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Economics

The IUP Journal of Financial Economics


June' 08
Articles

The Design of Bank Loan Syndicates in Emerging Market Economies

-- Christophe J Godlewski

This paper empirically explores the influence of loan characteristics, banking and financial structure, and regulatory and institutional factors on the design of bank loan syndicates in emerging market economies. The results show that the structure of syndicates is adapted to enhance monitoring of the borrower and to increase the efficiency of recontracting process in case of borrower's distress. Main syndication motives, such as loans portfolio diversification, regulatory pressure and management costs reduction, influence syndicate design in emerging market economies.

© 2008 IUP . All Rights Reserved.

Housing and Stock Market Returns: An Application of GARCH Enhanced VECM

-- Emmanuel Anoruo and Habtu Braha

This paper examines the relationship between housing and stock market returns for the United States using the cointegration analysis and the GARCH enhanced VECM. The results suggest that the two series are cointegrated. The results from the GARCH enhanced VECM indicate the presence of spillover effect from the stock market to the housing market but not vice versa. Taken together, the results provide evidence in support of the notion that the two markets are integrated rather than segmented. The findings of cointegration and spillover effect between the two series suggest that investors and portfolio managers cannot achieve risk reduction associated with diversification by jointly holding assets in real estate and stock markets.

© 2008 IUP . All Rights Reserved.

Portfolio Balance Model of Exchange Rate Behavior: A Peso-Dollar Example

-- Ferdinand Nwafor

This study investigates the Portfolio Balance Model (PBM) of exchange rate behavior in the context of the Mexican Peso and the US dollar for the period from 1985Q4 to 2005Q3. Tests of the reduced-form exchange rate equation and perfect substitution of domestic and foreign bonds are conducted utilizing the unit root and cointegration techniques that avoid residual autocorrelation problems, which have plagued previous tests of Portfolio Balance Model (PBM) of exchange rate determination in accordance with Branson et al. (1977) and Pearce (1983). Other things considered, the results show a weak evidence of a long-run relationship between the peso-dollar equilibrium exchange rate and the PBM fundamentals.

© 2008 IUP . All Rights Reserved.

Does Infrastructure Play a Role in Foreign Direct Investment?

-- Rudra Prakash Pradhan

The paper investigates the determinants of Foreign Direct Investment (FDI) in India, with particular reference to infrastructure. Covering the period from 1970 to 2004, the empirical investigation confirmed that infrastructure has a significant negative impact on FDI inflows in India. This is mostly due to stagnant infrastructure investment in the economy. On the contrary, FDI inflows are positively determined by trade openness in the country. The paper suggests that to make our economic policy more effective towards increasing inflows of FDI, a successful FDI policy must be well-integrated with the policy of globalization and infrastructural development.

© 2008 IUP . All Rights Reserved.

The Indian Corporate Debt Market: Prescription for Revival

-- Tamal Datta Chaudhuri

The paper evaluates the state of the corporate bond market in India and tries to understand the reasons for its subdued state. It shows that, unlike the government securities market, there is no incentive for either the buyers or the sellers of corporate debt securities to participate in this market. The paper then goes on to design a framework for reviving this market and making it active.

© 2008 IUP . All Rights Reserved.

Corporate Finance Structure in Indian Capital Market: A Case of Indian Pharmaceutical Industries

-- Venkatamuni Reddy R and Hemanth Babu P

This paper discusses the corporate financial structure in Indian capital market, and how the corporate sectors raise their finance: Whether they raise their finance through internal sources or external sources within India. The main objectives of this study are, firstly, to find the nature and pattern of Indian corporate finance in general, and secondly to study the structure of selected pharmaceutical companies in India registered in the National Stock Exchange (NSE). This paper tests the hypotheses associated with the objectives through target adjustment model and pecking order model. The models applied in this paper are OLS, GLS, and fixed effect models. The results obtained contradicts the pecking order model and supports the target adjustment model. Firstly, the study finds that the companies are financially stable and mostly finances their investments from retained earnings, and for the rest, they depend more on equity rather than debt finance. Secondly, the paper infers that Indian pharmaceutical companies finance their investments mainly through internal funds and the rest is financed through equity share capitals.

© 2008 IUP . All Rights Reserved.

Empirical Tests of Capital Asset Pricing Model: The Case of Indian Stock Markets

-- Harish Kumar Singla

The present study aims to see whether the Capital Asset Pricing Model (CAPM) offers an appropriate explanation of stock returns in the Indian capital markets and whether higher risk (beta) brings higher level of return. The sample in the present study consists of 320 actively traded scripts listed in the Bombay Stock Exchange (BSE). The scripts in the sample are selected from a range of industries. Month-end prices (last trading day of the calendar month) have been used to compute the holding period return for each month for the entire 7-year period of the study (from 1998 to 2004). The Sensex, BSE-100 and BSE-200 stock indexes are used as representatives for the market portfolio (market index) in the study. The testing consists of two sets of regression. In the first set, beta is estimated for all scripts in the sample using a time series regression method. In the second set, the estimated betas from the first-pass regression are used to test the validity of the model in a cross-sectional regression.

© 2008 IUP . All Rights Reserved.

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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.

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