceal firm-specific information when faced with a business environment marked with heightened disclosure quality requirement mandated by law for the CRAs. Specifically, the study empirically attempts to analyze whether regulation is sufficient to create a separating equilibrium, in terms of the quality of disclosures to CRAs by firms. I find a statistically significant decrease in number of security issuances and number of CRAs bad type firms engage with, as well as an increase in the number of security downgrades that they suffer in the post-regulation environment. However, the decrease in number of issues is weakened if the firm is listed, has high proportion of independent directors in its board or gets its statements audited by a Big 4 auditor, all of which signal that the firm is of a good type. These findings indicate that bad type firms strategically chose to reduce their issuances and initiate new firm-CRA relationships after the regulation to conceal their firm type, but they weren’t successful in escaping from the suffering for long.

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Working Papers | 2024

Health Shocks, Risk Aversion, and Consumption Choices: Evidence from Household Intoxicant Spending in India During COVID-19

Bharat Barik

This study delves into the nuanced relationship between heightened health awareness amid the COVID-19 pandemic with household intoxicant consumption patterns in India. The central hypothesis posits the pandemic as a transformative shock, shaping both health awareness and intoxicant consumption, guided by risk aversion. Analysis using a difference-in-differences approach underscores a substantial reduction in intoxicant expenditures for households without health insurance compared to households with health insurance during the pandemic, with specific categories like cigarettes, tobacco and liquor expenditure experiencing a drop for uninsured households. In rural areas households lacking health insurance exhibit a notable reduction in intoxicant expenditures than the rural areas. This study contributes to the understanding of economic and behavioural responses to health crises, offering valuable insights into the complex interplay between risk perception, health awareness, and consumption choices in challenging times.

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Working Papers | 2024

Global Supply Chain Vulnerabilities: Assessing Firm Risk, Environmental Commitments, and Information Channels in the wake of COVID-19

Huzaifa Shamsi

This study investigates the profound impact of the COVID-19 pandemic on firm risk, focusing on supply chain disruptions and their spillover effects on environmental commitments. The research highlights the crucial role of information channels in mitigating these challenges. Employing a Difference-in-Differences (DiD) regression design, the findings reveal a significant increase in default probability among US-incorporated firms with heightened foreign relationships post-COVID-19, particularly those connected to Chinese supply chains. Additionally, firms with foreign relationships show a decline in environmental commitments, suggesting prioritization of survival during adversity. Notably, companies with robust information channels with industry peers exhibit resilience against supply chain disruptions.

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Working Papers | 2023

‘Scandalous’ and ‘Obscene’ Trademark Law: Determining the scope of morality-based proscriptions in Indian Law

M P Ram Mohan & Aditya Gupta

Morality-based restrictions on trademarks are a ubiquitous element of domestic trademark legislations, appearing in 163 out of 164 WTO member states. In 2019, the United States Supreme Court ruled against the constitutionality of

these provisions in Iancu v. Brunetti, and opined that they run afoul of American free speech jurisprudence. The Court’s discomfort was with the structure of the legislative proscription, and they emphasized the significance of linguistic regulation rooted in moral principles within trademark law. The Indian counterpart of these provisions suffer from a unique problem: despite being a part of the legislative framework for over four decades, no legislative or judicial body has interpreted morality-based proscriptions in India. Examining the administrative practices of the Indian Trade Marks Registrar and reviewing the Indian Trade Marks Register convey an inconsistent application of this provision. The findings highlight a need to develop comprehensive guidelines. This paper underscores the legislative language of Australian law as the closest analogue to Indian law on the subject and proposes an overarching framework for discerning the import and meaning of ‘scandal’ and ‘obscenity’ within the context of Indian law.

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Working Papers | 2023

Conceptualizing Systemically Important Technological Institutions as Too Big to Fail Entities: Moving the Insolvency Goal Post

M P Ram Mohan & Sai Muralidhar K

The concept of Too Big To Fail (TBTF) has, for the longest time, been associated with systemically important banks, insurance companies and other financial institutions. The emergence of Big Tech companies, which permeates global markets, challenges the traditional notions of TBTF. Big Tech companies growing size and interconnectedness to the global economy have led to concerns emerging in the domains of antitrust law, data privacy laws, and financial stability. A key facet of financial stability regulation is the development of robust insolvency resolution frameworks to deal with potential failures of TBTF companies. The paper analyses whether Big Tech companies pose systemic risks to the financial system and the broader economy and, consequently, if they are TBTF, should there be special insolvency resolution frameworks akin to other systemically important institutions. The systemic risks Big Techs pose today may be substantially higher than traditional TBTF firms due to their deep interconnectedness with financial institutions. The paper explores the concept of Systemically Important Technological Institutions and the challenges in designating them as TBTF.

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