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3819 items in total found

Working Papers | 2016

Executive Stock Options: Will It Work as a Good Governance Mechanism in all Scenarios?

Preet Deep Singh and Chitra Singla

Agency theory proposes different mechanisms to mitigate agency costs in the firms. An executive stock options (ESoPs) is one of such mechanism, which is given to the CEO of the firm to align CEO's goals with that of the owners. In this paper, we contend that ESoPs will not work as a good governance or mitigation mechanism in all types of firms. ESoPs can be an effective mitigation mechanism for a firm with dispersed ownership but it might not be the case for a firm with majority or block shareholding. We extend this argument for ESoPs given to board members as well. We present a framework to understand when it makes sense for a firm to incentivise top management with ESoPs.

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Working Papers | 2016

Impact of Continuous Auditing on Earnings Quality and Audit Fees

Naman Desai, Joshy Jacob, and Arindam Tripathy

The use of continuous auditing (CA) has been promoted as a means to improve the governance mechanisms of companies. Prior experimental research also indicates that external auditors tend to rely more and spend relatively lower audit effort on the CA based IA functions compared to traditional periodic audit (PA) based IA functions. If CA could improve corporate governance mechanisms it should result in superior quality of reported earnings. Additionally, if the auditors rely more and spend relatively less effort on CA based IA functions then it should result in lower audit fees for companies employing CA based IA functions. Therefore, we examine the impact of employing CA on the quality of reported earnings as evidenced by the magnitude of discretionary accruals and on the fees charged by the external auditors. The results indicate that there is no significant difference in the level of discretionary accruals between companies employing CA versus PA. However, we find that, the companies employing CA do pay significantly lower audit fees than companies employing PA. This result provides external validity for the results of prior experimental research.

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Working Papers | 2016

Auditors' Consideration of Material Income-increasing versus Material Income-decreasing Items: Are Conservatism and Risk affected by Company Level Information?

Naman Desai

Auditors tend to focus more on income-increasing items compared to income-decreasing items because they are trained to be more conservative and also because the risk of litigation is significantly higher for failing to detect material income-increasing items compared to material income-decreasing items. Auditors' consideration of transaction level items is also affected by their evaluation of company level information. In this study we examine how the interaction between company level information and sign of the material items affect auditors' evaluation of income-increasing and income-decreasing items. The results indicate that in the absence of company level information, auditors intuitively associate a higher risk and audit effort to income-increasing items. When the company level information indicates that management is under pressure to inflate earnings, auditor conservatism and risk associated with income-increasing items gets amplified leading to an increase in the difference in assessed risk and audit effort between income-increasing and decreasing items. However, when the company level information indicates that management is not under pressure to inflate earnings, there are no significant differences in assessed risk and audit effort between income-increasing and income-decreasing items. These results indicate that auditor conservatism is affected by company level information

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Working Papers | 2016

Are auditors unable to detect classification shifting or merely not willing to report it? Evidence from India

Naman Desai and Neerav Nagar

Prior research suggests that Big-4 auditors fail to curb classification shifting in the countries with weak legal institutions. However, it is not known whether the auditors are unable to detect the use of this earnings management tool or if they are able to detect such misclassifications but are not motivated to report them. We conduct two experiments to examine this issue. Our results indicate that, auditors are sensitive to various types of classification shifting while assessing fraud risk and audit effort. However, their willingness to report such discretionary earnings management is affected by the overall legal liability regimes and institutional controls of the region in which their clients operate. More specifically, our results indicate that the presence of weak legal institutions in a country reduces the litigation risk faced by auditors which make them less likely to report misclassifications. On the other hand, auditors are significantly more likely to report misclassifications by qualifying their audit report if, a company is cross listed in a country with strong institutional controls and legal regime.

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Working Papers | 2016

Does Working for a Not-For-Profit Organization Affect the Psychology of Corruption? Evidence from India

Naman Desai

The primary purpose of this study is to examine if volunteering for Not-for-Profit Organizations (NPO) which are involved in providing social welfare services and which actively promote socio-behavioral factors like social responsibility, leadership and self-confidence among its volunteers, reduce an individual's likelihood of engaging in corrupt practices. We identify two psychological traits: ability to rationalize one's unethical actions and an external Locus of Control (as compared to an internal Locus of Control) that affect unethical behavior. Then with the help of an NPO, we investigate if engaging in social welfare activities organized by such NPOs, would create awareness about the adverse consequences of corruption faced by large segments of the society which, in turn would make it difficult to rationalize unethical and corrupt acts. NPOs also actively strive to develop self-confidence and leadership skills among its volunteers. Prior literature indicates that individuals possessing such qualities are more likely to possess an internal Locus of Control and also that individuals possessing an internal Locus of Control are less likely to act in a corrupt manner. The results of our study using a between subjects design indicate that greater experience with such NPOs leads to a significant reduction in ability to rationalize and leads to a higher likelihood of having an internal Locus of Control. Based on these results it can be inferred that volunteering with certain types of NPOs mitigates two major behavioral factors leading to corrupt behavior.

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Working Papers | 2016

Impact of Board and CEO characteristics on Firms' Performance

Chitra Singla

Corporate governance characteristics like board composition and leadership impact a firm's performance. Researchers have attempted to explain the relationship using different theoretical perspectives like agency theory, resource dependence theory, and stewardship theory. However, the literature presents ambiguous results where some empirical findings support negative impact and other support positive impact. In this paper, we argue that ambiguity in results could be due to the context specificity of the nature of this relationship. In some contexts, agency theory might be more valid than other theories and in others stewardship theory or resource dependence theory might be more valid. Building on this context specificity, we look at the relationship between board and CEO characteristics on firm's performance in a longitudinal sample of Indian firms. Our findings suggest that none of the above mentioned theories are completely valid in the India context because we get mixed support for these theories. This calls for a mid-range theory to explain the relationship between corporate governance characteristics and firm's performance.

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Working Papers | 2016

Is Marketing a Science: Debate Revisited

Dheeraj Sharma

In pursuance of determining the scientific status of marketing, this article first determines what constitutes science. Thereafter, the article conducts a formal analysis of various schools of thought of science. Specifically, the article offers a comparison between historical relativism, scientific realism, logical empiricism, and logical positivism. Furthermore, in view of analysis, this article examines if marketing qualifies to be a science. Finally, the article attempts to offer a resolution to the ongoing debate on scientific status of marketing by proposing resource advantage theory as a general theory of marketing.

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Working Papers | 2016

Ownership Structure and Internationalization of Indian Firms

Chitra Singla, Rejie George, and Rajaram Veliyath

This paper examines the relationship between ownership structure and the firm internationalization, in a longitudinal sample of Indian firms. Drawing from principal-principal (PP) agency theory and the resource-based view (RBV) of the firm, we argue that divergent motivations among the firm's owners affect the firm's inclination to pursue internationalization, while resource heterogeneity among the firm's owners affects the firm's capability to pursue internationalization. Since both motivation and capability are required for a firm to pursue any strategic initiative, we argue that differences in ownership, which influences both the motivation and the capability of firms, impact firm's internationalization strategies in different ways. In addition, through examining two modes of internationalization, i.e., outward foreign direct investment (FDI) and exports from a prominent emerging economy, we uncover an interesting dichotomy. While family and other domestic owners favor exports (and not FDI), foreign owners favor both exports and FDI. Further, we find that family owners have a dominant influence on internationalization and their preferences appear to supersede those of the other owners.

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Working Papers | 2016

Trends in Strategies and Performance of the Indian Corporate Sector
What has changed in two decades of economic reforms?

Rakesh Basant and Pulak Mishra

In the context of various policy initiatives made during the last two decades to reform the Indian economy in general and corporate sector in particular, this paper documents strategies followed by firms in this period and the resultant changes in business conditions. We find that although the rate of growth of the industry sector has not accelerated following economic reforms probably due to slow growth in agriculture and industrial productivity, investment in general and FDI in particular have shown considerable increase. Increase in competitive pressures seems to have resulted in firms adopting a variety of strategies. While reliance on mergers and acquisitions (M&As) has increased to restructure business and grow, the role of embodied technology purchase has declined in relative terms with firms depending somewhat more on in-house R&D, disembodied technology purchase and FDI linked technology inflows. There are some signs of a growing domestic technology market as well. Although strategies of building marketing and distribution related complementary assets continue to be important for implementing the strategy of product differentiation, their role seems to have declined in a relative sense as these expenses as a proportion of sales show a declining trend. The emerging competitive pressures have significantly raised the importance of sub-contracting/outsourcing in manufacturing possibly as an alternative to the strategy of vertical integration, a measure of in-house value addition. While cost-efficiencies do not show improvements, export orientation has increased significantly across industries and import penetration has seen a marginal decline. Overall, the observed trends of corporate response to economic reforms are interesting, but one needs to systematically explore how M&As led consolidation and flows of FDI are linked to the adoption of various non-price strategies relating to technology and product differentiation. As economic reforms deepen and competitive pressures build up, an analysis of these interactions would provide useful insights for understanding corporate behaviour and for making policy choices.

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Working Papers | 2016

Incorporating gender and age in genetic algorithms to solve the indexing problem

Diptesh Ghosh

In this paper we propose new genetic algorithms for the tool indexing problem. Genetic
algorithms are said to be nature-inspired, in that they are modeled after the natural process of
genetic evolution. The evolution process that they model is asexual in which individuals can
potentially live forever. In this paper, we propose a genetic algorithm in which solutions are of
two genders, reproduction happens by a combination of solutions with dierent genders, and
each solution has a nite life. We compare our genetic algorithms with the best known genetic
algorithm for the tool indexing problem and report our computational experience.
Keywords: Genetic algorithm, permutation problem, crossover, mutation

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