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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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Journal Articles | 2023

Going the Extra Mile: What Taxi Rides Tell Us About the Long-Hour Culture in Finance

Deniz Okat and Ellapulli V. Vasudevan

We analyze banks’ “protected-weekend” policies that restrict junior bankers from working during weekends. We use taxi rides from bank addresses in New York City to infer bankers’ working hours. We find the policies induced bankers to shift their work to late-night hours on weekdays. We then investigate whether such shifts in working hours affected the quality of work. After the policy, analysts of the policy-implementing banks make more errors in their earnings forecasts. They also herd more toward the consensus in their forecasts. We further provide evidence that junior bankers are the most adversely affected by the policy.

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Journal Articles | 2023

Cooperative Security Against Interdependent Risks

Sanjith Gopalakrishnan, Sriram Sankaranarayanan

Firms in interorganizational networks are exposed to interdependent risks that are transferable across partner firms, such as contamination in food supply chains or data breaches in technology networks. They can be decomposed into intrinsic risks a firm faces from its own operations and extrinsic risks transferred from its partners. Firms have access to two security strategies: either they can independently eliminate both intrinsic and extrinsic risks by securing their links with partners or, alternatively, firms can cooperate with partners to eliminate sources of intrinsic risk in the network. We develop a graph-theoretic model of interdependent security and demonstrate that the network-optimal security strategy can be computed in polynomial time. Then, we use cooperative game-theoretic tools to examine, under different informational assumptions, whether firms can sustain the network-optimal security strategy via suitable cost-sharing mechanisms. We design a novel cost-sharing mechanism: a restricted variant of the well-known Shapley value, the agreeable allocation, that is easy to compute, bilaterally implementable, ensures stability, and is fair. However, the agreeable allocation need not always exist. Interestingly, we find that in networks with homogeneous cost parameters, the presence of locally dense clusters of connected firms precludes the existence of the agreeable allocation, while the absence of sufficiently dense clusters (formally, k-cores) guarantees its existence. Finally, using the SDC Platinum database, we consider all interfirm alliances formed in the food manufacturing sector from 2006 to 2020. Then, with simulated cost parameters, we examine the practical feasibility of identifying bilaterally implementable security cost-sharing arrangements in these alliances.

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Journal Articles | 2023

Infrastructure and Finance: Evidence from India's GQ Highway Network

Abhiman Das, Ejaz Ghani, Arti Grover Goswami, William R. Kerr & Ramana Nanda

We use data from Reserve Bank of India to study the impact of India’s Golden Quadrilateral (GQ) highway project on finance-dependent activity. Loan volumes increase by 20%–30% in districts along GQ and are stronger in industries more dependent upon external finance. Loan growth begins with increases in average branch size and in places with more pre-GQ loan activity. New branch openings come later, consistent with short-run adjustment costs to expanding branch networks. These patterns are not evident in placebo tests using delayed investments in NS-EW highways. Results suggest the depth of initial financial infrastructure shapes how infrastructure investments impact localities.

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Working Papers | 2023

Small Businesses and Digital Platforms

Nishant Chadha, Viswanath Pingali and Daniel Sokol

We investigate strategies of small businesses’ usage of digital platforms for advertising and sales. We rely on primary data from a quantitative survey of small business startups, and a few in-depth interviews of small business owners. We find that small firms prefer digital platforms for advertising and sales over conventional methods. As firms grow, while they continue to rely on digital advertising, their preference for conventional advertising (radio, television, etc.) increases. We find a strong correlation between the geographical spread of small firm sales, including exports, and their propensity to use digital platforms. We also find that small businesses multihome on both advertising and sales platforms. Multihoming occurs across established platforms and between established and nascent platforms. Our results enhance the understanding of how small firms rely on platforms and inform the policy debates on platform regulation.

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Working Papers | 2023

Tracing Economic Policies to Ancient Indian Economic Ethics

Satish Y. Deodhar

Science without history is like a man without memory. The colossal history of India stores many ideas on economic ethics and public policy which have been forgotten in the course of time. This paper is an attempt to bring to the fore, contributions from ancient Indian treatises. In this context, the paper briefly summarizes alternative economic ideas such as communism, capitalism, and the holistic approach of ancient Indian writings. I discuss the idea of the welfare brick for an individual consisting of three dimensions – Purusharthas, Ashramas, and Varnas. Given the contours of the welfare brick, next I discuss the concept of state and its economic policies, followed by coverage of markets, prices, interest rates, and credit. Thereafter, I delve into treatment of land, property rights, and guilds and unions, with special attention to labour relations covered in Arthashastra and Shukranitisara. The penultimate section summarises the economic advice author of Shukrantisara offers to the head of a household. Finally, in concluding comments, I bring out the relevance of ancient Indian writings for modern times –both for pedagogy and economic policies.

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