Editor-in-Chief · (2015-2016) GITAM School of International Business GITAM University is...

Editor-in-Chief

V.K. KumarDean & Director, GITAM School of International BusinessGITAM University

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Radha RaghuramapatruniGITAM School of International BusinessGITAM University

Shahazadi Begum ShaikGITAM School of International BusinessGITAM University

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V.L. RaoGITAM School of International BusinessGITAM University

G.P. SharmaIndian Institute of Foreign TradeNew Delhi

Pithamber R. PolsaniRightSkill HCSBengaluru

Global Vistas :

A biannual journal of the School comprising papers on important contemporary themesin international economics and business; updates on international trade and business;practitioners’ perspectives; Book Reviews & Abstracts; CEO Interviews; andsummaries of best Summer Project Reports of our students. The papers are generallynon-technical and related to policy issues and business oriented. The updates arefrom various national and international organizations on varied themes and issuesof current interest.

The views expressed are those of the authors themselves and not of the School.

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Industry analysts, policy makers, academicians and others interested in the themesmentioned above are welcome to send us papers / book reviews. The papers / bookreviews may be emailed to : [email protected]

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Volume-1 July 2015 Global Vistas

C O N T E N T S

Page No.

1. Impact of Inventory Management on the Profitability of Listed Cement 01Companies in TanzaniaSrinivas Madishetti

2. Determinants of Profitability: Evidence from Indian Microfinance Institutions 11Dharmendra S. Mistry

3. Attitude of Academicians towards Stock Markets: Awareness & 18Investment PatternAjay Kumar PatelParul Bhatia

4. Interviews 29

� Amb. H H S Viswanathan, Distinguished Fellow, ObserverResearch Foundation, New Delhi

� Mr. Prahalathan Iyer, Chief General Manager,EXIM Bank of India, Mumbai

5. International Trade and Business Updates 36

6. Book Review 38

• Jugaad Innovation: A Frugal and Flexible Approach to Innovation for the 21st

Century (Randon House India) reviewed by Prashant Raman & Usha Raman


Gandhi Institute of Technology and Management (GITAM), founded in 1980 has been declared as a Deemedto be University U/S 3 of the UGC Act 1956 on August 14, 2007. GITAM Institute of Foreign Trade(GIFT), an autonomous Institute of GITAM, has now been brought into the ambit of GITAM Universityand declared as GITAM School of International Business (GSIB) and recognized as School of Excellencein GITAM University.

The School invites applications for admission to Ph.D./ M.Phil. programmes in the following researchareas:

� Global Logistics and Supply Chain Management� International Finance� Marketing� International Trade and Finance� Operations Research� Accounting� Economics� Management in the global context

The deserving candidates selected for Ph.D. (FT) will be considered for research assistantship of the School.

Details of the Programmes, eligibility criteria, application form and other details are available on ourweb site.

IMPORTANT DATES :Last date to submit filled in application form : 19.09.2015Admission Test & Interview : 26.09.2015

Download application form and filled in applications should be sent to:

Prof.R.VenkateswarluChairperson-Research Programmes

GITAM School of International Business(Formerly GIFT), GITAM University

GITAM Campus, Rushikonda, Visakhapatnam – 530 045, A.P.,Ph. +91 –0891-2840406, 09441354376 Fax : +91 -0891-2790036Email : [email protected], Website : www.gsib.org

Admission to Ph.D./M.Phil. Programmes(Full – Time / Part – Time)

(2015-2016)

GITAM SchoolofInternational Business

GITAM University is accredited with ‘A’ Grade by NAAC, UGC, MHRD, Government of India

Admissions to one year Post-Graduate Diploma in Business Analytics are open for the year2015-16. It is jointly offered by IBM and GITAM School of International Business. For detailsvisit www.gsib.org. Contact Dr.Pramod Kumar Mishra, Mobile No: 8142279454.


*Professor, Mzumbe University, Tanzania.

I. Introduction:

The investment in any business, especially corporatesector, broadly can be classified as investment forcreating capacities in the form of noncurrent assets/fixed capital and investment for making use of suchcreated capacities efficiently in the form of currentassets/working capital. Both aim at maximizingprofitability. In this endeavor working capital playsa pivotal role in making use of the created capacitiesfor getting output and channelizing the same forconsumers to generate profitability. Business viability,profitability, growth and prosperity are closelyassociated with efficiency in managing the workingcapital. The objective of Working Capital Management(WCM) is to maintain the optimum balance of eachof components of working capital viz; receivables,inventory and payables and using the cash efficientlyfor day-to-day operations. Optimization of workingcapital balance means minimizing the investment inworking capital and realizing maximum possiblerevenues. Efficient WCM increases firms’ free cashflow, which in turn increases the firms’ growthopportunities and return to shareholders.

Impact of Inventory Management on the Profitability of ListedCement Companies in Tanzania

Srinivas Madishetti*

Abstract

This study analyses the impact of inventory management efficiency on profitability of Listed cement Companiesin Dar es Salaam Stock Exchange (DSE) of Tanzania on the basis of 8 years (from 2006 to 2013) data ofall the two DSE listed companies viz; Tanga Cement Company Ltd (TCCL) and Portland Cement CompanyLtd (PLCCL) by applying descriptive statistics, correlation and OLS regression. Inventory Turnover In Days(ITID) is taken as independent variable. Current Ratio (CR), size of the firm (measured in terms of naturallogarithm of sales, CSLn) has been used as control variables. Log Gross operating income is taken as dependentvariable (GOPLn). As per the descriptive analysis, the performance of TPCCL is comparatively better in thecase of CR when compared to industry and also TCCL. The performance of TCCL is comparatively betterin the case of ITID. Industry correlations between ITID, CSLn and GOP are significant and are in requireddirection. The regression analysis results showed that there is a positive relationship between INTID and profitabilitywhich is against expectation. It can be concluded that there is ample scope for both the companies to investefforts for improving the impact of ITID on profitability investigating about causes for positive relationshipbetween both variables.

Working capital is the difference between resourcesin cash or readily convertible into cash andorganizational commitments for which cash will soonbe required. It includes all current assets like inventories,receivables, short securities and current liabilities liketrade payables and short term commitments.Considerable managerial time and efficiency is requiredin managing components of working capital becauseof the very nature of convertibility of Current assetsinto different forms continuously over a period ofoperating cycle. They need to be converted from cashto all inputs like material, work in process, finishedgoods, and receivables and finally cash. Similarlycurrent liabilities are to be honored on time for whichefforts are required to maintain sufficient liquidity.This necessitates continuous involvement ofmanagement not only for making decisions but alsofor their effective execution. Taking the conversionefficiencies of all the working capital components andmanagerial philosophy and industry nature intoconsideration, the management has to plan the amountof investment in WC. Over- investment in workingcapital creates idle capital without any benefit andunder- investment may keep the firms credit worthinessat stake.

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Among the three prime components of working capital,inventory plays a significant role in impactingprofitability. The relationship between ability of efficientInventory management and profitability varies acrossdifferent industries due to their nature, economic andbusiness environments of countries and approachesfollowed by the managements. Firms in an industrythat has less competition, more suppliers of inventory,continuous supply of inputs would focus on minimizingthe investment in inventory compared to firms wherecompetition is high input availability is scarce andvery few suppliers are available.

Similarly efficient management of Inventory is closelyassociated with terms of purchase, purchase quantitydecisions taking into account the nature of inputs andterms of purchase, ability of converting inventory intosales and finally into cash and deciding optimuminvestment in inventories. Over investment may leadto out dated inventory and cause losses and underinventory may lead to shortage and breakdowns incontinuous activity. The relationship between ITID andprofits indicate the efficiency of management inmanaging inventories.

II. An over view of Tanzania and cement industry:

An Overview of Tanzania

Tanzania is located in eastern Africa bordering theIndian Ocean, between Kenya and Mozambique. Otherneighboring countries include: Burundi, DemocraticRepublic of the Congo, Malawi, Rwanda, Uganda andZambia. The country encloses an area of 947,300 squarekilometers with a coastline of 1424 kilometers andis a home of some of the world’s greatest landmarksThe Kilimanjaro – which is the highest mountain inAfrica standing at 5895 meters above sea level, LakeVictoria – the world’s second largest freshwater lakeand Lake Tanganyika – The world’s second deepestlake. Tanzania is also known for a variety of wildlifewith over fifteen national parks and game reservesaround the country. In addition to all this, the countryhas abundant supplies of natural resources which includegold, diamonds, coal, natural gas and a wide varietyof gemstones. Population wise Tanzania is home toaround 41.05 million among which 21.23 million (2009estimated) are considered to be labor force. All thismakes Tanzania one of the world’s wealthiest nations

from a biological point of view. (CIA World fact book).Despite all this wealth, Tanzania is ranked as one ofthe world’s poorest countries as its population belowpoverty line was at a record high of 36% (2002 est.),the estimated GDP per capita in 2009 was USD 1400,which is absolutely trivial compared to that of theother member country South Africa which was USD10,100 in the same year. (CIA Fact book).

Cement industry in Tanzania

Tanzania, as a developing country, committed forundertaking planned activities for its economicdevelopment relying on the philosophy of LiberalizationPrivatization and Globalization. As a part of thisprogram it has included in priority for infrastructuredevelopment such as roads, bridges, factories, projects,housing, universities etc. which necessitates basic inputslike iron and steel, cement. The cement makers operatingin the country include Tanzania Portland CementCompany Ltd(TPCCL), which is 69.3 per cent ownedby a subsidiary of Germany’s Heidelberg Cement AG; Tang Cement Company Ltd( TCC), 62.5 per centowned by Afrisam Mauritius Investment HoldingsLimited; and Mbeya Cement, 62.76 per cent ownedby France’s Lafarge SA. Lake Cement and Lee CementFactory are two latest entrants in Tanzania’s cementmanufacturing and marketing sector with their coreproducts under brand names of Nyati cement and Kilwacement respectively. Tanzania expects to double itscement output over the next few years according toa report by the Daily News. The news agency reportedthat Tanzanian Deputy Minister for Industry and Trade,Janet Mbene expects the country’s annual cementproduction to rise to 6 million tons with the futureopening of seven new factories. According to the article,cement consumption is viewed as a barometer forconstruction activity, which is one of the main driversof economic growth in the country. Tanzania’s cementoutput rose by 18.9% last year, to slightly above 3million tons on the back of higher demand. Mbenesaid the rise in output would mean Tanzania wouldproduce a surplus to be exported (Infrastructure News,internet source)

Out of all the companies existing today only twocompanies are public companies registered in Dar esSalaam Stock Exchange and remaining are privatecompanies. Further, from those private companies, two

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companies started their activity in the last year. Hence,this study is confined to two listed companies only.

III. Purpose of this study:

The main purpose of this study is to study the impactof managerial efficiency in Inventory managementon profitability of under researched cement industryin Tanzania. The specific objectives of the study include:

i. To find the impact of Inventory turnover in dayson profitability

ii. To find the impact of size on the profitability ofCement companies in Tanzania.

The subsequent aspects deal with the review of theempirical literature, methodology in terms of samplesize, data source, variables used, measurement ofvariables and estimation techniques. It also presentsanalysis and results of the study, conclusion andsuggestion for improvement.

IV. Review of Literature:

The reviewed literature along with findings on therelationship between measures of working capitalefficiency and profitability is presented below:

• Deloof ( 2003) in his paper, “Does Working CapitalManagement Affect Profitability of Belgian Firms?”using correlation and regression tests apart fromother variables of working capital, found asignificant negative relationship between grossoperating income and inventories. On the basisof these results he suggested that managers couldcreate value for their shareholders by reducing thenumber of days’ inventories to a reasonableminimum.

• IoannisLlazaridis, and DbvntriosTtryfonidis (2006)in their research work “Relationship BetweenWorking Capital Management and Profitability ofListed Companies in the Athens Stock Exchange”investigated the relationship of corporateprofitability and working capital management usinga sample of 131 companies listed in the AthensStock Exchange (ASE) for the period of 2001-2004 to establish a relationship that is statisticallysignificant between profitability, the cash conversioncycle and its components. The results of the researchshowed that there is statistical significance between

profitability, measured through gross operatingprofit, and the inventory management.

• Kesseven Padachi in his paper (2006) “Trends inWorking Capital Management and its Impact onFirms’ Performance: An Analysis of Mauritian SmallManufacturing Firms” examined the trends inworking capital management and its impact onfirms’ performance. The trends in working capitalneeds and profitability of firms are examined toidentify the causes for any significant differencesbetween the industries. The dependent variable,return on total assets is used as a measure ofprofitability and the relation between workingcapital management and corporate profitability isinvestigated for a sample of 58 small manufacturingfirms, using panel data analysis for the period 1998–2003. The regression results show that highinvestment in inventories and receivables isassociated with lower profitability.

• Abdul Raheman and Mohamed Nasr (2007) in theirpaper “Working Capital Management AndProfitability – Case Of Pakistani Firms” studiedthe effect of different variables of working capitalmanagement including the Average collectionperiod, Inventory turnover in days, Average paymentperiod, Cash conversion cycle and Current ratioon the Net operating profitability of 94 Pakistanifirms listed on Karachi Stock Exchange for a periodof 6 years from 1999 – 2004. Debt ratio, size ofthe firm (measured in terms of natural logarithmof sales) and financial assets to total assets ratiohave been used as control variables. Pearson’scorrelation, and regression analysis (Pooled leastsquare and general least square with cross sectionweight models) are used for analysis. The resultsshow that there is a strong negative relationshipbetween variables of the working capitalmanagement including inventory turnover in daysand profitability of the firm.

• Vedavinayagam Ganesan (2007) in his study “AnAnalysis of Working Capital ManagementEfficiency in Telecommunication EquipmentIndustry” analyzed the relationship betweenworking capital management efficiency andprofitability using correlation and regressionanalyses. ANOVA analysis is done to study theimpact of working capital management on

3


profitability. Using a sample of 443 annual financialstatements of 349 telecommunication equipmentcompanies covering the period 2001-2007, thisstudy found evidence that even though “daysworking capital” including inventory is negativelyrelated to the profitability, it is not significantlyimpacting the profitability of firms intelecommunication equipment industry.

• Ghosh and Maji (2003) in their paper made anattempt to examine the efficiency of working capitalmanagement of the Indian cement companies during1992 – 1993 to 2001 – 2002. For measuring theefficiency of working capital management,performance, utilization, and overall efficiencyindices were calculated instead of using somecommon working capital management ratios.Setting industry norms as target-efficiency levelsof the individual firms, this paper also tested thespeed of achieving the target level of efficiencyby an individual firm during the period of study.Findings of the study indicated that the IndianCement Industry as a whole did not performremarkably well during this period.

• Sushma Vishnani and Bhupesh Kr. Shah (2007)made a pragmatic analysis of Indian ConsumerElectronics Industry to determine the impact ofworking capital policies & practices on profitabilityfor the period 1994–95 to 2004–05. They founda negative relationship between the determinantsof WCM including Inventory turnover in days andprofitability for most of the companies in theirsample. The same results were also confirmed intheir industry-wide analyses.

• Pedro Juan García-Teruel and Pedro Martínez-Solano(2007) were probably the first to make anexperimental analysis about the effects of WCMon the Profitability of Small and MediumEnterprises. In their article, “Effects of WorkingCapital Management on SME Profitability”, theytook a sample of 8,872 small and medium-sizedSpanish firms for the period 1996-2002 for thepurpose of constructing an empirical relationshipbetween WCM and profitability. Their correlationanalyses displayed a very significant negativerelationship between the Return on Assets andnumber of days inventory apart from other workingcapital components.

• Malaysian authors Zariyawati (et al, 2009) alsoendeavored to investigate the relationship betweencorporate profitability and working capitalmanagement of firms in six different EconomicSectors of the Malaysian Industry. The justificationthey had to conduct the study was that most ofthe previous studies, in their opinion, focused onlarge and/or developed markets. Thusreinvestigating the issue in the emerging marketsof Malaysia could provide further insight on theimpact of working capital management onprofitability. Their results also were indicative ofa strong and significant negative associationbetween the two variables of study.

• An attempt to explore the relationship betweenthe variables of Working Capital Management andProfitability was made by Haitham Nobanee andMaryam AlHajja(2009). Their analysis was basedon a sample containing 2123 Japanese non-financialfirms listed in the Tokyo Stock Exchange for theperiod from 1990 to 2004. The authors, afteranalyzing the results, suggested that Japanese firmsshould focus on shortening their InventoryConversion Period apart from ReceivablesConversion Period and Cash Conversion Cycle toenhance profitability.

• The impact of working capital management onprofitability was also observed by Cote and Latham(1999) who discovered that management ofinventory, receivables and payables had a directinfluence on a company’s Cash Flows which couldultimately affect its profitability.

The foregoing review reveals that in most of the studiesnegative relationship is found between Inventoryturnover in days and profitability of the companies.Further studies on the impact of INTID on profitabilityof cement companies are peripheral specially inTanzania. With regard to dependent variable(profitability) different proxies like ROA, ROE, EBIT,GOP are used. Some studies used control or interveningvariables like CR, Debt ratio, company sales. Takingthese review as the base the independent variable istaken as INTID and Log GOP is taken as dependentvariable because the efficiency of Working capitalreflects primarily in gross operating profit and itexcludes the effects of overhead costs.

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V. Methodology:

The research primarily aims at identifying the relationbetween efficiency in inventory management of cementcompanies registered in DSE of Tanzania and Grossoperating profit. For the purpose, in this section, thedata set and sample, variables used and theirmeasurement, expected relationship of independentvariables with dependent variable, hypotheses, modelspecification and data analysis tools are discussed.

Data Set & Sample

The data used in this study was acquired from annualreports of the two cement companies listed in DSEof Tanzania by browsing the websites of the concernedcompanies. The period covered by the study extendsto most recent 8 years from 1996 to 2013. Theconfinement to this period is due to limitation ofavailability of annual reports and other relatedinformation. Out of five cement companies existingin Tanzania only two companies are listed in DSEand remaining are in private sector. Among threecompanies in private sector two companies started theiroperation in the last year only. Availability of dataof private companies is another limitation whichnecessitated confining to listed companies. Finally, fromthe annual reports, the data was collected relating torequired variables of this study and relevant ratioswere computed.

Variables

The choice of variables used in this study is influencedby the previous studies on components working capitalmanagement and its effect on profitability. Oneindependent variable, two control variables and one

dependent variable are used in this study. In this study,Log of Gross operating profit is taken as dependentvariable because it will not have the effect of overheadsand also the impact of managerial efficiency in workingcapital will be on gross profit and subsequently onother aspects.

Inventory Turnover In Days (ITID))

ITID is used as proxy for the efficiency of themanagement in utilizing amount invested on inventoriesand it is considered as an independent variable. Itis calculated dividing inventory by cost of goods soldand multiplying with 365 days.

Current Ratio (CR)

CR which is a traditional measure of liquidity iscalculated by dividing current assets by currentliabilities. It is used as control variable because theGOP is affected by this proportion.

Natural logarithm of Company Sales (CSLn)

CSLn is used as proxy for size of the company. Itis taken as control variable because the profitabilityof the company is also affected by this variable apartfrom the efficiency of working capital management.Many studies have also applied Debt ratio as controlvariable. Since the companies used in the study havemeager long term debt that too not continuously thisratio is not taken into account.

Key variables and their expected impact on GOP

The variables used in this study along with their expectedimpact on gross operating profit are presented in thefollowing table:

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Table 1: Summary of key variables and the expected impact on gross operating profit

Variable Variable type Expected Rationalecoefficient sign

Inventory Turnover

In Days (ITID) Independent variable negative ITID↑� GOP

↓�

Company Size (CS) Control variable Positive CS

↑�

GOP

↓�

Current Ratio(CR) Control variable Positive CR

↑�

GOP

↓�

Source: prepared on the basis of review of literature


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VI. Hypotheses Testing:

Since the objective of this study is to examine therelationship between profitability and working capitalmanagement, the study makes a set of testablehypothesis {the Null Hypotheses H0 versus theAlternative ones H1}.

Hypothesis 1

H01 : There is no relationship between efficiency inInventory management and profitability of ListedCement Companies in DSE of Tanzania.

H11: There is a possible positive relationship betweenefficiency in inventory management and profitabilityof listed cement companies of Tanzania. Firms moreefficient in managing their inventory are expected topose high level of profitability and vice versa.

Hypothesis 2

H02: There is no relationship between size of listedcement companies of Tanzania and profitability.

H12: There is a positive relationship between the firmsize and its profitability. This may be due to the abilityof large firms to reduce liquidity levels and cash gaps.

Model Specifications

The following OLS multiple regression model is appliedin this study to test the relationship between ITIDand GOPLn.

GOPLn it = β0 + β (ITID it) + 2 β (CR it) +2 β (COSLn it) + ε

Where:

GOPLn : Log of Gross Operating ProfitITID : Inventory Turnover in Days’COSLn : Natural logarithm of company SalesE : The error term.

Analysis Used in the Study

Two types of data analysis viz; descriptive andquantitative is applied in this study.

Descriptive Analysis

Range, minimum and maximum, average and standarddeviations of all the variables applied in this studyare calculated using SPSS and analyzed as first stepto understand the nature of the variables.

Quantitative Analysis

In this analysis Pearson’s correlation is applied tomeasure the degree of association between differentvariables under consideration followed by Regressionanalysis to estimate the causal relationships betweenprofitability variable and other chosen variables.

VII: Data analysis and findings:

The following sections deal with analysis of data basedon descriptive statistics, correlations and OLSregression.

Descriptive analysis

The range, minimum, maximum, mean and standarddeviation of the variables used in this study for TCCL,PLCCL and industry are calculated and presented intable 2.

Table 2: Descriptive Statistics of DSE Registered Cement Companies Selected Variables (2006-2013)

VARIABLE COMPANY N RANGE MINIMUM MAXIMUM MEAN STD.DEVIATION

GOPLn TCCL 8 0.7297 24.1788 24.9085 24.6686 .23870PLCCL 8 1.0459 24.4847 25.5306 25.0927 .34650INDUSTRY 16 1.3518 24.1788 25.5306 24.8806 .35874

ITID(days) TCCL 8 35.8696 73.6849 109.5545 90.7197 12.6681PLCCL 8 41.8828 93.2558 135.1386 114.2499 17.9146INDUSTRY 16 61.4537 73.6849 135.1386 102.4843 19.2945

CR TCCL 8 2.5969 1.4049 4.0018 2.6351 .87561PLCCL 8 4.9527 0.9052 5.8579 2.9976 1.4816INDUSTRY 16 4.9527 0.9052 5.8579 2.8163 1.1905

COSLn TCCL 8 .9200 25.0800 26.0000 25.6050 .3229PLCCL 8 1.1300 25.1100 26.2400 25.8387 .3744INDUSTRY 16 1.1600 25.0800 26.2400 25.7219 .3587

Source: compiled on the basis of annual reports of the companies from 2006 to 2013


The following observations can be made from thetable:

• The ITID of TCCL ranges between 73.68 and109.55 days with average of 90.72 days andStandard Deviation of 12.66 days. As against thisthe ITID of PLCCL ranges between 93.26 and135.14 days with average of 114.25 days andStandard Deviation of 17.91 days. ComparativelyTCCL is utilizing inventory effectively as itsminimum and maximum range, average andStandard Deviation are less than PLCCL as wellas industry.

• The average CR of PLCCL is 2.997 which iscomparatively higher than TCCL (2.64) andindustry (2.816) average. Its Standard Deviationis lowest compared to TCCL and industry.

On the basis of above analysis it can be concludedthat PLCCL performance is comparatively effectivein the case of CR and TCCL performance iscomparatively better in the case of ITID.

Correlation analysis

Pearson’s Correlation analysis is applied to identifythe relationship between INTID management andprofitability. In efficient working capital management,the relationship between INTID and GOP is expectedto be negative. This is so because as there is decreasein the time lag between expenditure for purchases ofraw material and the collection of sales of finishedgoods working capital is considered as used moreeffectively to generate more sales consequentlyincreasing profitability. The correlations betweenvariables are presented in Table.3.

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Table 3: Correlation of the Study Variables

RATIO COMPANY CSLN GPLN ITID CR

CSLN TCCL COR 1 .910 -.130 .581SIG .002 .759 .131

PLCCL COR 1 .896 .415 -.378SIG .003 .307 .356

INDUSTRY COR 1 .893 .364 .004SIG .000 .166 .990

GOPLn TCCL COR .910 1 .140 .450SIG .002 .742 .264

PLCCL COR .937 1 .293 -.301SIG .001 .481 .468

INDUSTRY COR .893 1 .533 .032SIG .000 .033 .905

ITID TCCL COR -.130 .140 1 -.553SIG .759 .742 .155

PLCCL COR .415 .293 1 .406SIG .307 .481 .318

INDUSTRY COR .364 .533 1 .193SIG .166 .033 .473

CR TCCL COR .581 .450 -.553 1SIG .131 .264 .155

PLCCL COR -.378 -.301 .406 1SIG .356 .468 .318

INDUSTRY COR .004 .032 .193 1SIG .990 .905 .473

Source: compiled on the basis of data from annual reports of the concerned companies.


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The following observations can be made from theanalysis of the information contained in the table.

• The correlation between ITID and GOP of TCCL,PLCCL and Industry are showing positivecoefficients as against expectation (.140; .293and.533 respectively), but not significant at

ά�

.= 1% (p value.742 and .481). However thecorrelation of the industry in this regard is

significant at

ά�

. = 1% (.033). These results indicatethat the relationship of both companies and theindustry is not as expected.

• The correlation between CR and GOP of TCCLand Industry are showing positive coefficients asexpected (.450; .032 respectively)but notsignificant(.264;.905). The correlation of PLCCLis negative showing against expectation(.468)

• The correlation between CS and GOP is positivein both companies and also industry (.910;.937and.893) the relationships are significant in all the

three at

ά�

. = 1%( .002;.001 and .000)

The above analysis showed mixed results. Therelationship between INTID and GOPLn is positiveagainst the expectation for both companies and industry.The correlation between CS and GOPLn is positiveas expected.

Regression analysis

OLS multiple regression analysis was done for GOPLnwith CR, CSLn and ITID to investigate further, theassociation between the inventory managementefficiency measures and the profitability measures. Inthis model GOPLn is taken as dependent variable andITID is taken as independent variables and CSLn, CRare taken as intervening variables. All the variablesare accepted by the model. The adjusted R², also calledthe coefficient of multiple determinations, which isthe percent of the variance in the dependent variableexplained uniquely or jointly by the independentvariables, is 79.9%. The F statistic is used to testthe significance of R. Overall the model is significantas F-statistics is 20.858 (Critical values of F for the0.05 significance level 3.37 with df1 6 and df2 9.)and the significance of F change is .000. Further theDurbin Watson test is 0.958 which is within the limits(0.502-2.388). The Durbin-Watson statistic ranges invalue from 0 to 4. A value near 2 indicates non-autocorrelation; a value towards 0 indicates positiveautocorrelation; a value toward 4 indicates negativeautocorrelation. The VIF of all other variables are below10. Hence this model is considered as significant. Thefollowing tables give the results of the regressionanalysis that shows model summary, ANOVA,regression coefficients and the corresponding P-values.


The C is the constant, where the regression lineintercepts the Y axis, representing the amount of thedependent Y will be when all the independent variablesare 0. Here C is 24.582. The following observationscan be made from the analysis of regression coefficienttable:

• The coefficient of INTID is positive (.004) whichis against the expectation indicating that increasein this ratio also increases GOP and vice versa.However it is not significant at Ü. = 0.05%(.165).

• The coefficient of current ratio is negative (.025)with GOP indicating decrease in this ratio, increasesGOP and vice versa. It is not as expected but notsignificant at Ü. = 0.05 % (.503).

• The company sales coefficient positively vary withGOP (.295) indicating increase in sales increasesGOP. The relationship is significant at Ü. =0.05%(.000)

VIII: Conclusions and suggestions:

As per the descriptive analysis, the performance ofTPCCL is comparatively better in the case of CR whencompared to industry and also TCCL. The performanceof TCCL is comparatively better in the case of ITRID.The correlation analysis showed mixed results. Mostof the relationships between independent variables anddependent variable are as expected but not significant.Industry correlations between ITRID, CSLn and GOPare significant and are in the required direction. Theregression analysis results present that the impact ofITID on GOP is positive against the expectation.

On the basis of above results with regards to firsthypotheses it can be concluded that the performanceof TPCCL , TCCL and industry in inventorymanagement in terms of its impact on profitabilityis positive which is against expectation; hence it needsthe attention of the companies. It is also the area for

further probe. It indicates that increase in the inventoryconversion period causes an increase in the profitabilityof the listed cement companies. This may be due toscarcity in availability of inventory or price levelchanges which needs further research.

With regard to second hypothesis, the study resultsendorsed that there existed a positive relationshipbetween the firm size and its profitability as the increasein sales resulted significant increase in GOP. This maybe due to the ability of firms to reduce liquidity levelsand cash gaps.

In view of positive relationship between ITID andGOP it can be suggested that there is ample scopefor both the companies to invest their efforts toinvestigate the causes for such undesired results andtake measures for improvement.

XI. References:

1. Deloof, M.,(2003). “Does Working CapitalManagement Affects Profitability of BelgianFirms?” Journal of Business Finance &Accounting, Vol 30 No 3 & 4, pp. 573 – 587.

2. Ioannis Lazaridis and DbvntriosTryfonidis.,(2006). “Relationship betweenWorking Capital Management and Profitabilityof Listed Companies in the Athens StockExchange” Journal of Financial Management andAnalysis, 19(l):2006;26-35.

3. Kesseven Padachi.,(2006). “Trends in WorkingCapital Management and its Impact on Firms’Performance: An Analysis of Mauritian SmallManufacturing Firms” International Review ofBusiness Research Papers Vo.2 No. 2,Pp. 45-58.

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4. Abdul Raheman and Mohamed Nasr.,(2007).“Working Capital Management and Profitability– Case Of Pakistani Firms” International Reviewof Business Research Papers Vol.3 No.1, Pp.279– 300.

5. Venkata Ramana.N; Kamakrishnaiah.K;Chengalrayulu.P.,(2013).” Impact of ReceivablesManagement on Working Capital and Profitability:A Study on Select Cement Companies in India”,International Journal of Marketing, FinancialServices & Management Research ISSN 2277-3622 Vol.2, No. 3.

6. Vedavinayagam Ganesan.,(2007).”WorkingCapital Management Efficiency inTelecommunication Equipment Industry” Rivieracademic journal, volume 3, number 2, fall 2007ISSN 1559-9388 (online version), ISSN 1559-9396 (CD-Rom version).

7. Ghosh, S. K. and Maji, S. G., (2003). “WorkingCapital Management Efficiency: A study on theIndian Cement Industry”, The Institute of Costand Works Accountants of India.

8. Ghosh, S.K. and Maji, S.G., (2004).”WorkingCapital Management Efficiency: A Study on theIndian Cement Industry”,The ManagementAccountant, 363–72.

9. Smith, M. Beaumont, Begemann, E., (1997).“Measuring Association between Working Capitaland Return on Investment”, South African Journalof Business Management, Vol 28 No 1.

10. Vishnani, Sushma & Shah, Bhupesh Kr.,(2007).“Impact of Working Capital Management Policieson Corporate Performance -An Empirical Study”,Global Business Review, Vol. 8, 267.

11. García-Teruel. Pedro Juan, Martínez-Solano,Pedro.,(2007). “Effects of Working CapitalManagement on SME Profitability”. InternationalJournal of Managerial Finance, Vol. 3, Issue 2,164-177.

12. Ramachandran, Azhagaiah & Janakiraman,Muralidharan., (2009). “The Relationship betweenWorking Capital Management Efficiency andEBIT”. Managing Global Transitions. Universityof Primorska, Faculty of Management Koper. Vol.7. Issue. 1, 61-74.

13. Zariyawati, M. A., Annuar, M. N. & Rahim, A.S.Abdul.,(2009).”Effect of Working CapitalManagement on Profitability of Firms inMalaysia”.

14. Nobanee, Haitham and Al Hajjar, Maryam.,(2009).“A Note on Working Capital Management andCorporate Profitability of Japanese Firms”.[Online] Available: http://ssrn.com/abstract=1433243.

15. Govind Rao, D. and Rao, P.M., (1999).”Impactof Working Capital on Profitability in CementIndustry—A Correlation Analysis”, WorkingCapital Management. (Deep & Deep PublicationsPvt. Ltd., New Delhi), 239–59.

16. Cote J. M. and Latham C. K.,(1999). “TheMerchandising Ratio: A Comprehensive Measureof Working Capital Strategy”, Issues in AccountingEducation, Vol. 14, Issue 2, 255-267.

17. Soenen, L. A.,(1993). “Cash conversion cycle andcorporate profitability”, Journal of CashManagement, Vol 13 No 4 pp. 53-58.

18. Vijaykumar, A. and Venkatachalam,A.,(1995).”Working Capital and Profitability—An Empirical Analysis”, The ManagementAccountant. ICWAI, Kolkata, 748–50.International Journal of Business and SocialScience Vol. 2 No. 22.

19. Amit, K. Mallik, Sur, Debashish and Rakshit,Debdas., (2005). “Working Capital andProfitability: A Study on their Relationship withReference to Selected Companies in IndianPharmaceutical Industry”, GITAM Journal ofManagement, Vol. 3, 51–62.

20. CIA World fact book- https://www.cia.gov/library/publications/the-world-factbook

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I. Introduction:

Evolution of Microfinance institutions, as an economicdevelopment tool, was with an intention to benefitlow income people. The goals of microfinanceinstitutions as development organizations are to servicethe financial needs of unserved or underserved marketsas a means of meeting development objectives suchas to create employment, reduce poverty, help existingbusiness grow or diversify their activities, empowerwomen or other disadvantaged population groups, andencourage the development of new business(Ledgerwood, 1999). However, the positive impactsof microfinance institutions on the socio-economicwelfare of the poor can only be sustained if theinstitutions can achieve a good financial and outreachperformance. Throughout the world, financialsustainability of microfinance institutions has beenone of the issues that has recently captured the attentionof many researchers due to its importance in thelivelihood of microfinance institutions. The financialsustainability of microfinance institutions is anindispensable condition for institutional sustainability.Several studies have also been conducted, as well,to determine factors affecting the financial sustainabilityand profitability of MFIs using large and well developedMFIs in various countries. The level of significantof these factors in affecting the financial sustainabilityand profitability of MFIs, however, varies with studies.Some of the determinants are found to be significant

in one economy or applicable to a set of MFIs, someare not significant (Cull, et al., 2007).

The present study is an attempt to examine theassociation between determinants of profitability (suchas operating expenses ration, write off ratio and debtequity ratio) and the profitability (Return on equity)of the selected microfinance institutions in India. Witha view to accomplish the objective of the study, andto measure the effect of determinants on profitabilityof the selected microfinance institutions, a linearregression model has been developed.

II.Literature Review:

The following literature has been reviewed for thecurrent study:

• Ugur (2006) found that the deposits ofmicrofinance institutions under the study alsoincreased continually throughout the yearssuggesting that they were able to serve anincreasing number of customers. Furthermore, theywere able to make a more efficient use of theirassets and equity, expressed through the increasein the ROAA and the ROAE.

• Asarf et al (2014) with an aim to analyze whetherperformance measures and their factors for microfinance institutions (MFIs) in Muslim

Determinants of Profitability: Evidence From IndianMicrofinance Institutions

Dharmendra S. Mistry*

Abstract

Throughout the world, financial sustainability of microfinance institutions has been one of the issues that hasrecently captured the attention of many researchers due to its importance in the livelihood of microfinanceinstitutions. The present study is an attempt to examine the association between determinants of profitability(such as operating expenses ratio, write off ratio and debt equity ratio) and the profitability (Return on equity)of the selected microfinance institutions in India. The study’s findings lead to the conclusion stating that theoperating expense ratio, write off ratio and debt equity ratio are the statistically significant predictor variablesin determining return on equity in selected MFIs in India.

*Associate Professor, Post-Graduate Department of Business Studies, Sardar Patel University, Gujarat.

11


countries are significantly different from thosein their non-Muslim counterparts, found thatcountry gross domestic product size was positivelyrelated with profitability, and the percentage ofwomen borrowers was also significant in drivingloan recovery and firm profitability in the otherIslamic countries sample, but they were otherwisenot significant for the rest of the world sample.

• Shakil & Tanweer (2014) found that betterdisclosure had a statistically significant positiveimpact on operational performance of MFIs;second, it also showed that improved financialperformance results in better financial disclosure.Keeping the endogenous nature of the relationshipbetween disclosure and performance, the paperused a three-stage least squares method to showthat disclosure and financial performancepositively affected each other simultaneously.

• Kyereboah-Coleman & Kofi (2008) found thatgovernance played a critical role in theperformance of MFIs and that the independenceof the board and a clear separation of the positionsof a CEO and board chairperson had a positivecorrelation with both performance measures.

• Dissanayake (2012) that the Cost per Borrowerand Debt/Equity ratios were statisticallysignificant predictor variables in determiningreturn on equity in a MFIs.

• Kipesha & Zhang (2013) concluded that, thepossibility of tradeoffs existed between outreachto the poor with profitability measures ascompared to the outreach with financialsustainability. The presence of tradeoffs betweenfinancial performance and outreach to the pooralso depended on the variables used and estimationmodel specification. Some variables whichindicated the existence of tradeoffs underWelfarists views did not show such impact underInstitutionalist views.

• Tehulu (2013) found that MFIs’ financialsustainability was positively and significantlydriven by loans intensity and size. However,management inefficiency and portfolio at risk hada negative and significant impact on the financial

sustainability. Breadth of outreach and depositmobilization was not important determinants offinancial sustainability. Thus, managementinefficiency, portfolio at risk, loans intensity, andsize were important determinants of microfinanceinstitutions’ financial sustainability in East Africa.

• Kinde (2012) found that microfinance breadthof outreach, depth of outreach, dependency ratioand cost per borrower affected the financialsustainability of microfinance institutions inEthiopia. However, the microfinance capitalstructure and staff productivity had insignificantimpact on financial sustainability of MFIs inEthiopia for the study periods.

• Anthony (2007) found that most of themicrofinance institutions employed high leverageand financed their operations with long term asagainst short term debt. Also, highly leveragedmicrofinance institutions performed better byreaching out to more clientele, enjoyed scaleeconomies, and therefore were better able to dealwith moral hazard and adverse selection, enhancingtheir ability to deal with risk.

• Bhanot & Bapat (2015) found that thesustainability score for MFIs ranges from amaximum score of 0.80 to a minimum of 0.26.Gross loan portfolio, No. of borrower per staffmember, portfolio at risk>30 days and return onassets, were significant contributors tosustainability scores of Indian MFIs.

• Dutta & Das (2014) indicated that in 2010-2011,the linear regression model seemed to be goodfit to the data, whereas in 2011-2012 and 2012-2013, the appropriateness of the linear regressionmodels seemed questionable (the error distributionseemed to be skewed). It was observed that squareroot of the dependent variable exhibited adequatefit for 2011 and 2012. Therefore, a substantialchange in the model for estimating sustainabilityof Indian MFIs was observed in the post-AP crisisera. It was observed that portfolio quality andcapital management were important determinantsfor the financial sustainability of the MFIs.

12


• Siwar & Talib (2001) evaluated the performanceof three MFIs, namely Amanah Ikhtiar Malaysia(AIM), Yayasan Usaha Maju (YUM) and KoperasiKredit Rakyat (KKR). The paper provided a microfinance capacity assessment to identify the issuesand constraints especially with respect to outreach,viability or sustainability, resource mobilisation,and policy environment.

From the above review of empirical works, it is clearthat different authors have approached study ofsustainability and profitability of microfinanceinstitutions in different ways in varying levels ofanalysis. These different approaches helped in theemergence of more and more literature on the subjectover time. It gives an idea on extensive and diverseworks on sustainability and profitability of microfinanceinstitutions. It has been noticed that the studies onsustainability and profitability of microfinanceinstitutions in various aspects provide divergent resultsrelating to the study period overlap or coincide. Themain reason for divergence in the results is use ofdifferent method for the measurement of sustainabilityand profitability of microfinance institutions. All thestudies aimed to analyze the sustainability andprofitability of microfinance institutions in India &abroad with number of factors. The survey of the existingliterature reveals that no specific work has been carriedout to determine the profitability of the microfinanceinstitutions in India. The present study is an attemptin this direction and therefore, aims to enrich theliterature on sustainability and profitability ofmicrofinance institutions.

III. Objective of the Study:

The present study aims to examine the associationbetween determinants of profitability (such as operatingexpenses ration, write off ratio and debt equity ratio)and the profitability (Return on equity) of the selectedmicrofinance institutions in India.

IV.Study Methodology:

Sample, Sampling Techniques and GeographicalCoverage

Keeping in view the limitation of time, efforts andcost; it is not possible to study all the microfinance

institutions of India. For the purpose of study; sample,using convenient sampling method, of eleven (11) outof twenty three (23) Indian microfinance institutionsin Tier 1 (Tier 1 refers to big microfinance institutionsin terms of size i.e. having client outreach of morethan 2.5 lakhs) have been selected. The selectedinstitutions for the study were:

1. Arman Financial Services Ltd.2. CASHPOR Micro Credit3. Equitas Micro Finance Pvt. Ltd.4. ESAF Microfinance and Investments Pvt. Ltd.5. Grameen Financial Services Pvt. Ltd.6. L & T Finance Ltd.7. Satin Creditcare Network Ltd.8. SKS Microfinance Ltd.9. Sonata Finance Pvt. Ltd.10. Suryoday Microfinance Pvt. Ltd.11. Ujjivan Financial Services Pvt. Ltd.

Hypothesis:

It is hypothesized for the study that there is no significanteffect of determinants on the profitability of the selectedmicrofinance institutions in India.

Period of the Study

The study has been undertaken for the period of fiveyears (2009-2010 to 2013-14).

Source of Data

The study would be mainly based on secondary data.Secondary data would be collected from annual reportsof the selected microfinance institutions under the study.

Variables

The study investigates the significant determinants ofmicrofinance profitability in Indian microfinanceinstitutions and their effect on the profitability. Forthe purpose, three (3) measures have been used asindependent variables which were extracted from(Damain, et al., 2003) as mentioned below inTable 1.

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Table. 1 Proxies, Definition and Predicted Relationship

Variable Proxies (Definition) PredictedRelationship

Dependent Return on Equity (PAT/Equity Fund)Variable

Independent Operating Expenses Ratio (Operating Expenses/ Gross Portfolio) Negative

Variables Write Off Ratio (Loans written off/Gross Portfolio) Negative

Debt Equity Raito (Long term Liabilities/ Equity Fund) Positive

Model

To measure the effect of determinants on profitability of the selected microfinance institutions, a linear regressionmodel was developed as shown below in functional form:

�

0 1 1 2 2 . . . k ky b b x b x b x= + + + + -------- (1)

Where, y - The Dependent Variable,

1 2, ,..., kx x x

- Independent Variables

0 1 2, , ,..., kb b b b - The Regression Coefficients

ROE = (bo

+ b1 OER+ b

2 WOR + b

3 DER) -------- (2)

Where, ROE - Return on EquityOER - Operating Expenses RatioWOR - Written-off RatioDER - Debt-Equity Ratio

Hypotheses

With the help of literature in this area, the following hypothesis is stated below:

H0 : there is no significant effect of determinants on the profitability of the selected microfinance institutions

in India

H1 : there is significant effect of determinants on the profitability of the selected microfinance institutions

in India

V: Result and Analysis:

Table .2 Correlation Matrix

ROA OER WOR DER

ROA 1

OER -0.27394 1

WOR -0.2362 0.654701 1

DER 0.620194 0.138601 0.194302 1

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As revealed from Table 2, correlation analysis has been carried out to investigate the relationship betweenindependent and dependent variables. From the correlation result, it is seen that the relationship between dependentand independent variables had been in accordance with the result predicted in Table 1. Both operating expensesratio and write off ratio had negative correlation with return on equity which meant that that changes in predictorvariables would negatively contribute towards the return on equity. As far as debt equity ratio was concerned,a strong positive correlation was found between debt equity ratio and return on equity ratio; which meant thatdebt equity ratio was statistically significant variable or had a strong influence on return on equity ratio underthe analysis of correlation.

Table .3 Model Summary

R R Adjusted Std Error Change Statistics

Square R Square of the R Square F df1 df2 Sig. FEstimate Change Change Change

0.738371 0.545192 0.350274 0.058615 0.545192 0.118527 3 7 0.118527

The result of coefficient of determination as reflected in Table 3 indicates that 0.54 of the variation noticedin return on equity ratio can be explained by the independent variables. This means that about 46% of variationsin return on equity ratio noticed among the selected micro finance institutions are accounted for by other factorsnot captured by the model. Similarly, the result on the Goodness of Fit test also complements the coefficientof determination result which indicates clearly that the value of the dependent variable can be explained orpredicted by about 54% of the independent variables.

Table. 4 Annova Result

Df SS MS F Significance F

Regression 3 0.02883 0.00961 2.797035 0.118527

Residual 7 0.02405 0.003436

Total 10 0.05288

However, the F-test result as presented in Table 4 indicates clearly that the model as specified explains thevariations in the level of return on equity ratio. It in essence shows simultaneously that the independent variablesaltogether are associated with the dependent variable. As significance F is more than 0.05 at 5 % significantlevel, there is no significant relationship between return on equity ratio and independent variables. Hence, nullhypothesis is accepted and alternate hypothesis is rejected.

Table. 5 Coefficients

Coefficients Standard Error t Stat P-value

Constant 0.086451 0.038711 2.233246 0.06068

OER -0.08238 0.124788 -0.6602 0.530241

WOR -0.53246 0.804189 -0.66211 0.52909

DER 0.041341 0.015462 2.673764 0.031826

Predictors: (Constant),Operating expenses ratio, Write off ratio, debt equity ratioDependent Variable: Return onequityConfidence level: 95%

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Consequently, a quick review of the regression analysisas depicted in Table 5 reveals that significant negativerelationship existed between two independent variablesi.e. the operating expenses ratio and write off ratioand return on equity ratio and hence changes in theoperating expenses ratio and write off ratio would resultinto decrease in return on equity ratio of the selectedmicrofinance institutions. It can be said that 1% changein Operating expense ratio and write off ratio wouldresult into decrease of 0.08 and 0.53 in return on equityrespectively. It is also revealed that a significant positiverelationship existed between the debt equity ratio andreturn on equity ratio and hence change in debt equityratio would have positive impact on return on equityof the selected microfinance institutions. It can be saidthat 1% change in debt equity ratio would result intoincrease of 0.04 in return on equity.

VI: Findings, Suggestions and Conclusion:

The study found that changes in predictor variablesi.e. operating expenses ratio and write off ratio wouldnegatively contribute towards the return on equity;while debt equity ratio was statistically significantvariable or had a strong influence on return on equityratio under the analysis of correlation. It is also seenfrom the result of coefficients that 1% change inOperating expense ratio and write off ratio would resultinto decrease in return on equity; while 1% changein debt equity ratio would result into increase in returnon equity. From the coefficient of determination result,it is found that the value of the return on equity ratiocan be explained or predicted by about 54% of theindependent variables i.e. operating expenses ratio, writeoff ratio and debt equity ratio.

It is suggested that MFIs should control operationalexpenses to increase profitability and with a view toreduce costs, delegation of costs can be diminishedvia diversification; while to enhance operationalefficiency, economic incentive schemes to staffproductivity would be significant. It is also suggestedwith a view to bring institution’s commercial and socialobjectives into balance, MFIs should strive for costeffective operations. The emphasis on cost efficiencyis in line with their social objectives, because increasein cost efficiency allows commensurate reduction inthe interest rates. As it is seen from the study that

write off ratio is a significant determinant of profitability,it is suggested that MFIs should also control writeoff ratio. From the present study, it is seen thatMicrofinance institutions that employ higher debt intheir capital structure are more profitable, and highlyleveraged microfinance institutions are more profitable.Besides, a higher debt ratio can enhance the rate ofreturn on equity capital during good economic times.Hence, it is suggested that MFIs should maintainreasonable proportion of debt equity so as to maintainas well as increase profitability.

The study’s findings lead to the conclusion statingthat the operating expense ratio, write off ratio anddebt equity ratio are the statistically significant predictorvariables in determining return on equity in selectedMFIs in India.

VII: Further Scope for the Study:

The study is limited to the period of five years only,which can be extended. As it comprises of only threepredictor variables; some more attributes can also beadded. Comparative study among Tier I, II and IIIIndian MFIs can also be carried out since the presentstudy focuses only on selected Tier I MFIs only.

References:

1. Anthony, K.C., (2007). The Impact of CapitalStructure on the Performance of MicrofinanceInstitutions. The Journal of Risk Finance , 8 (1),56-71.

2. Asarf, A., Hassan, M. K., & Hippler, W. J. ,(2014).Performance of microfinance institutions inMuslim Countries. Humanomics , 30 (2), 162-182.

3. Bhanot, D., & Bapat, V. ,(2015). SustainabilityIndex of Microfinance Institutions (MFIs) andContributory Factors. International Journal SocialEconomics , 42 (4), 387-403.

4. Cull, R., Demirguc-Kunt, A., & Morduch, J.,(2007). Financial performance and outreach: Aglobal analysis of leading micro banks. TheEconomic Journal , 117 (517), 107-133.

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5. Damain, V. S., Jansson, T., Naomi, K., & Maria,C. B., (2003). Performance Indicators forMicrofinance Institutions. Washington, D C: MicroRate and Inter American Development Bank.

6. Dissanayake, D. M. ,(2012). The Determinantsof Return on Equity: Evidences from Sri LankanMicrofinance Institutions. Journal of Arts, Science& Commerce, III (2), 26-35.

7. Dutta, P., & Das, D. ,(2014). Indian MFI atCrossroads: Sustainability Perspective. CorporateGovernance, 14 (5), 728-748.

8. Kinde, B. A., (2012). Financial Sustainability ofMicrofinance Institutions (MFIs) in Ethiopia.European Journal of Business and Management,4 (15), 1-10.

9. Kipesha, E. F., & Zhang, X., (2013). Sustainability,Profitability and Outreach Tradeoffs: Evidencesfrom Microfinance Institutions in East Africa.European Journal of Business and Management,5 (8), 136-148.

10. Kyereboah-Coleman, A., & Kofi, A. O. ,(2008).Outreach and Profitability of MicrofinanceInstitutions: The Role of Governance. Journalof Economic Studies , 35 (3), 236-248.

11. Ledgerwood, J., (1999). Microfinance handbook:An institutional and financial perspective. UnitedStates of America: The World Bank Publications.

12. Shakil, Q., & Tanweer, H. ,(2014). FinancialDisclosure and Performance of Microfinanceinstitutions. Journal of Accounting &Organizational Change, 10 (3), 314-337.

13. Siwar, C., & Talib, B. A., (2001). Micro-FinanceCapacity Assessment for Poverty Alleviation:Outreach, Viability and Sustainability.Humanomics, 17 (1), 116-133.

14. Tehulu, T. A. ,(2013). Determinants of FinancialSustainability of Microfinance Institutions in EastAfrica. European Journal of Business andManagement, 5 (17), 152-158.

15. Ugur, Z., (2006). Commercial Banks andMicrofinance. College Undergraduate ResearchElectronic Journal, 1 (1), 1-41.

---

Timing, perseverance, and ten years of trying will eventually

make you look like an overnight success.

- Biz Stone

So often people are working hard at the wrong thing.Working on the right thing is probably more important than working hard.

- Caterina Fake

17


*Assistant Professor, Rawal Institute of Management, Faridabad.

**Assistant Professor, Rawal Institute of Management, Faridabad.

I. Introduction:

Education is a significant constituent of Indian economyin today’s time. The goal of this industry however differsfrom other areas in the quality context. Its aim is todevelop educated human resources which can beemployed in various fields to increase the per capitaincome and thereby living standards of Indian citizens.The whole scenario however revolves aroundacademicians who perform hard duty of convertingstudents into employable learners.

Indian government is focusing on financial inclusionand calling the general public to be the stakeholdersin the Indian economy. As an educated group,academician can surely evoke the new generation about

the importance of investment. Academician surely hasto have awareness about the benefits of differentinvestment options available in the Indian financialmarket.

Academicians may select various options to plug theirsurplus funds in order to generate returns. Stock marketcan be one of the options while framing investmentportfolio. But, it may depend upon awareness level ofthis fraternity about stock markets and their interest orbelief in it. The objective of the present paper may bebracketed as exploring awareness level of academicianstowards the stock market and their preference variationsaccording to gender, age, qualification etc. whileinvesting. The rest of paper has been organized into foursegments; first one explains literature review, second

18

Attitude of Academicians Towards Stock Markets:Awareness & Investment Pattern

Ajay Kumar Patel*Parul Bhatia**

Abstract

Education is a significant constituent of Indian economy in today’s time. The goal of this industry however differsfrom other areas in quality context. Its aim is to develop educated human resources which can be employed invarious fields to increase the per capita income and thereby living standards of Indian citizens. The whole scenariohowever revolves around academicians who perform hard duty of converting students into employable learners.

Indian government is focusing on financial inclusion and calling the general public to be the stakeholder in theIndian economy. As an educated group, academician can surely evoke the new generation about the importanceof investment. Academician surely has to have awareness about the benefits of different investment options availablein the Indian financial market.

Academicians may select various options to plug their surplus funds in order to generate returns. Stock marketcan be one of the options while framing investment portfolio. But, it may depend upon the awareness level of thisfraternity about stock markets and their interest or belief in it. The objective of present paper may be bracketedas exploring awareness level of academicians towards stock market and their preference variations according togender, age, qualification etc. while investing. The study has been carried on academicians in Delhi-NCR througha primary survey. There have been varied responses observed which further have been statistically verified to deduceassociation of factors like qualification, marital status, age, gender etc. with stock market awareness and investmentpattern of academicians.


one explains research methodology adopted, third oneexplains empirical results and fourth one concludes thepaper.

II.Literature Review:

Academicians have never been targeted before as asubject to understand investment patterns andawareness. Hence, literature had not been found directlyfor this particular research work. But, the common workdone as regards to investors’ psychology and behaviorhas been analyzed and presented in this section.

• Werner (1998) has examined financial decisionsof investors on the basis of their perceptions andpsychology. Excess and normal returns in twoweeks and four weeks windows have beencomputed. It has been found that investors wereover optimistic during this period for performanceof shares held but not for Dow Jones Index.Interestingly performance of stocks heldcollectively by investors was found close to index.45 respondents filled in a questionnaire based onrisk and return beliefs. These responses were testedwith the help of t-statistic and it had beenconcluded that stock market investments are basedon personal choices and beliefs of individualinvestors.

• Banerjee (1993) has developed a model based ontransmission of information from one individualto another and its effect on their investmentdecision. The probability of economic rumours hasbeen chosen as a base in the study to analyzeinvestors’ behavior. The model assumed identicalinvestors and one person to initiate the investmentprocess. It was concluded that investors with highcost information may not invest and investors withlow cost information may get tempted to invest.In addition to this, it has been found that with thenumber of increasing investors the pay-off ofreturns may fall.

• Zvi Bodie (1995) critically examined the risk ofinvesting in common stocks in long run. The put–call parity theorem has been used to examine theresults which hold true for mean reverting process.It also negatively validates the belief that stocks

are long term inflation hedge like long-term realbonds. The sample data of 45 individual investorsin Fox valley (Winconsin-USA) was collected bymaking repeated weekly forecast of DJIA and shareprice of one of their main equity shareholdingsfrom October 1994 to march 1995. The findingswere suggestive of over optimism of shareperformance but not performance of Dow Jonesand the response regarding how to manage theequity portfolio. The major effect of smallindividual investors was that it affected theinvestor’s well being and their market activities.

• Kannadasan (2006) analyzed the behavioralpattern of the retail investors based on variousdependent variables viz., gender, age, marital,status, educational, level, income level, awareness,preference and risk bearing capacity. The studyfound that only 25 per cent of the samplerespondents were aware of all the investmentavenues available in the capital market. 90 per centwere not aware of the measures taken by theGovernment to protect the interest of theinvestors.79 per cent were interested to invest inshares and debentures as well. The retail investors’age was not found to be a criterion to decide theirinvestment behavior and investment option.Income level was found observed to play apredominant role. The major attributes of risk ininvestment were investigated to be dividend,redemption period and value appreciation.

• L.C.Prasad (2008) conducted a survey to find outthe preferences of household investors and therelevant findings of the study were that thehousehold investors mostly preferred type ofinvestment was found to be shares. SystematicInvestment plan (SIP) was found to be the mostpopular type of scheme among various types ofmutual funds and too much price fluctuations werefound to be the major worry of the investors inthe stock market.

• Lusardi et.al (2010) studied financial literacyamong youth with the help of newly added datato the National Longitudinal Survey of Youthfielded in 2007–2008. Three financial questionswere asked to which responses were collected and

19


20

treated with t-test for differences in mean betweendifferent subgroups and a multivariate analysis wasfollowed. Also a variable measuring exposure wasadded to regression. The findings were that thefinancial knowledge was low among young andfinancial literacy differentiated on the basis offamily and peer groups, educational level, gender,race and ethnicity. A strong association betweenfinancial literacy and cognitive ability was alsofound.

• Parashar (2010) survey interpreted that thedemographic variables such as gender, age,income, education, occupation as well as thevarious personality types affect the investmentchoice made by the individual investors.

• Dawar and Wadhwa (2011) surveyed 275 investorsliving in Punjab and identified the factorsinfluencing the investor’s behavior by usingcorrelation analysis. The factors that affectedinvestor most were Neutral information,accounting information, self-image/ firm-imagecoincidence, wealth maximization criteria, socialrelevance and personal needs.

• K. Mandeep, V.Tina (2012) reviewed the literaturefrom research papers related to individualinvestor’s behavior. The findings demonstratedseveral variables that govern an investor’s decisionto invest. The knowledge about the expectations,demographic profile, attitude of an investortowards risk, personal circumstances etc play avital role in investment decision making. The studysuggested that the understanding of the individualinvestor behavior could be great help in order toexplain that stock market anomalies and to helpthe policy maker as well as investment agenciesto prepare themselves to respond to the varyingmoods of an investor.

III. Research Methodology:

The study has used a questionnaire to collect primarydata from a set of academicians working in variouseducational institutes in Delhi-NCR. The questions hadbeen prepared on a five point Likert

scale. A pilot survey had been carried with a group of30 members at a development program for faculties inFaridabad. Later on, questionnaire was revised and sentonline to various academic institutes for data collection.69 persons responded with their respective answers.However, 53 of them had responded with completedetails. Therefore, the study was carried over with thedata of 53 respondents belonging to education fraternity.These responses were converted into usable format forstatistical application. The statistical interpretation hasbeen done with the help of mean average analysis andchi-square at appropriate places with the help of SPSS.The hypotheses framed to test available data have beenexplained as follows:

• There is no significant impact of gender, age,marital status and qualification on stock marketawareness of academicians.

• The knowledge about computation process ofSensex/Nifty is not affected by gender, age, maritalstatus and qualification of academicians.

• Financial updates related with stock market amongacademicians are not influenced by their gender,age, marital status and qualification.

• There is no effect of gender, age, marital statusand qualification on acquaintance regarding De-Mat account.

IV:Empirical Results:

This section of the paper shall discuss analysis andinterpretation of data and there on their statistical results.The data collected from 53 respondents had beenprimarily categorized as per the gender, age, maritalstatus and qualification. Their distribution according tothese parameters can be presented one by one.

Analysis and Interpretation of Data

This segment shall discuss the four important parametersthat were incorporated in the questionnaire while datacollection and their possible relevance on awarenesslevel and investment pattern.

Gender

Gender of any respondent may tend to influence his/her knowledge about stock markets and their tendencyto invest or save. The categorization according to genderfor the present data has been done as below:


21

Gender No. of Respondents

Male 28

Female 25

Graph & Table 1: Showing gender wise distributionof respondents

The above graph and table reflect an equal distributionbetween males and females across the sample data. Itmay be called as an appropriate classification of datato test for its effect on awareness level about stockmarkets and investing decisions.

Age

The age of respondents has been considered as one ofthe major factors to find out attitude of academicianstowards stock market and other related investmentoptions. Respondents had been divided into four agegroups; below 20 years, between 21-30 years, between31-40 years and above 40 years. Their distribution canbe further elaborated with the help of following tableand pie-graph:

Age (Years) No. of Respondents

Below 20 0

21-30 24

31-40 24

Above 40 5

Graph & Table 2: Showing age wise distribution ofrespondents

The above graph and table depict that sample data hasbeen dominated by the respondents in the age groupof 21-30 and 31-40 years. It may be due to seriousnessand interest of this age group towards planning forinvestment.

Marital Status

Marital status of an investor may have a bearing on hisunderstanding about stock market and at the same timeon his investment pattern. It may be because of theadditional responsibilities and expenditure that he/shemay have to perform post-marriage. The sample dataas per marital status has been shown below:

Marital Status No. of Respondents

Married 39

Unmarried 14

Graph & Table 3: Showing distribution of respondentsaccording to their marital status

The above pie chart and table reflect larger number ofmarried respondents in the data. This may be inferredfrom the age group concentration between 21-30 and31-40 years where in more of respondents would havegot married. However, their awareness level about stockmarkets required statistical verification.

Qualification

This has been another important factor which may posean impact on awareness about stock market andinvestment decision of academicians. The dataaccording to this parameter has been divided into threegroups; Graduate, Post Graduate and M.Phil/Ph.D. Theclassification of respondents according to theirqualification has been presented below:


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Qualification No. of Respondents

Graduate 4

Post Graduate 25

M.Phil/Ph.D 24

Graph & Table 4: Showing qualification wisedistribution of respondents

The above table and pie chart show equal concentrationof data in the category of Post Graduates and M.Phil/Ph.Ds. It may be due to minimum eligibility

requirements in the field of education as set up byUniversity Grants Commission.

V. Investment Patterns: Income and AssetDistribution:

The data collected showed an income wise paradox ininvestment behavior of the academicians. The paradoxnature can be due to the skewed distribution of therespondent income wise with respect to assets inpossession. Nevertheless, the respondents increase inincome do not signal shift of the preference ofinvestment in innovative from traditional investmentoptions. Also to observe the people with income groupof 1 to 5 lakhs and 5 to 10 lakhs, under assets possessionof 1 to 10 lakhs are actively involved in investing theirsurplus money. The graph below depicts an analysisof income and asset possession association amongacademicians:

Graph 5: Showing income and asset distribution

The data collected showed an income wise paradox ininvestment behavior of the academicians. The paradoxnature can be due to the skewed distribution of incomewise respondent’s investment in financial assets withrespect to assets in possession. Nevertheless, therespondents increase in income do not signal a shift ofthe preference of investment in innovative fromtraditional investment options. Also to observe thepeople with income group of 1 to 5 lac and 5 to 10 lacsunder assets possession of 1 to 10 lacs are activelyinvolved in investing their surplus money.

Across the asset possession category, saving account,FD/RD and insurance are preferred by the academicians.Real estate investment preference is increasing in higherbrackets of assets in possession. Not to forget the morepreference towards insurance, FD/RD is induced by theobjective of tax saving. The innovative investmentoption like ULIPS, mutual fund and shares lesspreference can be of two most probable reasons; (a) lessknowledge of capital market, and (b) risk averse attitude.

The study is no different from the RBI data (2011-12)which says the household sector invested 47.3 percentof its savings in deposits, 33.3 percent in insurance/


provident funds, 6.5 percent in small savings and only0.4 percent in the securities market, mutual funds andother securities.

The matter of concern is, as a most literate group ofsociety, we expect the practice of modernization in allaspect of life. But when it comes to financial transactionmost of the literate public are also following thetraditional way of saving and investment. Needless tosay, more often in financial advice, they take advicefrom friends and family rather than the financial expert.We all know that academicians are expert in their areaof research, but they should also update themselves andsame should be passed to the students, so that we canexperience the real financial inclusions.

VI. Statistical Results:

This segment shall discuss statistical application on thedata carried in SPSS. The findings have been shownwith a brief introspection of data along with chi-squareresults.

Stock Market Awareness

Hypothesis: There is no significant impact of gender,age, marital status and qualification on stock marketawareness of academicians.

Data relating to distribution of selected academiciansfor the stock market awareness among men and womenon basis of demographic characteristics Gender, Age,Marital status, Occupation are represented in graphbelow. Out of total 53 academicians, 14 showed theirconsent, 15 showed their discontent and 24 were neutralabout the awareness towards stock market.

Gender

The data shows that male academicians were observedto be more aware about the stock market in comparisonwith female academicians. Thus, to test the significancerelationship between the gender and stock marketawareness chi-square test had been applied.

Chi-Square Tests

Value Df Asymp. Sig.(2-sided)

Pearson Chi-Square 11.892a 4 .018

Likelihood Ratio 14.992 4 .005

Linear-by-Linear Association 4.368 1 .037

Table 5: Showing Chi-Square results for stock marketawareness and gender

From the top row of the last table, Pearson Chi-Squarestatistic=11.892, and p < 0.05.,i.e.,0.018, hence, thereis significant relationship between Stock awareness andgender from the observed data.

Age

The data distribution represents 24 academicians in 21-30 years, 24 academicians in 31-40 years, 5academicians for more than 40 years. The data showsthose academicians from different age groups who haddifferent awareness level about the stock market. Thus,to test the relationship between the age group and stockmarket awareness chi-square test had been applied.

Chi-Square Tests

Value df Asymp. Sig.(2-sided)




Table 6: Showing Chi-Square results for stock marketawareness and age

From the top row of the last table, Pearson Chi-Squarestatistic=14.869, and p > 0.05,i.e. 0.062; hence, thereis no evidence that stock awareness varies with age ofthe respondents. It may be said that stock marketawareness does not depend on age of academicians.

Marital status

The data distribution represents 39 academicians weremarried and 14 academicians were unmarried. The datashows the difficult sign to know exactly whether themarital status of academician has anything to do withawareness level about the stock market. Thus, to testthe relationship between the marital status and stockmarket awareness chi-square test has been applied.

Chi-Square Tests




Linear-by-Linear Association .823 1 .364

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Table 7: Showing Chi-Square results for stock marketawareness and marital status

From the top row of the last table, Pearson Chi-Squarestatistic=3.391, and p > 0.05.,i.e. 0.495; hence, thereis no significant relationship between Stock awarenessand marital status of the respondents.

Qualification

The data distribution represents 4 academicians asgraduates, 24 academicians as postgraduates and 25academicians as M.Phil/PhDs. The data shows thehigher qualified academician has more awareness levelof stock market. Thus, to test the significancerelationship between the education qualification andstock market awareness we have applied chi-square test.

Chi-Square Tests





Table 8: Showing Chi-Square results for stock marketawareness and qualification

From the top row of the last table, Pearson Chi-Squarestatistic= 16.248, and p < 0.05.,i.e. 0.039; hence, thereis significant relationship between Stock awareness andQualification of the respondents.

VII. Computation process:

Hypothesis: The knowledge about computation processof Sensex/Nifty is not affected by gender, age, maritalstatus and qualification of academicians.

The computation process in particular for the presentpaper refers to the knowledge regarding calculation ofpopular indices of Indian stock market; sensex and nifty.The empirical results have been presented below.

Gender

The chi square results for gender towards knowledgeof computation process has been shown in Table 9. Theresults suggest that gender may not play a significantrole in determining computation process awarenesswithin academicians.

Chi-Square Tests





Table 9: Showing Chi-Square results for computationprocess and gender

From the top row of the last table, Pearson Chi-Squarestatistic= 7.314, and p > 0.05.,i.e. 0.120; hence, thereis no significant relationship between Computationprocess and Gender.

Age

Table 10 depicts age wise difference in determinationof computation process knowledge amongacademicians. The results have been found similar togender.

Chi-Square Tests





Table 10: Showing Chi-Square results for computationprocess and age

From the top row of the last table, Pearson Chi-Squarestatistic= 10.621, and p > 0.05.,i.e. 0.224; hence, thereis no significant evidence that Computation processknowledge differs as according to the Age of respondent.

Marital status

Marital status of an academician provides same resultsas the other two parameters in determining computationprocess knowledge.

Chi-Square Tests





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Table 11: Showing Chi-Square results for computationprocess and marital status

From the top row of the last table, Pearson Chi-Squarestatistic= 2.594, and p > 0.05.,i.e. 0.628; hence, thereis no evidence that the knowledge of Computationprocess differs as the Marital status of the respondent.

Qualification

Surprisingly, qualification also doesn’t seem to affectknowledge regarding computation of sensex/niftyamong academicians.

Chi-Square Tests





Table 12: Showing Chi-Square results for computationprocess and qualification

From the top row of the last table, Pearson Chi-Squarestatistic= 14.989, and p > 0.05.,i.e. 0.059; hence, thereis no significant evidence that the knowledge ofComputation process differs as per academicqualification of the respondent.

Financial Updates

Hypothesis: Financial updates related with stock marketamong academicians are not influenced by their gender,age, marital status and qualification.This variable may be said to be related with habit ofreading latest news or information associated with stockmarket by the academicians taken as sample. This istreated as a dependent variable which has been testedwith the help of chi-square in SPSS for whether it isaffected by independent variables taken in study (gender,age, marital status and qualification). Their individualexplanation can be presented below:

Gender

Gender as discussed in the previous paragraph as anindependent variable may impact knowledge aboutlatest updates of stock market. There may be a differencebetween reading habits of males and females whichfurther can affect “financial updates” among them. This

has been statistically elaborated with the help offollowing table:

Chi-Square Tests





Table 13: Showing chi-square results for genderimpact on financial updates.

The above table shows chi-square value (10.259) hasbeen found significant at 5% level of significance witha p-value of 0.036 which is lesser than 0.05. Hence,it may be said that gender affects financial updates aboutstock market among academicians. It may be deducedthat males and females have separate reading habits andthus they may possess different level of informationabout events occurring in stock market.

Age

Age is taken as yet another independent variable whichmay influence financial updates among academicians.As discussed earlier also in the paper data has beendivided into four groups on the basis of age (Below 20,21-30, 31-40 and more than 40). The interest areas ofthese groups may vary which further may affect theirinterest in stock markets. The relationship has beentested with the help of chi-square in SPSS. Its resultshave been produced below:

Chi-Square Tests





N of Valid Cases 53

Table 14: Showing chi-square results for impact ofage on financial updates

The table above shows chi-square value (9.800) whichhas not been found significant at 5% level of significancewith a p-value of 0.279 which is greater than 0.05. Itmay be said that age is not a determinant in case of

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academicians understanding about latest stock marketupdates. It may be inferred from the results that in caseof academicians’ group age may play an indifferent roledue to professional nature where this group requiresactive reading at all stages.

Marital Status

Marital status may play an important role in determininga person’s knowledge and understanding about stockmarket. There may be difference in time devoted bya married and unmarried academician in reading latestnews from stock market. This probability has been testedwith the help of chi-square in SPSS providing thefollowing results:

Chi-Square Tests





Table 15: Showing chi-square results for marital statusimpact on financial updates

The table above shows chi-square value (1.069) whichhas not been found significant at 5% level of significancewith a p-value of 0.899 which is more than 0.05. It maybe figured out that marital status cannot be said to bea determinant for financial updates among academicianswith any statistical evidence. It may be again due tonature of profession which calls for continuous reading.

Qualification

Education may bring revolutionary changes in anindividual’s personality. Therefore, enhancement ofqualification may add quality to one’s lifestyle. It mayhave an impact on knowledge possessed byacademicians related to stock market. This phenomenonhas been statistically tested with the help of chi-squareand its results have been produced below:

Chi-Square Tests





Table 16: Showing chi-square results for effect ofqualification on financial updates.

The table above shows chi-square value (17.515) whichhas been found significant at 5% level of significancewith a p-value of 0.025 which is lesser than 0.05. Itmay be conjectured that qualification has a significanteffect on latest news and information gathered byacademicians. Thus, financial updates may be readilyavailable with academicians which are highly qualifiedas compared to others.

De-Mat Account

Hypothesis: There is no effect of gender, age, maritalstatus and qualification on acquaintance regarding De-Mat account.

De-Mat account is a pre-requisite for trading in sharesof any company in the Indian stock market. However,those investors who are still trading without it may bedoing it with brokers or other agents. The awarenessand knowledge about stock market among academiciansmay depend upon many factors. This segment shallpresent statistical results for influence of gender, age,marital status and qualification on familiarity with De-Mat account.

Gender

The gender differentiation may affect the knowledgeabout De-Mat account among academicians. There maybe varied levels of familiarity about online trading andits related processes among academicians dependingupon their gender. This has been statistically tested withchi square in SPSS whose results are presented below:

Chi-Square Tests





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Table 17: Showing Chi-Square results for De-Mat andgender

The table above shows chi-square value (8.250) whichhas been found significant at 5% level of significancewith p-value (0.016) which is more than 0.05. Thus,it may be said that gender significantly affects awarenessabout De-Mat account among academicians.

Age

Age may plays its own part regarding acquaintanceabout De-Mat account among academicians. There maybe a possibility that youngsters who are more internet-savy possess better understanding about online trading.This has been statistically tested by applying chi-squarein SPSS. Its results have been shown below:

Chi-Square Tests





Table 18: Showing Chi-Square results for De-Mat andage

The table above shows chi-square value (10.137) whichhas been found significant at 5% level of significancewith a p-value (0.038) which is less than 0.05. It maybe said with statistical evidence that age plays adominant role in determining knowledge about De-Mataccount among academicians. The possibility has beenfound more in the age group of 31-40. It may be becausethis age group is surrounded by more serious approachtowards investment and future planning.

Marital Status

The awareness on the subject of De-Mat account maydepend upon marital status of an individual. However,it may not make any difference if the person has beenactively engaged into trading before marriage. This hasbeen statistically tested with chi-square in SPSS andits results have been revealed below:

Chi-Square Tests





Table 19: Showing Chi-Square results for De-Mat andmarital status

The table above shows chi-square value (4.032) whichhas been found insignificant at 5% level of significancewith a p-value (0.133). Therefore, it may be said thatmarital status does not play any role in finding outunderstanding related to De-Mat account amongacademicians. It may be surprising that maximumrespondents who were observed to have knowledgeregarding online trading were married.

Qualification

Educational qualification may have a bearing oninformation regarding De-Mat account in academiciansgroup. There may be a probability that higher the levelof qualification more may be the knowledge aboutonline trading and related things. This may bestatistically shown with the help of following table:

Chi-Square Tests





Table 20: Showing Chi-Square results for De-Mat andqualification

The table above shows chi-square value (17.165) whichhas been found significant at 5% level of significancewith a p-value (0.002) which is lesser than 0.05. That’swhy it may be said that qualification can be an importantparameter in determining understanding of anacademician about De-Mat account. Maximumrespondents who had acquaintance with De-Mat accountwere M.Phil/Ph.Ds.

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VIII. Conclusion:

There are multiple options available for investors intoday’s moderated financial markets. However,investing in stock markets requires courage andknowledge about its operations. Academicians may becalled as a group of investors who may not be risk loversdue to their sophisticated profession. Their thoughtprocess lies in playing a safe game. So, stock marketmay be as another option for investment to them. Thepresent study has tried to peep into this phenomenonfrom various angles. Stock market awareness andinvestment pattern among academicians have beenfound to be more affected with gender and qualificationas compared with age and marital status. However,knowledge regarding De-Mat account has been foundto be influenced by gender, age and qualification. It maybe concluded that due to nature of profession few factorsplay a prominent role in determining awarenessregarding stock market investment amongacademicians.

References

1. Baker, H., Kent & Nofsinger John, R., (2002).Psychological Biases of Investors. Financial SeriesReview, 11, 97-116.

2. Banerjee, Abhijit, V., (1993). The Economics ofRumours. Review of Economic Studies, 60,309-327.

3. Barro, Robert, J., (1990). The Stock Market andInvestment. The Review of Financial Studies,3, 115-131.

4. Beal, Diana J., Goyen, Michelle & Phillips, Peter,(2005). Why do we Invest Ethically? The Journalof Investing, 14, 66-78.

5. Bodie, Zvi & Crane, Dwight, B., (1997). PersonalInvesting: Advice, Theory, and Evidence. TheFinancial Analysts Journal, 53, 13-23.

6. Bodie, Zvi., (1995). On the Risk of Stocks in theLong Run. The Financial Analysts Journal, 51,18-22.

7. Colin, F., Camerer & George, Loewenstein,,(2004). Advances in Behavioral Economics, 3-25.(h t tp : / /www.andrew.cmu.edu/user /g l20/G e o r g e L o e w e n s t e i n / P a p e r s f i l e s / p d f /BehEconPastPresentFuture.pdf)

8. Eldar, Shafir, & Richard, H., Thaler., (2006). Investnow, drink later, spend never: On the mentalaccounting of delayed consumption. Journal ofEconomic Psychology, 27, 694-712.

9. Haliassos, Michael, & Bertaut, Carol, C., (1995).Why do so few hold stocks? The EconomicJournal, 105, 1110-1129.

10. Hong, Harrison, Kubik, Jeffrey, D., & Stein,Jeremy C., (2001). Social Interaction and Stock-Market Participation. NBER Working Paper Series8358. (http://www.princeton.edu/~hhong/jfsocial.pdf)

11. Lusardi, Annamaria & Mitchell, Olivia S., (2010).Financial Literacy among the Young. CFS WorkingPaper Series 2010/09, 1-38 (http://hdl.handle.net/10419/43224).

12. Lusardi, Annamaria., (2008). Financial Literacy:An Essential Tool for informed Consumer Choice.CFS Working Paper Series 2008/19, 1-33. (http://hdl.handle.net/10419/25554)

13. Morck, Randall, Shleifer, Andrei & Vishny, RobertW., (1990). The Stock Market and Investment: Isthe Market a Slideshow? Brookings Paper onEconomic Activity. 157-215.

14. Roij, Maarten, Van, Lusardi, Annamaria, &Alessie, Rob., (2007). Financial Literacy and StockMarket Participation. NBER Working Paper Series13565, 1-48 (http://www.nber.org/papers/w13565).

15. Werner, F.M., (1998). A Portrait of the IndividualInvestor. European Economic Review, 42, 831-844.

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INTERVIEWS

Amb. H H S Viswanathan, Distinguished Fellow,Observer Research Foundation, New Delhi

Amb. H H S Viswanathan was amember of the Indian ForeignService for 34 years. He has a longand diverse experience inInternational relations andDiplomacy. His foreignassignments include Belgium, Zaire, Czechoslovakia,Germany, China, Italy, Cote d’ Ivoire, USA andNigeria. He was the Head of Mission (Ambassador/High Commissioner) in Cote d’Ivoire and Nigeria withconcurrent accreditation to Niger, Guinea (Conakry),Sierra Leone, Cameroon, Benin, Chad, EquatorialGuinea and Sao Tome and Principe. At theHeadquarters in MEA, he has been Deputy Secretary(East Europe) and Joint Secretary (Administration).InUSA, he was Consul General of India in SanFrancisco with a consular jurisdiction over 14 Statesin the mid- West and West coast of the US.He has alsoco-edited the book “In search of Stability, Security andGrowth: BRICS and a new World Order” publishedby Observer Research Foundation(ORF). Currently,Amb. H H S Viswanathan is a Distinguished Fellowin the Observer Research Foundation. He heads theAfrica Studies Programme and is also associated withthe China Studies Programme. In addition, hecoordinates all activities connected with BRICS andIBSA. He has headed the Indian delegation for thepast four Academic Fora before the BRICS Summits.He is also India’s representative at the BRICS Think-tank Council (BTTC) which coordinates all Track 2activities of the Group.

The following is an exclusive interview of Amb. H HS Viswanathan given to GITAM School of InternationalBusiness

1. Do you think that BRICS has the potential toshape the new global architecture?

Amb. Viswanathan: One of the principal aimsof BRICS is to address some of the lacunae in thecurrent Global Order and Architecture. It is truethat the BRICS countries have benefited from

many aspects of the current Global order. Hence,they are not aiming at something revolutionary.But, the fact remains that with globalization anda changed world with new emergent powers, thetime has come to change some of the structures.That is what BRICS would like to do.

2. Do you think BRICS counties have enoughdevelopmental goals in common to sustain ashared vision?

Amb. Viswanathan: All the BRICS countriesemerged due to globalization. In the process, theyhave developed common characteristics. There arenew problems like unequal growth, incomedisparities, urbanization, sustainability ofdevelopment etc. The five countries are learningfrom the experiences and best practices of theothers.

3. Do you feel BRICS are becoming more involvedin global policy setting?

Amb. Viswanathan: BRICS started as aneconomic grouping. However, over the last sevenyears it has evolved into a geo-political group.Today, BRICS does not shy away from expressingits views on the important political issues that affectthe world.

4. Could you share your views on the commontraits shared by the BRICS countries and otheremerging markets?

Amb. Viswanathan: BRICS has a lot in commonwith other emerging markets. They are all tryingto accelerate the process of development. Jobcreation and sustainable development are of highpriority to all. They all want an open rule basedtrading system.

5. Could you offer some perspective on the term“BRIC deceleration”?

Amb. Viswanathan: The term “Decelaration” hasbeen used to describe the slowing down of someof the BRICS economies. It is true that the growthrates have come down in some, particularly China.

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But, BRICS still are among the high growtheconomies.

6. Can you share your ideas on the political climate& foreign policy of the BRICS countries?

Amb. Viswanathan: Even though there is noformal mechanism of coordinating the ForeignPolicies, BRICS countries agree on some broadconcepts like non-interference in the internalaffairs, multilateralism and the centrality of theUnited Nations on global issues.

7. What will be the focus of the New BRICSDevelopment Bank?

Amb. Viswanathan: The New DevelopmentBank has been created to bring additionalty in thefunding of infrastructure projects in the BRICS andother developing countries. The priorities will beinfrastructure, small and medium industries andpoverty alleviation. In order to be successful, thebank will have to follow a bottom-up approach andnot the top-down approach followed by the WorldBank.

8. Can you share your views on the currency thatthe New BRICS Development Bank would beusing?

Amb. Viswanathan: There is no fixed currency,as of now. Many of the loans will be denominatedin US Dollars. However, use of local currencieswill be encouraged wherever possible. As youknow, a significant part of intra-BRICS trade isalready in BRICS currencies.

9. Will this new BRICS Development Bank raisea challenge to the World Bank?

Amb. Viswanathan: The idea of the NewDevelopment Bank (NDB) is not to supplant theWorld Bank but to supplement it. It is well knownthat there is a serious shortage of funds availablefor development activities from the existing multi-lateral development banks. That is why the roleof NDB becomes important. The approach willbe one of collaboration and not confrontation.

Mr. Prahalathan Iyer, Chief General Manager,EXIM Bank of India, Mumbai

Mr. Prahalathan Iyer, joined theBank in 1998. Prior to this, he waswith ASSOCHAM, India TradePromotion Organisation, andNational Council for AppliedEconomic Research. He hasworked in the areas of Export Services, EximiusCentre, Knowledge Centre and Research and Analysis.He was a member of the ‘Technical Committee onServices / Facilities to Exporters’, set up by the ReserveBank of India; ‘Task Force on Trading of Goods inLocal Currencies’, set up by the Department ofCommerce, Government of India; and ‘India-RussiaJoint Working Group on Settlement of Bilateral Tradein National Currencies’, set up by the Reserve Bankof India. Mr. Iyer holds Masters Degrees inEconomics, and Financial Management. Mr. Iyer hasinterests in Carnatic classical music, writing andreading.

The following is an exclusive interview of Mr.Prahalathan Iyer given to GITAM School ofInternational Business

1. May I request your views on India’s Exportperformance: Trends and drivers during thelast few years?

Mr. Iyer: India has witnessed lackluster growthin exports between 2011-12 and 2014-15 on theback of weakness in global demand and domesticfactors like infrastructural bottlenecks and policyconstraints. Export growth turned negative in2009-10 on account of the 2008 global financialcrisis, and once again in 2012-13 as a result ofthe Euro zone crisis and the resultant globalslowdown.

After witnessing some improvement in 2013-14,exports further declined in 2014-15, driven by asharp fall in petroleum exports, attributable to thefall in international crude oil prices. India’s importsalso fell for the second consecutive year in 2014-15. Owing to a sharp decline in POL imports, thefall in imports this year was the steepest fall inthe past 16 years. These trends are unsurprising,

30


given that the international trade situation in itselfis fragile. The Baltic Dry Index which is acomposite of rates charged on a variety ofimportant trade routes and a good proxy of therobustness of world trade is at its lowest levels.

The trend in exports from India varies acrosssegments. Exports of some segments like gems andjewellery, and electronic goods have beendeclining from 2012-13 onwards. The decline ingems and jewellery exports has continued evenafter easing of major curbs on gold imports. Apartfrom these, petroleum products which hadwitnessed positive growth in exports over the pastfour years also turned negative in 2014-15.

On the other hand, exports of marine products andleather goods have witnessed robust growth inrecent times. Exports of readymade garments overthe past two years have also been registeringdouble digit growths, on account of growing laborcost advantage of India relative to competitorsfrom other economies like China, Bangladesh,Vietnam and Cambodia, and shortage of labor andtightening of domestic labor laws in economieslike Bangladesh and China.

Driven by increased government support toexporters to tap into new markets in Latin Americaand Africa, there has been substantial marketdiversification for Indian exports. Share of LatinAmerican countries in India’s total exports hasincreased to 3.71 percent in 2014-15, as comparedto 2.15 percent a decade ago. This has been thecase in spite of lack of adequate air and maritimeconnections with Latin American countries.Similarly, the share of African countries in India’sexports has grown from 6.67 percent in 2004-05to 10.61 percent in 2014-15. These markets arenot just providing new avenues for India’s valueadded exports, but are also important source forthe country’s fuel and raw material requirementsin an increasingly volatile internationalenvironment.

2. Do you think that the recent Euro crisis hasmade an impact on Indian Export market?

Mr. Iyer: Europe is the second largest export

destination for India, and nearly 23 percent ofIndia’s total exports in 2007-08 were directedtowards Europe. As a result, Euro area’s instabilitynegatively reflected in India’s export performance.Austerity measures in European countries andfalling consumer expenditure didn’t bode well forIndian exporters. As a matter of fact, the crisisaffected India’s exports more during the recentslowdown than in 2009-10.

In an UNCTAD paper following the onset of theglobal slowdown, it was noted that India’s exportsto the world are much more responsive to incomechanges as compared to price changes (incomeelasticity of demand for exports greater than theprice elasticity of demand for exports), althoughboth the factors are found to be significant. As perthe Report, a one percent decline in GDP growthof the world is likely to result in a 1.88 percentdecline in India’s growth of exports to the world.This correlation is also found to be the same withrespect to India’s exports to the G7 countries.Income elasticity was especially higher in thesectors of petroleum products, gems and jewellery,ores and minerals, and engineering and electronicproducts. Several of these sectors with high incomeelasticity have suffered in the recent slowdown.

However, there has been substantial diversificationin India’s exports and the share of Europe in India’sexports was reduced to 18 percent by the2014-15.

3. What are the export opportunities available forIndian exporters in the emerging markets?

Mr. Iyer: India has significant export opportunitiesin the fast emerging and economically vibrantregions of Africa and Latin America. Agriculture,pharmaceuticals, textiles, automobiles, metals andminerals, energy and infrastructure are some of thekey areas where there is scope for expanding ourexports to Africa.

In the Latin American and Caribbean region, thereis substantial scope for enhancing exports in theareas of textiles, engineering products, computersoftware, chemicals and pharmaceuticals, asidentified in the ‘Focus LAC’ program of the

31


Government of India. Other than this, India is alsolooking forward to increase its share of hi-tech andhigh value added defense exports to LACcountries.

4. Could you share your views on the drawbacksin the Indian EXIM scenario in comparisonwith China and other Asian markets?

India’s exports comprise high quality products, butthere is substantial scope for improvement inmanufacturing quality and complexity. Accordingto a paper by International Monetary Fund, Indianexports of fixed vegetable oils and fats, footwear,meat and meat preparations, non metallic mineral,and petroleum and petroleum products are of betterquality than most of the peer emerging markets.However, the same can’t be said for most of theother goods. India needs to improve its quality inthe product categories of chemicals, clothing, ironand steel, electrical machinery, apparatus andappliances, medicinal and pharmaceuticals, etc.

Moreover, while the Indian services exports arehighly sophisticated, even more than the averagelevel in high income countries, sophistication ingoods exports remains much lower than theaverage sophistication level of competing Asianeconomics. Several reasons could be cited, themain one being scale of operations andtechnological orientation.

5. What are the various services offered by EXIMBank for Indian exporters?

Mr. Iyer: The Bank operates a range of financingprogrammes aimed at enhancing the exportcompetitiveness of Indian companies. A variety offinancing services are offered to Export-OrientedUnits, and for overseas investment by Indiancompanies. The financing programmes cater to theterm loan requirements of Indian exporters forfinancing their new projects, expansion,modernization, purchase of equipment, R&D,overseas investments and also the working capitalrequirements.

The Bank also provides a range of export creditservices like finance for export of projects and

consultancy services, capital equipment finance,export project cash-flow deficit finance andguarantees. The Bank is equipped to offer acomprehensive financing package to Indian projectexporters including funded support and projectrelated guarantee facilities.

Buyer’s Credit is a unique programme of EximBank under which, the Bank facilitates Indianexports by way of extending credit facility tooverseas buyers for financing their imports fromIndia. Under the Buyer’s Credit programme, EximBank makes payment of eligible value to Indianexporters, without recourse to them. Buyer’s Creditis a safe, non-recourse financing option availableto Indian exporters, especially to small and mediumenterprises, which motivates them to enter overseasmarkets. Recently, Exim Bank, along with ExportCredit Guarantee Corporation (ECGC), haslaunched a new Buyer’s Credit programme underthe National Export Insurance Account (NEIA) ofthe Government of India.

Exim Bank extends Lines of Credit to overseasfinancial institutions, regional development banks,sovereign governments and other entities overseas,to enable buyers in those countries to importdevelopmental and infrastructure projects,equipments, goods and services from India, ondeferred credit terms. Indian exporters can obtainpayment of eligible value from Exim Bank, withoutrecourse to them, against negotiation of shippingdocuments.

Moreover, the Bank, through its grassrootsinitiatives, envisages supporting globalisation ofenterprises based out of rural India. The Bank hasconsciously sought to establish, nurture and fostervarious institutional linkages and has entered intoformal cooperation arrangements with selectbroad-based agencies in order to directly reach outto the artisans, by helping in capacity-building,technological up-gradation, quality improvement,market access and training.

The Bank plays a promotional role and seeks tocreate and enhance export capabilities andinternational competitiveness of Indian companies

32


through its Marketing Advisory Services. TheBank provides assistance to Indian firms in theirglobalisation efforts by locating overseasdistributor(s)/ buyer(s)/partner(s) for their productsand services. The Bank leverages its internationalstanding, in-depth knowledge and understandingof the international markets and well-establishedinstitutional linkages, coupled with its physicalpresence, to support Indian companies in theirmarketing initiatives on a success fee basis.

Apart from these, Exim Bank’s Research &Analysis Group offers a range of research insightson aspects of international economics, trade andinvestment through qualitative and quantitativeresearch techniques.

6. How successful is the overseas investmentfinance programme offered by EXIM Bank?

Mr. Iyer: Exim Bank laid the foundation of itsinnovative financing programme – OverseasInvestment Finance (OIF) – during its formativeyears itself. Over the years, the programme hasevolved into a key instrument for creation of tradethrough overseas investments with the underlyingobjective being to assist Indian firms to organizeproduction optimally to serve regional or globalmarkets. The larger objective is to provide aframework for the firms to approach globalnetworks by enabling them to access technologyor market as strategic responses to tap the emergingopportunities worldwide for trade in goods orservices, thereby improving the image of Indianindustry abroad.

The OIF programme, in its present form, seeks tocover the entire cycle of Indian investmentoverseas, including the financing requirements ofIndian Joint Ventures (JV) and Wholly OwnedSubsidiaries (WOS) with a suite of financinginstruments, besides the pre-and-post-investmentadvisory services.

Analysis shows that Exim Bank supportedoverseas investment from a region-sectorperspective – i.e. the top sectors of Exim Banksupported overseas direct investment bear a strong

correlation to the major products exported by Indiato that region.

The Bank has so far provided finance to 533ventures set up by 530 companies in 90 countries.Aggregate assistance for overseas investmentamounts to Rs. 43,210 Crore. During 2014-15, 35firms were supported for part- financing theiroverseas investments in 11 countries, withaggregate assistance amounting to Rs. 5,544 Crore.The overall experience of firms supported by EximBank for overseas investment from India has beenfairly positive in terms of achievement of desiredstrategic objectives.

7. What financing support would EXIM Bankwould give to Export Oriented Units (EOUs)and Micro, Small and Medium Enterprises(MSMEs) through EXIM Bank of India.

Mr. Iyer: Exim Bank provides term loans to exportoriented Indian companies to finance variouscapital expenditures including certain softexpenditures in order to improve their exportcapability and to enhance their internationalcompetitiveness. Loans are extended for thefollowing purposes: expansion, modernization,upgradation or diversification projects includingacquisition of equipment, technology etc.; exportmarketing; export product development; andsetting up of Software Technology Parks.

Apart from the Corporate Banking facilities, thereare additional services that Exim Bank offers tosupport Micro, Small and Medium Enterprises(MSMEs). The Asian Development Bank hasextended a credit line to Exim Bank for providingforeign currency term loans to the MSMEborrowers in certain specific lagging states ofIndia, viz. Assam, Madhya Pradesh, Orissa, UttarPradesh, Chhattisgarh, Jharkhand, Rajasthan andUttarakhand. These foreign currency term loanscan also finance domestic capital expenditure ofthe borrowers in Indian Rupees, besides meetingtheir foreign currency capital expenditurerequirements. The assistance to these MSMEs willhelp in increasing competitiveness in the relativelybackward states and help in integrating them intothe mainstream economy.

33


Exim Bank, besides providing financial assistanceto individual MSMEs, also provides financialassistance to Special Purpose Vehicles of a clusterof MSMEs. Term loans are provided to suchclusters of MSME units for the following activities:

• Development of new geographically contiguouscluster/industrial park, involving creation &maintenance of common infrastructure andcommon facilities, including inter alia constructionof buildings and civil works, acquisition of assets/technology, for the benefit of industrial units withinthe cluster/industrial park.

• Development of an industrial estate, by industrialusers, industry associations and/or Governmentbodies.

• Up-gradation of an existing industrial cluster orindustrial estate.

• Development of specific infrastructure, includingcommon effluent treatment plant, captive powerplant, transportation linkages, hazardous wastedisposal.

• Development of Common Facilities Centers liketesting centers, cold storages, for industrialclusters, industrial estates, or a group of industrieswith common interests.

With a view to facilitate credit flow to the MSMEsector at competitive rates, Exim Bank has alsoset up a Technology and Innovation Enhancementand Infrastructure Development (TIEID) fund ofUSD 500 mn exclusively for MSMEs, to augmenttheir export competitiveness andinternationalisation efforts, by partnering withbanks / FIs. TIEID seeks to meet long term foreigncurrency loan requirements of Indian exportingentities in the MSME sector for meeting capitalexpenditure, through refinancing of Banks / FIsagainst their eligible SME financing portfolio.

In view of the large untapped potential forincreasing exports by the creative industries andin order to provide a strategic focus to this sectorand enhance Exim Bank’s presence in the creativeeconomy space, and as a corollary, in the MSMEsegment, Exim Bank has also introduced a

Programme specifically for financing the CreativeEconomy.

8. Could you share some information about theGRID programme of the EXIM Bank?

Mr. Iyer: The Bank supports globalisation ofenterprises based out of rural areas of the countrythrough its Grassroots Initiatives and Development(GRID) programme. Through this initiative, theBank extends financial support to promotegrassroots initiatives/technologies, particularlythose having export potential.

The objective of the programme is to help artisans/producer groups/clusters/small enterprises acrossthe country realize remunerative return on theirproduce essentially through facilitating exportsfrom these units. The group handles creditproposals from such organizations working at therural /grassroots level and offers tailor-madefinancial products to cater to their needs.

The group is mandated to work towards developinga robust, vibrant and holistic approach in itsintervention by providing assistance at variousstages of product development / business cycleincluding capacity building, export capabilitycreation, expansion/diversification and finallyexports.

9. Please share your views on the New BRICSDevelopment Bank. Do you think that Indiawould stand to gain by this arrangementespecially in terms of exports?

Mr. Iyer: Currently, development finance isdominated by World Bank and IMF. The NewDevelopment Bank (NDB) promoted by theBRICS nations is likely to emerge as a better sourcefor development finance resources for memberstates. The rationale for establishment of NDB hasbeen to meet the significantly large infrastructurerequirements and the need for more sustainabledevelopment. There is extensive empiricalevidence that infrastructure development canincrease economic growth and reduce levels ofinequality.

34


NDB is expected to overcome current obstaclesto higher growth, raise productivity andcompetitiveness, provide support during financialcrisis, meet the infrastructure development gap inmember countries, and promote trade andinvestment.

More than India becoming a beneficiary out of theloans received from the NDB, the lending by NDBto other developing countries for improving theirinfrastructure would have a positive impact inforging stronger trade and economic ties amongnations.

10. What is your advice for the budding exportersin our country?

Mr. Iyer: The technologies used for production,as also in assembly of some of the products, arenot always updated in tune with the globaltechnological trends. In certain sectors likemachinery, there exists large technology gapbetween domestic and foreign manufacturers. Inorder to enhance productivity, product quality andoperating efficiency, it is essential that buddingmanufacturers constantly upgrade theirtechnological competencies.

Post manufacturing of goods, labeling, packaging,packing and marking of the export consignmentsis an important stage for export business. Labelingrequirements differ from country to country andthe same should be ascertained well in advanceby the exporters from the buyers. Exporters mustalso get acquainted with the latest packagingstandards and techniques in order to avoid facingrejection of their goods.

Emphasis on quality control is also crucial forexport businesses, especially in case of small-scaleexporters. Products being stuck at destination onaccount of quality problems raised by overseasbuyers can cause liquidity crisis. Qualifiedaccounting personnel must also be hired by firmsfor good MIS reporting standards and periodicalreview of operations.

Exporters can benefit from product promotion inexport markets, through avenues like trade fairsand exhibitions, by making the potential customersaware of the product, inducing product trials, andfacilitating effective communication with theforeign buyers.

Exporters may also find it helpful to engage withexport marketing agencies which provide supportat different stages, like choosing or selection ofproducts, identification of overseas markets andcustomers, selling techniques and channelizationof incentives, assistances and facilities grantedagainst exports. Exim Bank provides such servicesto Indian exporting firms and organization throughits Marketing Advisory Service program byproactively assisting the firms in locating overseasbuyer(s)/ partner(s)/ distributor(s) for theirproducts.

Product and market diversification is also pivotalfor exporters. Geographical diversificationfacilitates distribution of business risks amongdifferent export markets. Moreover, as demandfrom advanced economies stagnates under theshadow of global recession, exporters canwithstand the slowdown by seizing opportunitiesin the dynamic economies of Africa and LatinAmerica.

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If you can dream it, you can do it.

- Walt Disney

Innovation distinguishes between a leader and a follower.

- Steve Jobs

35


Value Added Trade Costs in Goods and Services, UNESCAP Working Paper Series, June 5th, 2015 by TheEconomic and Social Commission for Asia and thePacific, Thailand

This study introduces a new dataset of bilateral valueadded trade costs for the goods and services sectors,based on a measure derived from the micro-foundedgravity model and using data from the OECD-WTOTiVA database. This is the first study to calculate thevalue added trade costs for a set of developed anddeveloping economies, both for the goods and servicessectors. Overall, the study observes that, in the goodssector and in absolute terms, international trade costscalculated using value added data are lower than thosecalculated using gross trade and output data.

Source: www.unescap.org> resources

World Trade Report 2014 Trade and development:recent trends and the role of the WTO by the WorldTrade Organization, Geneva.

The World Trade Report 2014 looks at how the fourrecent major economic trends have changed and howthe developing countries can use trade to facilitatetheir development. These trends are the economic riseof developing economies, the growing integration ofglobal production through supply chains, the higherprices for agricultural goods and the natural resources,and the increasing interdependence of the worldeconomy. The Report also looks into the role playedby WTO in this regard.

Source: www.wto.org> Documents, data and resources

The World Investment Report 2014 by UnitedNations Conference for Trade & Development,Geneva.

The World Investment Report 2014, main findings oninternational investment trends show that the foreigndirect investment (FDI) inflows increased by 9 percent in 2013 to $1.45 trillion. Developing countriesincreased their global share of FDI inflows to a recordlevel of 54 per cent, and developing Asia now attractsmore inward FDI than either the EU or the UnitedStates. As investors, developing and transition countries

have been steadily increasing their investments abroadand last year they accounted for a record 39 per centof global FDI outflows - up from just 12 per centin the early 2000s. Because United Nations memberStates and other stakeholders are currently negotiatinga post-2015 development framework - the SustainableDevelopment Goals (SDGs) – and this year’s reportfocuses on how private finance can be mobilized forinvestment in sustainable development sectors, suchas climate change adaptation, infrastructuredevelopment, food security, health, and education.

Source: www.untad.org> Publications

The Statistical Yearbook 2014 by United NationsEconomic and Social Commission for Asia and thePacific, Geneva.

The Statistical Yearbook 2014 is an electronic filereleased by the UNESCAP, it consists of short analyticaltexts on 32 selected diverse topics, such as population,education, health, poverty and inequalities, gender,economy, environment and connectivity in the regionand related key messages as well as relevant data tables,and the country profiles of main development indicatorsfor each of the 58 regional member countries/areasof ESCAP.

Source: www.unescap.org> Resources

IMF Staff Discussion Notes, Causes andConsequences of Income Inequality: A GlobalPerspective Era by Dabla-Norris, Kalpana Kochhar,Nujin Suphaphiphat, Frantisek Ricka, EvridikiTsounta, June 2015 from the International MonetaryFund, Washington, D.C.

This paper analyzes the extent of income inequalityfrom a global perspective, its drivers, and what todo about it. The drivers of inequality vary widelyamongst countries, with some common drivers beingthe skill premium associated with technical changeand globalization, weakening protection for labor, andlack of financial inclusion in developing countries.The study finds that increasing the income share ofthe poor and the middle class actually increases growthwhile a rising income share of the top 20 percentresults in lower growth—that is, when the rich get

36

International Trade & Business Updates


richer, benefits do not trickle down. This suggests thatpolicies need to be country specific but should focuson raising the income share of the poor, and ensuringthat there is no hollowing out of the middle class.To tackle inequality, financial inclusion is imperativein emerging and developing countries while in advancedeconomies, policies should focus on raising humancapital and skills and making tax systems moreprogressive.

Source: www.imf.org> Staffdiscussionnotes

Human Capital Report 2015 by the World EconomicForum, Geneva.

Talent, not capital, will be the key factor linkinginnovation, competitiveness and growth in the 21stcentury, and we must each understand better the globaltalent value chain. Better data and metrics are criticalto this understanding. The Human Capital Indexquantifies how countries are developing and deployingtheir human capital and tracks progress over time.This Report provides comprehensive information on thetalent base in each country, including information oneducation levels of the employed, unemployed and theinactive members of the population as well as thespecific qualifications of the latest entrants to theworkforce.

Source: www.weforum.org> Reports

How Independent Directors Bridge the InformationGap by Christopher Armstrong, Wayne Guay JohnE.Core, June 2015 from knowledge@wharton,Philadelphia.

In the realm of corporate governance, recent researchhas confirmed a finding that should instinctively makesense: When a company’s board has a higher proportionof independent directors, the company itself behavesin a more transparent way. What’s less obvious iswhether the greater transparency is a result of havingmore outside directors, or whether companies that putgreater stock in transparency are more likely to acquiremore outside directors.

The Wharton professors in the above paper discuss theirfindings and explain what it takes for companies toimprove governance and information flow, and whythere are no “one size fits all” solutions.

Source: knowledge.wharton> Topics> Management

Dueling with Dragons 2.0: The Next Phase of GlobalCorporate Competition by Nikolaus Lang, BrianCollie, Andreas Gocke, Bob Zhai, Peter Ullrich,and Christian Moldenhauer, June 2015 from TheBoston Consulting Group, Mumbai.

The past few years have seen tremendous upheaval ina number of global industries. In 2000, giant Westerncompanies such as Ericsson, Nokia, and NortelNetworks ruled the world’s telecommunications-equipment industry. Now, Chinese companies such asHuawei Technologies and ZTE have risen to the top.In the process, they have forced establishedmultinational corporations (MNCs) into joint venturesor even out of the market. In the photovoltaic industryof 2005, U.S., European, and Japanese companiesaccounted for 90 percent of global production. TheBoston Consulting Group continuously monitors thestate of global competition in various industries. In theabove paper they have observed the four steps takenby the companies to become the global leaders.

Source: www.bcgperspectives.com> Expertise & Impact

Analysis: China’s Stock Markets in Freefall, July 8,2015 by the Geopolitical Monitor, Canada & USA.

The Shanghai Composite Index has been shedding valuesince mid-June, when it reached its 2015 high of 5,166points. Since then the index has dropped to just 3,582as of July 8 – a drop of over 30%. Hong Kong’s HangSeng Index fell victim to bullish sentiment later, butit too has now entered a freefall, losing around 9% sincelast Thursday. Geopolitical Monitor finds that thesedrops are occurring just as Beijing makes moves to shoreup market confidence. The Chinese government tookthe unprecedented step of calling in representatives from21 of China’s largest brokerages over the weekend andgetting them to pledge 15% of their net assets, or around$26 billion, to buy stocks thus pumping liquidity intothe market (this is but a drop in the bucket given the$3 trillion in value lost since June). They also pledgedto hold off on selling their own holdings until theShanghai Composite stabilizes at around 4,500.

Source: www.geopoliticalmonitor.com> Latest Stories

37


In India, “Jugaad” is a word we have heard fromchildhood. It is a word given to any improvisedeconomical innovative solution to a problem, andthereby endeavoring to convert hardships and afflictionsinto opportunities. We have heard, our father advisingthe auto technician to do some “jugaad” and fix up hisold scooter when the spare part was unavailable in themarket or when it was extremely costly.

In the villages of Punjab, the common farmers fix dieselengines to a cart and use them for transporting humans,livestock, and their produce to their destinations! Theycall them “jugaads”. If we travel all over India, we willsee many such ingenious innovations in use. As thesaying goes ‘necessity is the mother of invention’, theordinary men folk invented tools to suit their needs andof course their pockets too! It took authors like NaviRadjou, Jaideep Prabhu, and Simone Ahuja to pen downall these simple and frugal innovations in the form ofa book to show the world the economical and innovativeapproach needed in this twenty-first century. Some ofthe innovators mentioned in this book have noengineering degree or even basic schooling. As is thecase of Mansukh Prajapati whom Simone describes inthe beginning of the book, did not even complete hisschooling. However, he has designed a fridge, whichhe calls ‘Mitti cool’ out of simple clay, costing a meagertwo thousand rupees that keeps vegetables and fruitsfresh without electricity. This helps people from ruralplaces, where there is no constant supply of electricityor no supply at all, to get the luxury of cold water. Theyare also able to store their fruits and vegetables for aboutthree days.

Innovation must be the keyword for companies all overthe world. We have seen many innovative products

introduced into the western markets after years of effortand expenditure. “Jugaad” shows the world that the notso developed countries like India, Brazil, China, Kenyaand many more, have created new economically viableand simple products. The authors have outlined sixprinciples on which they worked:

1. Seek opportunity in adversity2. Do more with less3. Think and act flexibly4. Keep it simple5. Include the margin6. Follow your heart

In today’s high tech world, people may feel that “jugaad”is only for those who are simple and under privileged.The authors have however proceeded further and shownthat Fortune 500 companies too have geared up andintroduced these principles to establish their hold in themarket in this troubled financial world. The book haswrite ups on twenty big business ventures spread aroundthe world - Google, Facebook, 3M Apple, Best Buy,GE, IBM, Nokia, Procter and Gamble, Pepsico andPhilips to name a few. The authors have analyzed andassessed how these big companies are applying theprinciples of “jugaad” innovation in their businesses.And, of course the evolution of our own ‘Nano’ hasits place in the book.

In conclusion, we would like to cite the example ofIndia’s Mars Orbiter - Mangalyan that has beenassembled and released into space on a comparativelylow scale budget. The authors may have included thisinnovation also in their book, had the event taken placebefore 2014 by which time the book was alreadypublished!

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Book Review

Navi Radjou, Jaideep Prabhu and Simone Ahuja, Jugaad Innovation: A Frugal and Flexible Approachto Innovation for the 21st Century (Randon House India), PP: 288 pages, Rs. 315, ISBN: 978-1-118-24974-1

Prashant Raman*Usha Raman**

* Associate Professor, FMS-WISDOM, Banasthali University, Jaipur.

** Retired Bank Officer, State Bank of Bikaner and Jaipur, Ajmer.

38


GITAMReview ofINTERNATIONAL BUSINESS

Call for Papers

GITAM Review of International Business, a bi-annual publication of the GITAM School

of International Business, Visakhapatnam, India, is a journal devoted to contemporary issues

in International Business which encompasses to include such areas as International Business

Strategy, Finance, Marketing, and Policy matters relating to the WTO and other trade related

issues. Papers well researched in the area of International Human Resource Management

and Global Supply Chain Management are also welcome. Original theoretical and empirical

contributions including select reviews discussing the state of the art in functional areas

of International Business will be published. Papers from academicians, Industry analysts

as well as policymakers are welcome in order to provide alternative perspectives for a

wide range of users.

The Review endeavors :

• to provide a specialized forum for the publication of research-theoretical and empirical-

in the area of International Business;

• to foster innovative thinking, research, and action in International Business;

• to report on alternative perspectives in International Business that generate interplay

between theory and practice.

Please send your papers to

Editor-in-Chief

GITAM Review of International Business

GITAM School of International Business

GITAM University

Visakhapatnam - 530 045. India

You may also send your papers at

[email protected]

39


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GITAM Schoolof

International Business

About the School

Conceptualized as a centre of excellence in teaching, training, researchand consultancy in International Business, GITAM School of InternationalBusiness (Formerly GIFT) is acclaimed as one of the top-ranking B-Schoolsfor International Business in the country. It is a part of 100-acre campusof 25 year old Gandhi Institute of Technology and Management (GITAM),Visakhapatnam, which is now declared as GITAM UNIVERSITY u/s 3 ofthe UGC Act 1956.

The School has positioned some of the internationally eminent and experiencedfaculty. It has the best core and visiting faculty, who have rich experiencein the reputed B-schools and industry in the country.

The School infrastructure includes computer center equipped with dedicatedcampus-wide fiber optical layered network with 8 Mbps leased line internetaccess, AC class rooms and syndicate rooms with multimedia equipment.It has excellent support facilities such as Knowledge Resource Centre,Advanced Digital Library, and student support facilities like separate hostelsfor boys and girls, Gymnasium, Tennis Court, Food Courts, Bank, PostOffice, Medical Centre, Book Shop. With ‘top-of-the line’ infrastructure, theInstitute draws excellent students from different parts of the country. It hasa track record of 100 percent campus placements.

GITAM School of International Business entered into MoUs with BurgundySchool of Business, Dijon, France, International University of Paris, Paris,France and Kathmandu University School of Management (KUSOM), Nepalfor exchange of students / faculty and collaborative research programmes.The School is in a dialogue with Hanze University, Groningen, The Netherlands;Beijing Normal University, Beijing, and University of International Business& Economics, Beijing in China for similar purpose.

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