Bombay Stock Exchange Research Articles

The effect of working capital investment on firm value and long-term investment: evidence from Indian manufacturing sector

PurposeThis study investigates the relationship between working capital investment (WCI) and firm value for Indian manufacturing firms using excess net working capital (NWC) and Tobin's Q as a measure of WCI and firm value, respectively. The study also examines whether firms use the cash released from excess investment in working capital to make long-term investments.Design/methodology/approachThe sample comprises 834 Bombay Stock Exchange (BSE) listed Indian manufacturing firms whose data from April 2010 to March 2020 are analyzed using a fixed-effect panel regression analysis approach.FindingsThe empirical results show that excess NWC influences firm value negatively and significantly. However, the nature of the relationship becomes nonlinear upon dividing the sample into positive excess NWC and negative excess NWC. The findings from the study also reveal that firms redistribute cash freed from positive excess NWC for long-term investments to improve their value without impacting the corresponding risk.Practical implicationsOverall, the results suggest that firms with positive excess NWC can enhance their valuations by building adequate long-term investments from surplus WCI funds.Originality/valueTo the authors’ best knowledge, studies on this issue have primarily focused on developed economies. No study seems to have been done on this subject in the emerging South Asian economies. The present study is the first to bridge the research gap by investigating the relationship between excess WCI and firm value for manufacturing firms in India. Moreover, it examines whether a positive excess NWC reduction translates into corporate investments (CI).

Do audit attributes impact earnings quality? Evidence from India

PurposeThe present study's goal is to analyze the impact of audit quality (AQ) on earnings quality (EQ) using different audit attributes. The study shows empirical evidence from India, considered an emerging market.Design/methodology/approachThe sample selected represents the 376 non-financial firms listed on the Bombay Stock Exchange (BSE). With a 20-year time frame, the authors used the absolute value of discretionary accruals (McNichols, 2002) (DA) as a proxy for EM, which is inversely related to EQ. The authors analyzed data using OLS, fixed effect (FE), 2SLS and Panel-IV estimators.FindingsThe authors found that most audit attributes positively affect EQ. In the Indian context, joint auditor (JA), auditor size (A_SIZE), auditor fee (A_FEE) and auditor tenure (A_TENURE) have a negative association with EM indicating high EQ. In contrast, auditor rotation (A_ROTATON) positively affects EM confirming low EQ.Research limitations/implicationsThe present study uses Big-4 and its member firms as a proxy of auditor size (A_SIZE); instead, other bases may be taken for it, like the dominant audit firms in a particular industry in sample data, etc. The authors have started audit tenure from the base year, i.e. 2001, which may ignore the association of auditor and auditee just before 2001.Practical implicationsThe study findings would enhance policymakers' willingness to prepare appropriate regulations regarding JAs and auditor rotation, which might improve financial market efficiency and reduce financial fraud among Indian corporates.Originality/valueTo the best of the authors' knowledge, this is the first study to incorporate “Joint Auditor” (JA) as a proxy for audit quality in the Indian context, which might significantly contribute to the literature.

Structural supply chain complexity index and construct validity: a data-driven empirical approach

PurposeGiven the lack of focus on a standardized measurement framework (e.g. benchmarking tool) to assess and quantify complexity within the supply chain, this study has developed a unified supply chain complexity (SCC) index and validated its utility by examining the relationship with firm performance. More importantly, it examines the role of firm owners' business knowledge, sales strategy and board management on the relationship between SCC and firm performance.Design/methodology/approachIn this study, the unit of analysis is Indian manufacturing companies listed on the Bombay Stock Exchange (BSE). This research has merged panel data from two secondary data sources: Bloomberg and Prowess and empirically operationalized five key SCC drivers, namely, number of suppliers, the number of supplier countries, the number of products, the number of plants and the number of customers. The study employs panel data regression analyses to examine the proposed conceptual model and associated hypotheses. Moreover, the present study employs models that incorporate robust standard errors to account for heteroscedasticity.FindingsThe results show that complexity has a negative and significant effect on firm performance. Further, the study reveals that an owner's business knowledge and the firm's effective sales strategy and board management can significantly lessen the negative effect of SCC.Originality/valueThis study develops an SCC index and validates its utility. Also, it presents a novel idea to operationalize the measure for SCC characteristics using secondary databases like Prowess and Bloomberg.

Green Business and Performance of Green Stock Indices in COVID-19 Impacted Indian Stock Market: A Study with Reference to BSE S&P GREENEX and CARBONEX

The Indian stock market and the investors’ confidence level was affected badly by COVID-19 crisis. World Business Council for Sustainable Development (2020) had stated that investor decision-making at the present time is influenced by the sustainability orientation of the companies. In the context of COVID-19 crisis, it is important to project investor behaviour in the post-lockdown phase to understand the stock market potential. This research has attempted to perceive the status of economic resurgence with respect to two Bombay Stock Exchange (BSE) green indices, that is, CARBONEX and GREENEX. A comparative analysis of such indices has been performed over the lockdown and unlockdown phases until 20 July 2021. This research attempted to find if the indices were significantly different in lockdown and unlockdown phases. A significant mean variance would indicate development in sustainable business operations since lockdown period and an increment in such values would draw better investment in Indian stock market in future, even amid further mild COVID waves with partial lockdowns. One-way between-the-groups ANOVA has been performed to see if the means of CARBONEX and GREENEX indices are significantly varying in the aforementioned phases. A significant variance will help the Indian investors to look forward to the post-COVID economic reinstatement.

Options in Derivative Market: A Study on Working and Trends in Option Contracts

Indian derivative market is very vast market. Many assets,securities, products and services are offered in derivative market to the various traders and investors. In India derivative products are offered by both BSE (Bombay stock exchange) and NSE (national stock exchange). Derivatives are classified into two parts Commodity derivatives and financial derivatives. Commodity derivatives are dealt in commodities like soybean, turmeric, oats corns. Financial derivatives include securities, bonds, treasure, foreign exchange, stock index etc. All financial derivatives are performed with the help of futures; options .this paper manly concentrates option contracts. NSE and BSE are also dealt in futures and options. This paper only considers the trends and working of option contracts in BSE. Option contracts are a right to buy or sell security on or before expiry of period at a predetermined price which is called strike price. Options are not an obligation. Call option and put option are two basic positions which are used by trader to manage the risk of buying and selling of underlying asset or security. This paper shows the working and trends of options as indexed options and equity options in BSE.

Listing on environmental, social and governance index and financial distress: does the difference-in-differences matter?

PurposeEnvironmental, social and governance (ESG) issues have become the cornerstone of investment decisions in firms today. With that, publicly traded ESG indices (like the BSE ESG 100 index in India) have come into existence. The existing literature signifies that ESG generates financial implications and induces stability. The current study aims to test whether the firms listed on the ESG index (ESG-sensitive firms) face less financial distress than those not listed on such an index.Design/methodology/approachThe study applies panel data difference-in-differences (DID) regression by considering ESG as an unstaggered treatment to 74 non-financial firms listed on India's Bombay Stock Exchanges (BSE) 100 index. In total, 42 firms are ESG treated as they got listed on the BSE ESG 100 index, formed in 2017. The remaining 32 firms form the control group. The confidence intervals and standard errors are estimated using clustered robust errors and the Donald and Lang method.FindingsListing on the ESG index matters for financial stability; differences in financial distress are significant on financial distress. ESG-sensitive firms face less financial distress than non-ESG firms (or firms not perceived as ESG-sensitive). The results are consistent across two financial distress measures, Altman z-scores for emerged and emerging markets. Thus, the DID in distress status between ESG-sensitive and non-ESG firms matter.Practical implicationsThe study creates vibrant implications for practitioners using ESG to reduce financial distress.Originality/valueThe study is one of its kind to test the treatment effects of ESG on firm value and quantify treatment effects on financial distress.

Momentum, reversals and liquidity: Indian evidence

This paper addresses three interesting questions. First, we explore whether price momentum exists for equities listed on the Bombay Stock Exchange (BSE). Second, whether liquidity (measured by turnover ratio) enhances the momentum effect. Third, whether momentum profits exhibit reversals for illiquid stocks. Using a large sample of 3956 stocks for the period 2000 to 2021, we establish three key results. First, we find evidence of significant price momentum (intermediate and long-term) for equities listed on the BSE. Second, when conditioned on liquidity, we find that the momentum returns (short, intermediate, and long-term) are more significant for the most liquid portfolio and exhibit persistence for the next 12 months. Third, although we document evidence of short and intermediate-term reversals among the most illiquid portfolios, we fail to find evidence of persistence. Our results continue to hold after controlling for risk factors related to market premium, firm size, value, and a host of macroeconomic indicators. Taken together, our paper highlights the role of liquidity in amplifying the momentum effect in the Indian market.

Dynamic Interdependence: Analysing BSE SENSEX and its Relationship with Global Stock Indices from 2018 to 2022

This comprehensive analysis delves into the intricate relationship between the Bombay Stock Exchange SENSEX (BSE SENSEX), India's leading stock market index, and popular international stock indices during three distinct research periods from 2018 to 2022. The study employs a combination of correlation analyses and multiple regression models to explore how SENSEX interacts with global counterparts, shedding light on the evolving dynamics of the Indian stock market. The five-year research period from 2018 to 2022 reveals that SENSEX displays a robust positive correlation with various international indices, including Nikkei 225, DAX, CAC40, S&P500, NASDAQ100, and DOW JONES. This suggests a substantial degree of co-movement with global markets, emphasizing the influence of external economic and financial factors on India's stock market. A multiple regression analysis further substantiates these relationships by indicating that international indices collectively have a significant impact on SENSEX's variations during this period.

Firm's life cycle and cash flow classification: evidence from Indian firms

PurposeThe study examines the influence of a firm's life cycle on the cash flow classification of Indian firms.Design/methodology/approachThe study employs Dickinson's (2011) cash flow patterns to classify firm years under various life-cycle stages. Cash flow classification is employed to measure a firm's classification shifting (CS) practices. The study includes Indian firms listed on the Bombay Stock Exchange during 2012–2020, an ordinary least squares regression model, a fixed-effect model and a panel corrected with standard error regression method.FindingsFirms face different opportunities and challenges at different stages of the firm's life cycle and therefore adopt cash flow CS. The results show that firms adopt cash flow CS during introduction, growth and decline stage of life cycle either to boost or to reduce operating cash flows.Originality/valueThis study is one of its kind to study the influence of a firm's life cycle on the cash flow classification of Indian firms.

Does the random walk hypothesis hold for Indian stock markets during parliamentary elections?

In this study, we examine the random walk hypothesis for two well-known Indian indices, BSE (Sensex) and NSE (Nifty), by considering country-specific political events (parliamentary elections). Two pertaining questions were studied. First, efficiency with respect to weak form, semi-strong form, and strong form; and second, the random walk pattern of the return by applying the new variance ratio tests. We use 21 years of daily closing stock price data of both the National Stock Exchange (NSE) Nifty Index and the Bombay Stock Exchange (BSE) Sensex Index. The hypothesis is tested by using both conventional and new variance ratio tests: The Lo–MacKinlay variance ratio test, the Chow–Denning test, and Wright’s Rank and Sign test. All three tests report that the return does not follow the random walk for the full sample, suggesting the possibility of making gains by exploiting various investing strategies. It was found that both Indian indices follow the random walk hypothesis during the phase of parliamentary elections. This study contributes to the existing literature on the Efficient Market Hypothesis (EMH).

Impact of Macroeconomic Factors on Selected Sectors of BSE

The year 1991 will forever remain a landmark year in the history of stock markets in India. The stock markets have become a yardstick for measuring the performance of an economy and the macro economic variables have become important indicators of the health of the economy. Here, an attempt has been made to study the relationship between selected external macroeconomic variables and different sectoral indices at Bombay Stock Exchange (BSE). For the purpose of study seven macroeconomic variables such as Index of Industrial Production, Consumer price Index, Call Money Rate, Dollar Price, Foreign Institutional Investment, Crude Oil Prices and Gold Price are used to study the impact of macroeconomic variables on Sectoral Indices at Bombay Stock Exchange (BSE) viz. Auto, Bankex, FMCG, Consumer Durable and Metal. The monthly statistical data for above mentioned variables have been used for five years covering the period from April 2014 to March 2019. It was observed that all variables show high correlation amongst themselves and Call Money Rate is the only variable that affects all the Indices.

The Effect of Corporate Social Responsibility on Financial Outcomes: An Analysis of Selected NSE and BSE Listed Companies (2016-2022)

This study examined the impact of Corporate Social Responsibility (CSR) initiatives on the financial performance of selected companies listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) from 2016-2022. Using financial performance metrics such as Return on Equity (ROE), Return on Assets (ROA), net profit margin, and earnings per share (EPS), the analysis leveraged multiple regression to ascertain correlations. CSR initiatives data were extracted from company CSR reports and disclosures under the Companies Act, 2013. The results indicated a statistically significant relationship between the extent of CSR initiatives and financial outcomes. These findings contribute to our understanding of the potential interplay between CSR activities and financial performance, suggesting that strategic CSR initiatives can positively influence a firm's financial health. This insight can assist businesses in aligning their social responsibility objectives with their financial goals.

Foreign currency borrowing and risk exposure of firms: An emerging market economy viewpoint

Foreign currency borrowings by emerging market corporations have increased significantly post-global financial crisis. Extant literature has mainly focussed on the flow of foreign currency borrowings, and policies which control the volatility of the flow of the foreign currency borrowings. In this paper, we emphasize the stock of the foreign currency borrowings in the balance sheet of a firm instead of the flow of the foreign currency borrowings, and show the ineffectiveness of policies focused on controlling the flow of foreign currency borrowings. We use the data of non-financial Indian firms listed in the Bombay Stock Exchange and National Stock Exchange. Our analysis show the fallacy of a policy focussed on controlling the flow of foreign currency borrowings. Despite policies which control the flow of the foreign currency borrowings, if a firm has a high stock of foreign currency borrowings in their balance sheet then the financial risk associated with the firm increases. A possible implication of our results is that too much foreign currency borrowings may pile up the risk in the financial system which may become a cause of concern.

Dividend policy effect on common stock price volatility: An empirical evidence from Indian companies

Despite empirical research, the relationship between dividend policy and stock price volatility is continuously debatable. This study investigated the relationship between dividend policy and stock price volatility of Indian listed companies. The study examined 260 listed companies based on the reliable dividend-paying manners of nonfinancial companies listed on the Bombay Stock Exchange (BSE) for the financial period from 2014–2015 to 2020–2015. To analyze the data, this study used the panel data models: fixed effects, random effects, and the Hausman test. Finally, this study applied the fixed effect model after careful examination of multicollinearity, endogeneity, and causality issues related to the dataset. The analyses revealed a significant negative relationship between dividend payout and stock price volatility meanwhile, dividend yield and stock price volatility have a positive association. The study outcomes provide information for investors and managers about dividend decision. This study provides an extensive understanding of the emerging stock market fluctuation on the relationship with the dividend policy.

Impact of gender diversity on firm performance: empirical evidence from India

PurposeThe main purpose of the study is to investigate the impact of gender diversity both at the board and workforce level on firm performance (FP) in the Indian context.Design/methodology/approachThis study is based on annual data of 200 companies listed on Bombay Stock Exchange (BSE) for the period 2012–2019. The authors have used the fixed-effects (FE) regression and system generalized method of moments to estimate the impact of board gender diversity and workforce gender diversity (WGD) on FP. The authors have used Blau's Index (BI) and Shannon's Index (SI) to measure gender diversity. Further, the authors have used return on assets and Tobin's Q (TBQ) to measure FP.FindingsThe authors' panel regression results suggest that board gender diversity and WGD have a positive and statistically significant impact on FP. The authors' findings are robust across different methods of estimation and alternative measures of FP.Originality/valueThis paper examines the impact of gender diversity both at the board and workforce level on FP of 200 companies listed on BSE. The authors' study contributes to the literature that is sparse in the Indian context and provides new insights on the impact of board and WGD on FP. The findings have useful policy implications. To achieve better performance, it is imperative to appreciate gender diversity at the governance and workforce level in a fast-growing economy like India.

Unraveling the impact of stakeholder pressure on carbon disclosure in an emerging economy

PurposeThe purpose of this paper is to seek to shed light on the influence of stakeholder pressure on carbon disclosure in an emerging economy.Design/methodology/approachThe present study is based on Bombay Stock Exchange 100 Indian firms for the period of 5 years from 2016–17 to 2020–21. The association between stakeholder pressure and carbon disclosure, along with certain control variables, has been explored through a regression model.FindingsThe results of the study suggest that stakeholders exert a significant influence on corporate carbon disclosure. Further results confirm that regulatory and customer pressure have the most significant and positive influence, while shareholders and creditors exert a significant and negative influence on carbon disclosure. The study also finds that employee pressure does not have any association with carbon disclosure.Practical implicationsThis study adds to the existing literature on climate change, carbon disclosure and stakeholder pressure.Social implicationsThe present study provides useful insights to corporate managers and policymakers as the study concludes that stakeholders exert a significant influence on carbon disclosure.Originality/valuePrevious studies examining the stakeholder pressure on carbon disclosure ignored emerging economies, while the present study has considered India, which is a developing as well as an emerging economy. Further, to the best of the authors’ knowledge, the current study is the first of its kind to investigate the stakeholder pressure on carbon disclosure in the Indian context. The present study develops a comprehensive index to measure corporate carbon disclosure.

Green Operations and Corporate Financial Performance: Does the ESG Sensitivity Matter?

This study investigates whether the relationship between green operations (GR-OPS) and corporate financial performance (CFP) is conditional on firms’ adherence to environmental, social and governance (ESG) practices. GR-OPS is quantified as an inverse of the energy intensity (ene-int) of the firm’s operations. CFP is proxied by return on equity and return on assets. The study uses panel data for non-financial firms listed on India’s Bombay Stock Exchange (BSE) 100 index. The ESG-sensitive firms are bifurcated from a broader list of BSE 100 index based on their belongingness to the BSE ESG 100 index for econometric analysis. The findings confirm that the impact of GR-OPS on CFP is subject to the firms’ adherence to ESG practices. A positive relationship between GR-OPS and CFP is established for ESG-sensitive firms, while the linkage is non-existent for non-ESG firms. Such findings are attributable to ESG sensitivity (reduced risks) and not the reduced operational costs due to reduced ene-int. The study claims that the benefits of ESG are evident via GR-OPS. Firms should attempt to meet ESG practices to unlock the financial benefits of GR-OPS. When coupled, these practices can reduce the overall risk of the firms as well as generate better economic profits. Adherence to ESG practices and GR-OPS will build environmentally and socially sensitive firms. This is a greater need of modern society, which is increasingly fighting social unrest, global health concerns and climate change.

The influence of information asymmetry on the interaction between voluntary corporate disclosure and cost of equity: evidence from publicly traded Indian enterprises

PurposeThe purpose of this paper is to investigate whether information asymmetry mediates the relationship between disclosure and cost of equity.Design/methodology/approachThe study is based on a sample of 500 companies listed in Bombay Stock Exchange for a period of six years from 2015 to 2021. Panel data regression is applied to analyze the relationship between voluntary disclosure, cost of equity and information asymmetry. Mediation effect of information asymmetry is tested with the help of Barron and Kenny’s (1986) approach.FindingsFindings suggest that in case of Indian companies, disclosure reduces cost of equity directly and indirectly through mediation of information asymmetry. Indian investors value credible information for better estimation of future returns, supporting the validity of estimation risk and stock market liquidity hypothesis, which proposes an inverse relationship between disclosure and cost of equity.Research limitations/implicationsManagers can use the findings to strategize their disclosure policy and secure funds at lower cost. Shareholders can monitor managerial actions by demanding credible disclosures. Government too can encourage voluntary disclosure by providing special incentives to the firms.Originality/valueThis study is a pioneering research that investigates the mediating influence of information asymmetry between disclosure and cost of equity with reference to the Indian corporate landscape.

A Study on Performance Evaluation and Computation of Stock Market Index with Special Reference to BSE and NSE

Abstract: The Stock market index in India play a lcrucial roe in the country’s economic growth and development. The Investors, policymakers, and market participants closely monitor the performance of stock market indices. In general, people tend to be unaware of Indian indices, their weights, and their composition patterns. This research paper aims to analyze the performance of stock market indices and focuses on important indexes from the Bombay Stock Exchange and the National Stock Exchange while taking into account their development, calculation method, and historical value. This Study is mainly based on three Objectives and data selected and synthesizes for the year 2001 to 2022, due to base year limitations of various indices. By utilizing quantitative analysis methods and examining relevant economic indicators, this paper seeks to provide valuable insights into the Indian stock market Indices and its role as a barometer of economic health. This article makes it simple for people to understand the number of companies that make up the important indices, their weight in the indexes, their performance on a sectoral basis, and other methodologies. Finally, this paper attempts to provide a brief overview of various index which is traded in Indian Stock market.

Legitimising CSR through the institutional backup – gauging compliance of the Indian corporate sector in the mandatory regime

PurposeThis study aims to calculate the corporate social responsibility (CSR) expenditure made by companies as per the provisions of Section 135 of Companies Act 2013 and check the status of compliance/non-compliance of these provisions in the mandatory regime of CSR.Design/methodology/approachBased on a sample of top 500 Indian companies listed on Bombay Stock Exchange, the study compares the CSR expenditure required to be incurred by companies with the actual CSR expenditure made by them over a time span of seven years and calculates the extent of surplus or deficit attained by them starting from the year of inception of CSR provisions, 2014–2015, till the most recent year, 2020–2021.FindingsThe findings indicate that the average CSR expenditure made by Indian corporate sector is less than the mandatory requirement. More than half of the companies do not comply with the CSR regulations of the country. Even the “Most Profitable” companies fail to contribute the minimum required amount towards social activities akin to their counterparts in the “Less” and “Least” profitable categories.Practical implicationsThe disobedience towards the statutory provisions implies that Indian companies are non-compliant towards CSR guidelines despite the regulative institutional pressure that makes CSR a mandatory practice to legitimise it.Originality/valueThe study contributes to the CSR literature in the light of the transformed regulative institutional environment in India. It includes a comprehensive analysis of compliance of companies with the revised statutes over all the years since the inception of new mandatory guidelines on CSR till the most recent time period on a representative sample, thus, making the findings robust and generic with respect to India.