Indian Central Public Sector Enterprises Research Articles

Analyzing the stock market performance of central public sector enterprises disinvested through public offering mode: Indian evidence

PurposeThe present study aims to examine the short-term effect of disinvestment oriented IPOs and FPOs on the stock market performance of Indian central public sector enterprises (CPSEs), which divested their equity between 2000 and 2017.Design/methodology/approachThe analysis of stock price reaction is conducted for listing dates only in the case of IPOs and three different dates in the case of FPOs through the event study methodology. The three-event dates related to FPOs are public notification date (PND), issue announcement date (IAD) and price band date (PBD).FindingsOverall empirical analysis indicates that investor sentiments are generally insignificant prior to and posts the PND (first date). The second major date of announcement that is (IAD) is new information in the market and returns are found to be significantly negative across both the periods that is before and after IAD. Thus, the analysis depicts strongly negative investor sentiments in the case of IAD. These results are further substantiated by negatively significant CAR (cumulative abnormal returns) values for both the pre and post-event windows of PBD as well.Research limitations/implicationsEmpirical analysis concludes that investors do not stand a chance to gain abnormal returns through initiating positions in the stocks of CPSEs during the alternative event dates analyzed.Originality/valueSince the year 2000, disinvestment through public offering has gathered momentum, and this mode accounts for approximately 62% of the collective disinvestment funds generated by the government of India till now. But there have been very limited research studies on the market performance of disinvested CPSEs. This analysis provides new empirical evidence for the market reactions of retail investors in response to the sale of equity by the Indian government in CPSEs.

Principles of Corporate Governance of State-Owned Enterprises and its compliance in India

The article deals with the key points of the Guidelines on Corporate Governance for Central Public Sector Enterprises of India concerning the composition of a board of directors, audit, nominating and remuneration committees, subsidiaries. The author analyzes the level of compliance with these principles of 338 public sector enterprises, of which 255 were assessed by the Department of Public Enterprises and received grades from «poor» to «excellent». The article also discusses external and internal factors that may affect the level of compliance with the guidelines on corporate governance. Thus, the external factors include a big size of a company, experience, absence of major debt. The internal factors include reduction in a proportion of the State ownership, memorandums of understanding and the «ratna»-statuses. The last two factors were paid particular attention. The author concludes that the main obstacles to achieving desirable quality of corporate governance in the Indian central public sector enterprises are: (a) absence of ownership policy in public sector companies, defining the role and duties of the State as a shareholder, (b) accountability of public sector companies to many public authorities at the same time that almost negate corporate governance in its general understood sense, (c) the lack of operational and financial autonomy of a board of directors, (d) non-compliance with the number of independent directors and non-compliance with the requirements of the legislation and principle of corporate governance.

Mandatory corporate social responsibility in India: reporting reality, issues and way forward

PurposeSince 2013, the Indian Companies Act Section 135 has mandated corporate social responsibility (CSR) reporting by Indian central public sector enterprises (CPSEs). CSR reporting is regulated by multiple Government of India ministerial agencies, each requiring different formats and often different data. This study aims to understand the impact of these multiple regulatory bodies on CSR reporting by Indian CPSEs; evaluate the expectation gap between regulators and the regulated; and investigate the compliance burden on CPSEs.Design/methodology/approachAn interview-based approach was adopted to evaluate the perspectives of both regulators and regulated CPSEs on the impact of the new regulations on CSR reporting quality. The authors use the lens of institutional theory to analyse the findings.FindingsDriven by coercive institutional pressures, CPSEs are overburdened with myriad reporting requirements, which significantly negatively impact CPSEs’ financial and human resources and the quality of CSR activity and reports. It is difficult for CPSEs to assess the actual impact of their CSR activities due to overlapping with activities of the government/other institutions. The perceptions of regulators and the regulated are divergent: the regulators expect CPSEs to select more impactful CSR projects to comply with mandatory reporting requirements.Originality/valueThe findings of this study emphasise the need for meaningful dialogue between regulators and the regulated to reduce the expectation gap and establish a single regulatory authority that will ensure that the letter and spirit of the law are followed in practice and not just according to a tick-box approach.

Is R&D spending influenced by disinvestment and local political corruption? The case of Indian central public sector enterprises

The current study examines the effect of disinvestment (dilution of state ownership) and local political corruption on R&D spending in enterprises owned by the central government of India. Based on certain characteristic features of innovation as a strategy available to state-owned enterprises, I build two sets of hypotheses formalising the channels of how these variables may affect the possibility and amount of R&D. Data is drawn from multiple sources to compile a dataset that covers all manufacturing central government-owned enterprises in India over a period of ten years from 2007 to 2016. The study employs an instrumental variable technique to reduce the endogeneity between disinvestment and R&D decisions. We find that, while disinvestment and local political corruption have strong negative effects on whether a firm invests in R&D or not, it has no effect on the amount of R&D. In fact, the amount is driven by a host of firm-specific factors such as size, profit and proficiency of the share of skilled labor, managerial strength and non-unionisation of labor. We also find that the effects are strongly driven by the size of firms, special status awarded to firms and the ideology of the state where the enterprise operates.

Disinvestment in Indian central public sector enterprises: a performance improvement measure

PurposeThe purpose of this study is to represent an attempt to empirically capture the impact of disinvestment on the financial and operating performance of 26 Bombay Stock Exchange (BSE) listed central public sector enterprises (CPSEs) in India which got divested through stock market mechanism during the time period of 2000–2014.Design/methodology/approachThrough ratio analysis different ratios such as return on assets, return on equity, net income efficiency, debt equity, dividend payout and employment levels have been computed. Pre- and post disinvestment performance of these firms is examined through Wilcoxon signed-rank test. The present research endeavors to examine the impact of disinvestment through random effect panel data models in order to control the effect of other firm specific variables.FindingsThe overall results of the study indicate statistically significant fall in profitability ratios. The empirical results have not witnessed positive effect of disinvestment on the profitability of the CPSEs; rather, this effect has found to be negative. The possible reasons behind these negative results could be poor pre disinvestment financial health of CPSEs, negative rate of return on capital employed by PSEs and inefficiency which need to be tested empirically by future researchers.Originality/valueThe fact that government-owned firms are typically less proficient or at least less gainful than private-owned firms is widely hypothesized. Therefore, the disinvestment policy aims at dropping the participation of the public sector in the economic actions of the country in order to support the private sector. The present study is a first of its kind to study the impact of disinvestment on the profitability of the firms, which got divested through stock market mechanism since the year 2000 by applying both univariate and multivariate analysis.

Organizational culture as a moderator between affective commitment and job satisfaction

PurposeThe purpose of this paper is to investigate the moderating role of organizational culture in affective commitment and job satisfaction relationship.Design/methodology/approachResponses were collected from 712 employees working in nine different Indian central public sector enterprises /state-owned enterprises (SOEs) by using a questionnaire-based survey. Theoretical analysis is based on social exchange theory and managerial grid theory. Data were analyzed by using partial least squares structural equation modeling.FindingsThe establishment of organizational culture as a moderator in Indian organizations is unique. This study has utilized data from employees working in different departments of organizations to provide unbiased responses. The results demonstrate that impact of affective commitment on employees’ job satisfaction is moderated by supportive and innovative cultures. Additionally, this research also proves that bureaucratic culture does not play a crucial role in moderating the relationship between organizational commitment and employees’ job satisfaction.Research limitations/implicationsResults are relevant to top-level and middle-level management in which people are involved in the governance of the organization, both directly and indirectly. There should be fixed working hours and optimum time management. Due to growing pressure, few employees who have personal obligations toward their families, such as nursing mothers and stressed individuals, should be provided with flexible working hours. In this way, culture can become supportive to cater to different needs of employees.Originality/valueTill date, organizational culture as moderator has received very less attention in India. The establishment of organizational culture as a moderator in Indian SOEs is unique. The results add to the growing literature of commitment from non-western context as this study is based on Indian samples. This study has utilized data from employees working in different departments of organizations to provide unbiased responses.

Determinants and Impact of Performance-Related Pay Perception

Performance-related pay (PRP) was introduced in central public sector enterprises (CPSEs) in India with the objective of establishing a performance-oriented culture. PRP is a newly implemented concept in Indian CPSEs. This article attempts to investigate the factors that influence PRP perception in Indian CPSEs and also to study the impact of PRP perception on job satisfaction and employee performance. The study examines the determinants of PRP perception with the help of multiple regression analysis. The study also explores the role of PRP perception as an intervening variable, and the hypotheses are tested using mediation. This study will help policy makers in developing a holistic and integrated compensation plan/system in public sector enterprises and will add to the little existing literature on determinants and impact of PRP perception in public enterprises.

Pawn or Potentates: Corporate Governance Structure in Indian Central Public Sector Enterprises

The Department of Public Enterprises had made submissions of Self Evaluation Reports, for the purpose of corporate governance, mandatory for all central government owned enterprises. Despite this, an alarming 40% of the enterprises did not do so. This study examines the impact of external policy tools and internal firm specific factors on corporate governance of central public sector enterprises (CPSEs). We use a dataset of all manufacturing and non-financial services owned by the central government of India for the year 2010-11. Using probit, ordered logit and Heckman’s sample selection models, the study finds that the probability and quality of corporate governance is positively influenced by the CPSE getting into a Memorandum of Understanding (MoU) with the central government of India, and hence, enjoying more autonomy in terms of day to day operations. Besides these, internal factors, including bigger size and lower debt size contribute significantly to better corporate governance.

Performance-related pay perception in Indian central public sector enterprises

Performance-related pay perception in Indian central public sector enterprises

Performance-related pay perception in Indian central public sector enterprises

Linking pay with performance is commonly referred as performance-related pay (PRP). It is one of the most preferred pay technique followed worldwide in all sectors for attracting, motivating and retaining talent. Central public sector enterprises (CPSEs) in India have recognised the need for building a performance-oriented culture in order to survive and sustain competition. A concrete step in this direction was to integrate performance and compensation management system through the implementation of performance-related pay concept. The implementation of PRP is expected to help CPSEs to attract, motivate and retain talent by bringing CPSEs compensation at par with its competitors in private sector. PRP has been made an integral part of CPSEs pay package through the implementation of latest pay revision for the Indian CPSEs. In the given context, it is important to study executive's perception towards PRP and also to understand the real challenges in the implementation of PRP process.

Governance of Mandated Corporate Social Responsibility: Evidence from Indian Government-owned Firms

This study provides evidence on the governance of CSR policies and activities by Indian central government-owned companies [i.e. Central Public Sector Enterprises (CPSEs)] within a unique mandatory regulatory setting. We utilise the multi-level ‘Logic of governance’ conceptual framework (Lynn et al. Improving governance: A new logic for empirical research, 2001; Lynn and Robichau, J Publ Policy 33:201–228, 2013) and draw upon interview data collected from 25 senior managers in 21 CPSEs to assess the dynamics of CSR implementation within CPSEs. Our findings indicate most managers believe that a mandatory policy has enhanced the accountability and commitment of governing boards and senior management to CSR. However, CSR policy implementation within Indian CPSEs is still nascent, fraught with bureaucratic hurdles, insufficient human and knowledge resources, limited stakeholder analysis and over-emphasis on CSR budget utilisation as an outcome. Several key areas for improvements include the need for better translation of national CSR policy goals to firm-level strategies, more formal assessment of stakeholder needs, clearer communication lines with external service providers, such as NGOs and local government agencies, and the better evaluation of CSR outcomes (i.e. the social impact of CSR activities). The findings of this study have implications for both theory and policy development.

A long-run and short-run cointegration model explaining relationship between liquidity management and profitability

In this study, an attempt has been made to find out the cointegration relationship between liquidity management and corporate profitability for Indian central public sector enterprises (CPSEs). Liquidity management is crucial for every firm in order to meet both short-term and long-term current obligations of business, including operating and financial expenses. The enterprises under observation is restricted to 48 Indian CPSEs listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) of India and the secondary data for analysis is retrieved from Prowess database of Centre for Monitoring Indian Economy (CMIE) for a ten-year period from 2002–2003 to 2011–2012. In the present study, multivariate cointegration techniques and other relevant econometric models are applied. The empirical results show that there are significant long-run and short-run cointegrating relationships and interdependence between liquidity management and profitability. Feedback causality is found to be running between return on total assets and absolute liquid ratio, while, unidirectional causality is observed among all other variables.

Causality between liquidity management and profitability: evidence from Indian CPSEs

This study comprehensively excavates the general relationship and causality between liquidity management and corporate profitability for Indian CPSEs (central public sector enterprises). Liquidity indices like current ratio, liquid ratio, absolute liquid ratio and cash conversion cycle are taken as explanatory variables, whereas, age of creditors, age of debtors, age of inventory and the natural logarithm of sales are taken as control variables. Profitability is measured in terms of return on total assets. The sample size is restricted to 48 Indian CPSEs listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) of India and the secondary data for analysis is retrieved from CMIE (Centre for Monitoring Indian Economy) for a ten-year period from 2002–2003 to 2011–2012. Statistical and econometric tools like, descriptive statistics, unit root test, fixed effects regression model and Granger causality test are employed in the study. Granger causality test suggests the evidence of feedback causality running between current ratio, liquid ratio, absolute liquid ratio and cash conversion cycle with return on total assets, while, unidirectional causality is found to be running from firms’ size to return on total assets.

Evaluation of corporate social performance of Indian public sector: a non-parametric approach

Corporate social responsibility (CSR) has been getting more and more attention from the researchers and the practitioners. Within the domain of CSR, corporate social performance is also being widely studied due to its practical relevance. The focus of this paper is to assess the relative efficiency of 59 Indian central public sector enterprises in undertaking their social responsibilities using data envelopment analysis. The findings indicate that group 1 companies are performing slightly better than the group 2 and group 3 companies as their average efficiency is 45%. The companies can improve their CSR output by better utilisation of their budgets in undertaking impactful work so that they can receive recognition and awards. The paper concludes with relevant implications for the managers by indicating the amount of change required in the outputs and inputs to reach the level of efficiency. The peer group efficient units have also been identified for each inefficient firm to follow their good practices.

The Risk Adjusted Return on Indian Central Public Sector Enterprises

This paper presents an empirical examination of financial performance and governance of 84 Indian Central Public Sector Enterprises (CPSEs). Currently, most CPSEs are 100% owned by Government of India; however, there are a few which are listed on the Stock Exchange. The shareholding for the listed CPSEs includes both public holders and other CPSEs which acquire significant blocks. The Government of India (GOI) has signalled an intention not to reduce its own holding below 51% and this is well below the average holding which is currently above 80%. As the GOI pursues an active campaign to raise funds through further sales of shareholdings this study is timely in considering the returns achieved and whether the governance structures put in place have impacted on the returns of CPSEs.

Rethinking the primacy of board efficacy for governance: evidence from India

PurposeIf proficient boards result in better governance, as the literature on the subject generally suggests, engaging independent directors and having in place an effective audit committee would certainly facilitate productive corporate functioning and enhanced accountability. Motivated by such a viewpoint, the purpose of this paper is to unravel the reporting quality and performance of the Indian central public sector enterprises (CPSEs) and its private counterparts.Design/methodology/approachThe well premeditated propositions of the study resulted in a final sample comprising 47 CPSEs and 30 peer companies. The auditors' report on financial statements was scanned to determine the quality of company's accounting and financial reporting systems. The BSE‐500 Index companies were ranked on select financial parameters to gauge relative performance of the sample companies.FindingsAn analysis of the CPSEs shows that non‐compliance with the corporate governance provisions with regards to the required number of independent directors on the board did not have any concomitant effect on their performance. Further, an examination of auditors' report revealed that the CPSEs provide a better insight into books of accounts, unlike the private sector.Originality/valueThe study is timely and relevant, given the expanded role of the state and renewed interest in boards. A case for collaborative engagement between the government and the corporate sector is proposed to address legal as well as regulatory lacunae for building trust and fostering good corporate governance. To ensure better compliance and enforcement of financial regulations it envisions an integrated accounting/auditing and taxation administration platform.