Corporate Bankruptcy, Soft Budget Constraints, and Business Group Affiliation: Evidence from Indian Firms

Komera, Surenderrao; Lukose, P J Jijo

doi:10.1142/s0219091514500167

Cited by 5 publications

(6 citation statements)

References 29 publications

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“…Business group affiliation. Business group affiliation is a significant feature of Indian companies, which influences the capital structure and financial performance (Gopalan et al, 2007;Bhaumik et al, 2012;Komera and Lukose, 2014) (Table I).…”

Section: Determinants Of Capital Structurementioning

confidence: 99%

Capital structure dynamics of Indian corporates

Rani

Yadav

Tripathy

2019

JAMR

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Purpose The purpose of this paper is to examine the capital structure determinants and speed of adjustment (SOA) toward the target capital structure of firms. Design/methodology/approach The study has used the generalized method of moments (GMM) model and two-stage least squares (TSLS) to the panel data of 3,310 Indian firms, from January 2000 to March 2018, to determine the adjustment speed toward target capital structure. Further, the study employed a fully modified ordinary least square technique to shed light on the dynamic nature of the adjustment process. Findings The results of the GMM estimations indicate that Indian firms are adjusting their capital structure toward the target rate of 10.38 percent per year. Similarly, the findings of TSLS estimate specify a SOA of 15.49 percent per year. The low adjustment speed suggests the prevalence of higher adjustment costs of Indian firms. Research limitations/implications Future research can be undertaken by including certain macroeconomic factors such as GDP, inflation and the interest rate, which also affect the SOA since firms are pretentious by market conditions while designing capital structure for firms. Practical implications In the current financial and regulatory set-up when there are frequent perturbations in the capital market, the study will be valuable for regulators, firms and academicians. The work would enable the concerned stakeholders to manage their scare resources and capital effectively by a better way to make informed decisions. It will facilitate managers of young companies to identify and regulate the factors that are more pertinent for them to make flexible financial decisions concerning the capital structure. Originality/value The study amplifies on previous studies and provides new insights on the speed of the adjustment process of Indian firms, helping to modify and refine their capital structures toward the optimum capital structure. This will not only enhance the financial flexibility in the capital structure of Indian corporates but also be of great value to the policymakers and other stakeholders.

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Section: Determinants Of Capital Structurementioning

confidence: 99%

Capital structure dynamics of Indian corporates

Rani

Yadav

Tripathy

2019

JAMR

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“…Research from various angles confirms that Indian business group firms share capital (Lensink, Van der Molen, & Gangopadhyay, 2003)) and risk (Komera & Lukose PJ, 2014). Efficient capital and risk sharing would reduce group firms' costs of capital; but Indian groups' capital and risk sharing is not necessarily efficient (Chacar & Vissa, 2005).…”

Section: Business Groups and India's New Middle-income Economymentioning

confidence: 99%

Corporate Governance, Business Group Governance and Economic Development Traps

Dau¹,

Mørck²,

Yeung³

2020

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“…Politically connected firms benefit from the governments, from reduced regulations to support when facing financial distress (Faccio et al, 2002). Furthermore, Komera & Jijo Lukose (2014) found that business group affiliations exhibit a weak effect of soft budget constraints. Therefore, group affiliates do not need to increase cash reserves when facing cash flow uncertainty due to the internal capital market existence (Locorotondo, Dewaelheyns, and Van Hulle 2014).…”

Section: Business Group Affiliation and Cash Reservesmentioning

confidence: 99%

“…The model refers to several prior studies (R. R. Chen et al, 2018;Komera & Jijo Lukose, 2014). Furthermore, we also individually investigate the relationship between state ownership and GPR on cash reserves, with the following regression model in equation 3.…”

Section: Empirical Modelmentioning

confidence: 99%

“…Other than that, business group affiliates also exhibit soft budget constraints, albeit the weaker impact, due to easy access to the group's internal capital market and risk-sharing among affiliates. When facing a crisis, business group affiliates (in the future referred to as BGA) have a lower likelihood of bankruptcy than stand-alone firms (Komera & Jijo Lukose, 2014). Despite generally holding more cash reserves, Suk et al (2019) found that cash reserves in BGAs (short for business group affiliates) remain consistent in a state of crisis compared to stand-alone firms, thus ascertaining the existence of soft budget constraints.…”

Section: Introductionmentioning

confidence: 99%

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The Impact of Geopolitical Risk, State Ownership, and Group Affiliations on Indonesian Firms' Cash Reserves

Sandra,

Kim

2022

J. Keuang. dan Perbank.

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The purpose of this study is to examine whether geopolitical risks affect firms' cash reserves in Indonesia. Using a panel data analysis, we analyze the role of GPR (short for geopolitical risk) on firms' cash reserves from 2010 to 2020. The results reveal that firms spend their cash reserves when encountering geopolitical risk, specifically financially constrained firms. We extend our study by investigating the effects of state ownership and group affiliations on firms' attitudes towards GPR. State ownership positively affects the relation of GPR and firms' cash reserves, while group affiliation doesn't show a notable impact. The result was robust to endogeneity issues. However, further studies are still needed to determine the extent of geopolitical risk impacts firms' performances. This research is hoped to be useful for policy-makers to anticipate appropriate future regulations in order to help entrepreneurs and the country's economic growth. As for the practitioner itself, i.e., firms, business owners, and entrepreneurs, this research is expected to provide notable information about the impact of risk on firms in Indonesia. Since the economy is shifting to a borderless economy, it can be one of the considerations in making business or economic decisions when firms are faced with geopolitical uncertainty.

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Corporate Bankruptcy, Soft Budget Constraints, and Business Group Affiliation: Evidence from Indian Firms

Cited by 5 publications

References 29 publications

Capital structure dynamics of Indian corporates

Capital structure dynamics of Indian corporates

Corporate Governance, Business Group Governance and Economic Development Traps

The Impact of Geopolitical Risk, State Ownership, and Group Affiliations on Indonesian Firms' Cash Reserves

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