Private Benefits Research Articles

THE MONEY LAUNDERING SCAM INITIATED BY DEWAN HOUSING FINANCE CORPORATION LIMITED (DHFL) AND YES BANK: AN EXPLORATORY ANALYSIS OF OVER-LEVERAGED BORROWINGS

Dewan Housing Finance Corporation Ltd. (DHFL) was founded in 1984 in the state of Maharashtra, India by the Wadhawan family to facilitate access to cost-effective housing finance opportunities for the lower and middle-income strata residing in semi-urban and rural India. Till 2018, the firm was ranked amongst the distinguished performers in the housing finance industry in the nation. Yes Bank was founded in India in 2004 by Rana Kapoor and Ashok Kapur. In its initial years of expansion, Yes Bank experienced immense development. However, the bold and aggressive lending practices by the bank involved high risks and the bank’s loan book included diverse defaults including DHFL. This impetuous lending ultimately led to the Non-Performing Assets (NPA) tragedy and the RBI’s authorized moratorium for Yes Bank. This research paper provides a detailed analysis of an Indian investigative journalist company named Cobrapost which published an exposé in January 2019 indicting DHFL of exploiting more than INR 31,000 crore of public finances through diverse shell firms and siphoning private benefits primarily for the firm’s immediate stakeholders. The study further underscores the details of the famous fraudulent case between Yes Bank and DHFL, the Central Bureau of Investigation booking Rana Kapoor and the Wadhawan brothers on accusations of criminal conspiracy and defrauding under the Prevention of Money Laundering Act, 2002 and the associated negative consequences for the two business organizations. This banking forgery has been labeled as one of the biggest scams in the banking industry in the nation. So let's hop on to read the detailed case analysis

Coalizão de acionistas e dividendos: evidências do mercado de capitais brasileiro

ABSTRACT This article examines the effect of the heterogeneity of shareholder coalitions on the distribution of dividends in companies listed in Brazil. To analyze the relationship between large shareholders and dividends, it is essential to consider the way the control is ensured. Large shareholders can share control by forming coalitions, and differences in the composition of coalitions can alter the incentives the cooperating parties have for the activity of monitoring. Based on shareholder agreements, we explore the heterogeneity among shareholder coalitions by presenting elements that can characterize the role of shared control in the corporate governance of companies in a market environment described by the concentration of control in a single large shareholder. This study presents potential economic and social impacts, as it is of particular interest to outsider shareholders, and even potential investors, to know how insiders can use dividend policy, since the distribution of profits tends to mitigate agency problems. To identify the shareholder coalitions we resorted to shareholder agreements. The analysis model was estimated using the two-stage system generalized method of moments (GMM-Sys) with unbalanced panel data for the period from 2008 to 2019. We discovered that the number of shareholders in the coalition and the leveraging of the voting rights of the biggest shareholder in the coalition are negatively related to the dividends distributed, and that the voting rights of the coalition are positively related to the dividends distributed. These results contribute to the principal-principal approach of agency theory and highlight that the incentives and capacity of shareholder coalitions to pursue private benefits of control depend on their own characteristics.

TRADE CREDIT BORROWING IN FAMILY FIRMS IN BIST: A PANEL REGRESSION APPROACH

The finance literature presents credit purchases as an important source of funding to buyers. It has even been demonstrated to be in use in financing physical investments. Some studies argue that managers, concerned with wealth maximization should, in fact, finance physical investments via trade credit because it limits the use of funds for private benefits and hence reduces agency costs. Accordingly, the aim of this study is to examine financing preferences toward trade credit borrowing in family firms, using publicly traded firm data from Turkey. We also examine its use in financing capital expenditures by comparing family and non-family firms. The sample includes 173 non-financial firms and covers the period 2006-2019. The comparison of family and non-family firms reveals no significant differences in the use of trade credit, however, a negative and statistically significant association between investment and the usage of trade credit is found.

Diminishing returns: Nudging Covid-19 prevention among Colombian young adults.

Nonpharmaceutical interventions (NPIs) like social distancing, face masks, and handwashing will continue to be a frontline defense against Covid-19 for some time. But their effectiveness depends critically on compliance by young adults, who are most likely both to become infected and to infect others. We conducted a randomized controlled trial in Bogotá, Colombia, to assess the effectiveness of informational nudges emphasizing the private and public benefits of compliance on university students' concern about Covid-19, recent compliance with NPI recommendations, and intended future compliance. Although nudges boosted concern, they had limited effects on either recent or intended future compliance. We attribute these null results to high baseline levels of information about and compliance with NPIs, an informational diminishing returns scenario that is likely to be increasingly common globally.

Regulatory Protection and Opportunistic Bankruptcy*

ABSTRACTWe document controlling shareholder (insider) opportunism in an insolvency regime that uses an accounting rule to determine bankruptcy eligibility. Our study sheds light on managerial incentives induced by weak investor protection laws. Using unique data on bankrupt firms from an emerging market, consistent with our prediction, we show insiders intentionally manage earnings downward to understate firm net worth so as to be able to file for bankruptcy. Downward pre‐bankruptcy earnings management is associated with more payments to insiders and weaker performance, post‐filing. A battery of tests suggests our results cannot be fully explained as an artifact of financial distress. Rather, they are consistent with insiders exploiting weak investor protection to extract private benefits at the expense of lenders and outside shareholders. Our study serves as a cautionary tale for all insolvency regimes that use a balance sheet test in an environment with weak creditor protection.

Social Values of Care Robots

Care robots have the potential to address the challenge of aging societies, such as labor shortages or the aging workforce. While previous studies have focused mainly on the productivity or workability of care robots, there has been an increasing need to understand the social value of care robots. This study attempted to identify the social values of care robots by conducting focus group interviews (FGIs) with twenty-four care recipients and caregivers and by using analytic hierarchy processes (AHPs) with thirteen individuals with expertise in the care service and care robot industries. Our results show that the labor- and health-related benefits, the technology innovation, and the provision of essential care work have the highest importance among the criteria of care robots' social values. The criteria that receive lowest priority are cost, the autonomy and needs of the care recipients, and the organizational innovation. Our study suggests that along with the private benefits and costs of care robots, their social values also need to be considered to improve the quality of care and to unlock the potential of the care robot industries.

Evaluating Incentive-Driven Policies to Reduce Social Losses Associated with Wildfire Risk Misinformation

Wildfires have caused significant ecological and social losses in terms of forest benefits, private dwellings, and suppression costs. Although great efforts have been made in wildfire policies and wildfire-mitigating strategies on private and public lands, devastating wildfires continue to occur. This implies there is a need for effective incentive-driven policies to encourage forest owners to undertake an increasing level of wildfire-mitigating actions. This study evaluates the effectiveness of alternative incentive-driven policies for the problem of two adjacent forest owners under various scenarios of misinformation about wildfire occurrence and spread using a stochastic dynamic model. The study also investigates how the implementation of these policies encourages wildfire-mitigating actions, yields larger reductions in social losses, and alleviates free-riding behavior. The outcomes of the analysis confirm that the effectiveness of incentive programs in reducing social losses and increasing forest value is influenced by the level of misinformation held by a forest owner when making wildfire prevention decisions. The results also revealed that fuel stock regulation is more effective at mitigating wildfire damages and associated costs than cost-share programs under all misinformation scenarios. It was also found that fuel stock regulation could correct free-riding behavior due to the restrictive nature of this policy. The findings provide additional motivation for educational programs that seek to improve forest owners’ knowledge about the private benefits of fuel removal and collaboration efforts between neighboring forest owners. Collaborative efforts could yield substantial savings for the government through eliminating cost-share programs and reducing suppression costs.

Corporate social responsibility and insider trading profitability: Evidence from an emerging market

In this study, we examine whether and how corporate social responsibility (CSR) affects insider trading profitability by using a sample of Chinese listed firms from 2011 to 2018. We find that CSR is positively associated with insider trading profitability, especially insider sale profitability, which indicates that insiders tend to reap private benefits from CSR. Our findings are robust to the consideration of alternative proxies, sample bias, and endogeneity concerns. Moreover, we find that the positive relation between CSR and insider trading profitability is more significant before the regulator strengthens its supervision of insider trading, and that this positive relation is weakened by the nature of state-owned enterprises (SOEs), institutional ownership, and analyst coverage.

Higher Education Finance as a Public Good in Kenya

This article discusses the transformation of the higher education financing model and how this relates to the concept of higher education as a public good in the context of Kenya. Following independence in 1963, the new Kenya government – like most countries in sub-Saharan Africa that attained independence in this period – considered the establishment of a university to be one of the symbols of a republic and of national advancement. The government valued the public role of university education during this early phase of Kenya as a sovereign nation, even when access remained highly restricted. But, equally, the private benefits of being a university graduate were evident to the Kenyan citizenry. For two decades, Kenya had only one public university – the University of Nairobi – but after 1984 the state rapidly expanded higher education, partly in response to demand. Several universities have since been established, both public and private. Concurrently, the government has pursued a cost-sharing financing model to support this rapid expansion, which is contrary to the notion of higher education as a public good to be provided free of charge. This article examines this transformation of the financing model together with higher education as a publi good and concludes that each has influenced the other in Kenya’s context.

Private Benefits of Control and the Core

Abstract This study aims to analyze the core in production economies with private benefits of control. We consider two types of shareholders in a firm: small shareholders and the controlling shareholder. Unlike small shareholders, the controlling shareholder’s utility increases not only with the consumption of goods but also with private benefits related to the production level of the firm and his controlling power. We observe that the private benefits of control are allowed in the core only when the transferred utility from the controlling shareholder to small shareholders is higher than the small shareholders’ utility loss from private benefits.

The (Un)fairness of Vaccination Freeriding.

For contagious diseases like measles a successful immunization program can result in herd protection. Small outbreaks may still occur but fade out soon, because the possibilities for the pathogen to spread in the 'herd' are very small. This implies that people who refuse to participate in such a program will still benefit from the protection it offers, but they don't do their part in maintaining protection. Isn't that a case of freeriding-and isn't that unfair towards all the people who do collaborate? If so, that might be considered an additional ground for making vaccination mandatory or compulsory. In this paper I argue that vaccination refusal can be considered as freeriding, but that this might not be unfair. The public good of herd protection is a peculiar public good because it supervenes on private benefits that are enjoyed by all who do opt for vaccination. For vaccinated individuals, the additional benefit of herd protection comes about, as it were, for free, and hence they can't complain that others benefit without sharing in the burdens. There are however still other grounds for making vaccination compulsory or at least for seeing refusal as a morally wrong choice.

Joining the dots versus growing the blobs: Evaluating spatial targeting strategies for ecological restoration

The primary causes of biodiversity decline worldwide are the destruction, alteration, and fragmentation of habitat resulting from human economic activities such as agriculture or property development. In regions with highly cleared and fragmented landscapes, biodiversity conservation efforts typically involve the restoration of native habitat and rebuilding functioning ecosystems. When ecological restoration depends on voluntary landowner participation, spatial targeting can improve biodiversity outcomes. We use simulation to compare the performance of several spatial-targeting strategies for ecological restoration: Aggregation, Connectivity, and Representativeness. We model the probability of landowners' participation in restoration depending on the private benefits they derive from the restored landscape. The relative effectiveness of each targeting strategy depends on landscape characteristics, species characteristics, and restoration effort. At low levels of the restoration effort and in highly cleared landscapes, Aggregation and Representativeness perform better. With greater restoration effort and less fragmented landscapes, Connectivity becomes more effective.

The effects of bundling on livestock producers' valuations of environmentally friendly traits available through genomic selection

AbstractThis study estimates the willingness to pay (WTP) premiums for two novel traits available through genomic technologies in the dairy industry. Using a contingent valuation method to elicit WTP and the data from mail surveys collected from 486 Canadian dairy producers, we find a positive WTP premium for feed efficiency and a negative or zero WTP premium for reduced methane emissions. However, we observe positive valuations for reduced methane emissions if it is bundled with the feed efficiency trait. This finding suggests that the way private and public benefits of environmentally sustainable production alternatives are presented to livestock producers is critical, especially as the industry adapts to rising demand while holding an increasingly precarious position in environmental sustainability.

The Instrumentalization of CSR by Rent-Seeking Governments: Lessons From Tanzania

This article examines how corporate social responsibility (CSR) can serve as an external source of rents for governments that depend on foreign financing for state-building and development. The strategic, instrumental use of CSR has been overlooked in previous research on governments and CSR, especially in the Global South. To understand how CSR can serve as a lever for rents, the concept of “extraversion” is introduced to describe the way in which rent-seeking African governments instrumentalize their asymmetric external relations for political and private benefit. The connection between CSR and rent-seeking is analyzed through a case study of large gas investments in Tanzania. The article finds that the government has set up regulation that enables local and central government authorities to appropriate, mediate, reclaim, or possibly trick CSR practices to gain rents. Based on the study, two contributions are made to the literature on CSR and governments. First, the instrumental use of CSR in the Global South is added to the variety of perspectives that can be taken when studying government agency. Second, CSR is conceptualized as a potential stream of rents for governments to exploit. The article ends with discussing that the outcome of CSR in a rent-seeking environment depends on whether the leveraged resources are managed well to support peaceful and locally beneficial economic development or whether they serve private accumulation through corruption.

Inframarginal externalities: COVID-19, vaccines, and universal mandates.

COVID-19 vaccine mandates are in place or being debated across the world. Standard neoclassical economics argues that the marginal social benefit from vaccination exceeds the marginal private benefit; everyone vaccinated against a given infectious disease protects others by not transmitting the disease. Consequently, private levels of vaccination will be lower than the socially optimal levels due to free-riding, which requires mandates to overcome the problem. We argue that universal mandates based on free-riding are less compelling for COVID-19. We argue that because the virus can be transmitted even after receiving the vaccine, most of the benefits of the COVID-19 vaccine are internalized: vaccinated individuals are protected from the worst effects of the disease. Therefore, any positive externality may be inframarginal or policy irrelevant. Even when all the benefits are not internalized by the individual, the externalities mainly are local, mostly affecting family and closely associated individuals, requiring local institutional (private and civil society) arrangements to boost vaccine rates, even in a global pandemic. Economists and politicians must justify such universal vaccine mandates on some basis other than free-riding.

Are owners chalk and cheese in the context of dividend smoothing asymmetry?

The study analyzes the impact of ownership structure on dividend smoothing via the lens of agency and information asymmetry theory. The study also investigates the impact of ownership on dividend smoothing in the unexamined asymmetric context Dividend smoothing is measured via speed of adjustment and relative volatility. The study documents that higher individual, management, and institutional ownerships are positively associated with increased dividend smoothing. Consistent with the rental hypothesis in foreign-owned firms smooth less also concentrated firms bear with cuts and omissions. Foreign ownership has the opposite impact on dividend smoothing in adjusting dividends from below and above i.e., always prefer high dividends. Individual ownership has also exhibited a different impact in smoothing from below and above. Institutional owners avoid cuts and omissions and negatively affect SOA (smooth more) in case of adjusting dividends from above. Ownership concentration is negatively associated with dividend smoothing irrespective of whether the firm is smoothing from above or below. In contrast, management ownership negatively affected SOA in adjusting from above or below. Family firms in Pakistan smooth more to win minor shareholders' trust and signal that they sacrifice their private benefits to reduce the type II agency problem. Finally, the authors found a negative association between dividend smoothing and corporate governance quality. Over all the findings of the current study provides insight to the investors and regulators by offering dividend smoothing as an alternative monitoring mechanism to corporate governance.

The effects of financial constraints on the market value of cash in a mandatory dividend context

AbstractThis article aims to shed light on the effects of financial constraints on the value shareholders attribute to cash holdings in firms listed on the Brazilian stock exchange, where corporate law determines that publicly listed companies set aside part of their annual profits for dividend payments. While prior empirical literature provides evidence that cash holdings are more valuable for financially constrained companies than for their unconstrained counterparts, we cannot support the hypothesis that the market value of cash increases as obtaining access to external funds becomes more difficult. Our analysis also reveals that constrained companies do not hold significantly higher cash savings than their unconstrained peers. This last result, in turn, is not in line with the precautionary motive for having cash. Moreover, although the principal argument for adopting mandatory dividend rules in Brazil was to increase the protection of minority shareholders, we observe that the contribution of cash holdings to firm value is still small in Brazil, especially in dual‐class companies, because investors expect cash holdings to be partly consumed as private benefits due to the presence of significant agency problems. This research is relevant because it serves as an additional step in understanding how a legal mechanism established by a government to protect investors affects the contribution of cash holdings to firm value. Governments that intend to adopt mandatory dividend rules to safeguard the cash‐flow rights of minority shareholders can use our findings to make better decisions regarding whether to enforce compulsory dividend payments.

Whose Interest Really Matters? The Role of NGOs’ Representatives within Local Advisory Councils in Poland

The article shows the results of empirical research conducted among members of advisory councils operating in Polish cities. The study covers five types of councils: councils of NGOs, senior citizen councils, councils for residents with disabilities, labor market councils, and sports councils. The author focuses mainly on advisory council members who are also NGO representatives. Thus, they have a twofold role: a member of a collegial advisory body, which is supposed to consult local authorities, and a representative of an NGO. The article aims to reveal the motives for engaging NGOs’ representatives in social council activities. Considering the specific character of the NGO sector in Poland, one may expect that membership within social councils will become an arena for pushing the interests of NGOs. However, research results show that the motivations for involvement in social council activities do not have clientelistic patterns. The members of the councils are motivated by similar factors as in other forms of prosocial activity, which may be divided into normative, rational, and affiliative-prestigious. Council members are aware of their double role. They, therefore, distance themselves from the possibility of achieving individual (private) benefits or benefits for the NGO they are associated with. Their membership in councils is motivated primarily by a sense of duty to the group or the organization they represent or local authorities, taking part in the decision-making, and being a member of the prestigious group of experts they consider advisory councils to be.

Economic policy uncertainty and insider trading

AbstractIn this article, we examine the effects of economic policy uncertainty (EPU) on insider trading. Two hypotheses predict that EPU is positively related to insider trading volume and profitability: (1) the private benefits hypothesis, which states that insiders exploit their information advantage to realize abnormal profits, and (2) the signaling hypothesis, which states that insiders trade to signal private information to stock market participants. We find that EPU is positively and significantly related to the profitability of insider purchases, and that insiders purchase more frequently during high‐EPU periods. Additional analysis provides strong support for the signaling hypothesis but no support for the private benefits hypothesis.

Narratives of financial assistance for university students and the emergence of HECS in Australia

ABSTRACT This article traces the development of four narratives of financial assistance for Australian university students – to encourage excellence; to meet public need; to build the stock of human capital; and as universal provision – and their effect on the development of a fifth narrative, centred on the Higher Education Contribution Scheme (HECS). Financial support schemes have been provided by governments, industry, philanthropic and religious groups, or a combination of these. These narratives reflect deep-seated ideas about the meaning and value of education, and the emphasis placed on public or private benefits. This article shows how these narratives have affected access to university and who has attended. It shows the influence of student support schemes in shaping higher education in Australia.