Greetings from the editor’s desk! It is my pleasure to bring you Volume 36, No. 2, the June 2024 issue of the journal, my first after having taken over as Editor-in-Chief of IIMB Management Review. I would like to place on record my thanks to the outgoing editor, Professor Jishnu Hazra. I look forward to fruitful interaction with all readers as we take the journal forward.
This issue carries its regular complement of articles covering different areas of management. In “Investigating the effect of organisational values on sustainable practices and the moderating role of family influence in Indian SMEs”, Subrata Mitra investigates the effect of organisational values/culture, and SME owners’/managers’ attitude and ethical orientation, on firms’ sustainable environmental and social practices in the context of Indian SMEs. For environmental practices, product and process design, and waste disposal and recycling, have been considered, and for social practices, employee practices and local community development. The study also examines the moderating role of family influence on the hypothesised relationships. The conceptual framework and hypotheses for the study have been developed based on a review of the relevant literature. Scales used for other countries have been modified to suit the Indian context. Primary data were collected from Indian manufacturing SMEs located in the states of West Bengal, Bihar, Delhi/NCR, Haryana, Rajasthan and Maharashtra with leather, engineering, food and beverages, textiles and chemicals as the target sectors.
The results of the study indicate that organisational values/ culture, and owners’/managers’ positive attitude and ethical orientation, generally lead to a higher level of sustainable environmental and social practices in SMEs. Workplace-related social practices mediated the relationship between organisational values/culture and owners’/managers’ attitude and ethical orientation, and firms’ environmental and community-related social practices, indicating the importance of human resource management at the workplace. Waste disposal/recycling was found to have a positive impact on community-related social practices as it led to better health and hygiene and an improved quality of life in the local community. The effects of organisational values/culture, and owners’/managers’ attitude and ethical orientation, on waste disposal and recycling, and employee-related social practices were found to be stronger for family SMEs than those for non-family SMEs. However, the effects of employee-related social practices on waste disposal and recycling, and community-related social practices were found to be non-significant for family SMEs while they were significant for non-family SMEs, indicating that family SMEs need to improve, their employee practices. With respect to community-related social practices, for both family and non-family SMEs, the responses were found to be low compared to those for other practices, which indicates that there is scope for improvement in SMEs’ engagement with their local communities.
Shumaila Fatima and Madhumita Chakraborty preface their article, “Adoption of artificial intelligence in financial services: The case of robo-advisors in India”, with the observation that one of the most significant aspects of artificial intelligence (AI) in finance is that of a robo-advisor, a virtual financial advisor that delivers algorithm-driven financial services to investors on digital platforms, assisting them with their portfolio selection, with no human intervention. However, despite the gradual increase in the use of robo-advisors, their penetration is poor and remains a matter of concern. Their research examines the factors that influence the adoption of robo-advisors in the Indian context. Data was gathered from 445 investors with prior experience in stock market investing using a non-probability-based snowball sampling method. The study considers factors such as trust, anxiety, performance expectancy, and preference to human advisors as drivers of investor behaviour towards technology adoption, especially among first-time technology users. These factors are tested under the moderating effects of age, gender, and investment knowledge.
The results reveal that trust, anxiety, performance expectancy, and preference to human advisors are significant determinants of behavioural intention. With respect to age, gender, and investment knowledge, they find that trust, anxiety, and preference to human advisors are significant determinants of behavioural intention in the case of younger age groups, whereas anxiety is the primary driver among older investors who are aged above 45 years. Anxiety plays a significant role in the decision to adopt robo-advisory services, both in males and females. Furthermore, investors who have very good investment knowledge have a negative relationship between anxiety and behavioural intention. The insights from the study would be of use to service providers in increasing their customer base. Existing and potential investors may be familiarised with the AI-based services via brochures, manuals, and testimonials explaining the advantages, usage, and scope of these services.
In “An examination of the Indian small-cap cycle in relation to the US market”, Avirup Hazra, Parthajit Kayal, and Moinak Maiti venture that despite the inherent risks associated with small-cap stocks, in recent decades they have garnered significant attention among investors, researchers, and policymakers. In their paper, the authors conduct a comprehensive examination of the Indian small-cap cycle and its implications for investment decision-making; they also compare the returns of the Indian small-cap cycle with the United States small-cap stock cycle, offering insights into cross-country comparisons. Their dataset comprises daily indexed returns of the Nifty Small-Cap 100 (NIFSC100R) from 21 April 2011 to 23 March 2022, encompassing 2056 trading days. The factors under consideration are categorised into seven primary groups: i) NIFSC100R in the current day and the three preceding days; ii) the relative difference in the percentage of NIFSC100R (RDP5); iii) 10-day exponential moving averages (EMA10R) of the NIFSC100R; iv) bond yield, specifically the 6-month yield (6MBY); v) term spread (TS), representing the excess of 6MBY over the 3-month bond yield; vi) the relative change in the exchange rate of US Dollars (RUSDINR); and vii) crude oil fluctuations (RCO) as both a financial and economic indicator and the returns of the RUSSELL 2000 index (RRUSSELL), which serves as a benchmark for its Indian counterpart.
Ordinary least squares estimates suggest that investors can benefit from investing in the NIFSC100 index by implementing an appropriate exponential moving average strategy. The results of the study also emphasise that among the macroeconomic factors, the term spread might influence NIFSC100R. However, the daily returns of the RUSSELL 2000 index, the relative change in international crude oil prices, and the relative change in the exchange rate between USD and INR show no statistically significant impact on NIFSC100R.
The study also plotted a figure of the daily index movement of the Nifty small-cap 100 and Russell 2000. The graph reveals that while the small-cap cycles in India and the United States exhibit overall similar movement patterns, the macroeconomic factors driving these cycles differ. Interestingly, it is observed that in India, the fear of a COVID-19 lockdown among investors influenced the NIFSC100 index even before the official implementation of the lockdown imposed at the end of March 2020. A similar movement is also observed in the Russell 2000 index after the COVID-19 lockdown in the United States. This episode underscores the significant influence of Indian government declarations on the movement of the NIFSC100 index.
Observing that the empirical studies conducted so far have provided inconclusive findings on the impact of the rise in crude oil prices on economic growth, industrial production, employment, inflation, and wage rates, in “Crude oil price, manufacturing index, and consumer price index: Is there any temporal link in India?”, Utpal Kumar De and Girijasankar Mallik examine the time series behaviour of crude oil price, exchange rate, and their impacts on industrial production performance and the consumer price index (CPI) in India over time. Using the autoregressive distributive lag (ARDL), Granger causality, and GARCH modelling, they specifically examine the extent to which the petroleum prices affect the manufacturing output in India and whether petroleum prices have a significant impact on the CPI and thereby inflation. Monthly data series is considered from April 1994 to August 2020. Data on the monthly average price (last day of the month) of petrol and diesel in India (average of four cities: Delhi, Mumbai, Kolkata, and Chennai), the international crude Brent oil price in USD, the index of industrial production, and the exchange rate of the USD in terms of INR are collected from the CMIE Outlook online repository.
ARDL analysis shows a significant relation between CPI and manufacturing index (MI). Also, a significant inverse relation is established between crude oil price with MI and a positive relation between MI and CPI. The influence of the growth rate of the retail price of diesel and petrol on inflation has not always been consistent in the short run. Despite an inconsistent short run relation between petrol price with CPI, rising fuel price shows dampening impact on manufacturing output in the long run.
Jains P. Chacko and Lakshmi Padmakumari preface their study in “Does investor base affect the firm-level ex-ante cost of equity capital?” with the observation that Indian companies are often owned by promoters or founders and families, resulting in a concentration of ownership. However, over the past few years, India has witnessed a substantial increase in investors. The study aims to explore the impact of a dispersed ownership structure on a firm’s expected returns, as measured by the implied cost of equity capital (ICC). The earnings persistence model is used to estimate expected returns, incorporating three ICC models: the price-earnings growth model, modified price-earnings growth model, and Ohlson and Juettner-Nauroth (2005) model. In investigating how the investor base of Indian firms affects the expected returns measured by ICC models, the authors hypothesised that the firm-level investor base has a direct relationship with the ICC. To test this hypothesis, they use a panel dataset spanning six years, from 2016 to 2021, comprising firms listed in the National Stock Exchange and the Bombay Stock Exchange .
Empirical evidence supports their prediction that firms with a larger investor base tend to exhibit higher expected returns. The multivariate analysis employing pooled ordinary least squares, panel fixed effects, and two-step system generalised method of moments indicate that firms with a large and dispersed ownership structure tend to exhibit higher expected returns. This observation aligns with the stylised fact that the firm value tends to decrease as expected returns increase.
The findings of this study suggest that policymakers play a significant role in improving investor protection, which in turn leads to better corporate governance and increased market value. By implementing higher investor protection standards, firms can reduce the expropriation of minority shareholders, which enables them to benefit from a dispersed shareholding structure, as observed in developed countries. This type of ownership structure helps diversify risk among a large number of small investors, reduces agency costs, and increases transparency, accountability, market liquidity, and investor recognition. Overall, enhancing investor protection and corporate governance can help create a more stable and sustainable business environment, which can be beneficial for both minority and majority shareholders.
Douglas da Rosa München, Herbert Kimura, Eduardo Kazuo Kayo observe that excessive banking leverage has been of concern to regulatory bodies and has led to new regulations. Thus, those who are researching leverage are now associating this subject with various types of banking risks. Post the financial crisis of the late 2000s, the Basel Committee recommended the establishment of operational requirements for risk exposure, including a breaking down of the leverage ratio components considering off-balance-sheet operations. With emphasis on the Brazilian banking sector, in “Which banks’ business operations are more risky? The impact of leverage for Brazilian financial institutions”, the authors address the following research questions: What is the relationship between bank leverage components and risk-taking for Brazilian banks? How sensitive is bank leverage to different business models for Brazilian banks?
Using a comprehensive dynamic empirical model with bank-level panel data, they follow the more recent banking literature, using a dynamic panel-data model with the two-step system generalised method of moments (GMM) estimation. Results show that the measurement of leverage components is relevant for determining banks’ risk. Considering specific bank business models, results show that on-balance-sheet operations are riskier for investment and foreign banks. For commercial banks, the authors verify the importance of monitoring the off-balance-sheet operations. In their empirical exercises, they provide insights into the design of GMM estimations using external instruments. Regarding robustness, they estimate the econometric specifications using alternative estimation methods and also alternative risk measures. The findings remain qualitatively unchanged over the several specifications. The results provide information for banking supervision and regulation and bring insights regarding banks’ leverage behaviour.
To contextualise their study, Lucia Bartková and LenkaVeselovská explain that “dual quality” is a situation where a product is sold in the same or very similar packaging but with different compositions or properties in different countries. To explore the actual state of dual quality in Europe, several comparative tests were carried out, which showed that dual quality exists in the European Union, although it has not been confirmed that there are always better products in Western Europe. Testing authorities, national politicians, the European Commission, manufacturers and distributors, and consumers abroad have commented on this issue. In “Consumer behaviour under dual quality of products: Does testing reveal what consumers experience?”, the authors aim to explore the relationship between the nature of products tested to reveal dual quality and customers’ experiences of the products, and provide insights for individual organisations to arrive at guidelines for future solutions to the problem. The data used in the study were provided by a nationwide survey conducted on a sample of 987 consumers throughout the Slovak Republic. All participants involved were the main buyers of daily consumption products for their households. Based on the experiences and opinions of consumers, recommendations were formulated for brands owners offering products with dual quality.
In line with the aims of this research, the problem of dual quality was important for up to 75% of consumers and it was discovered that Slovak consumers were most bothered by dual quality in the case of food products. A substantial percentage of Slovak consumers perceived the problem of dual quality mainly as an ethical issue, but also as economic. The issue of dual quality was also examined in terms of the age of consumers, their income level and gender. The authors conclude that Slovak consumers will no longer be satisfied with low quality and will be concerned by the dual quality of products, especially if they receive goods of a lower quality.
What emerged also was that it is very important for companies to communicate properly on this issue to their consumers. As stated by the producers, it is sometimes legitimate to adapt products to local ingredients and national tastes. Moreover, consumers do not even require dual quality to be eliminated, but they do require that such products be properly labelled as having been made specifically for their country. Manufacturers should also have more opportunity to explain the use of dual quality in order to explain and defend their practice.
We are happy to announce the IMR Doctoral Conference (IMRDC) 2025 and call for submissions from doctoral students in all areas of management from institutions in India and abroad. We encourage readers to participate actively in IMRDC 2025. For information and updates, please visit https://www.iimb.ac.in/imr-doctoral-conference
With best wishes,
Sushanta Kumar Mishra
Editor-in-Chief
IIMB Management Review
Email address: eic@iimb.ac.in
