registration number : kereng/2009/32718 issn … journal july...registration number:...

ISSN 0973-3167Registration Number: KERENG/2009/32718

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ISSN-0973-3167

CEO’s Reputation : Corporate PerformanceFarzaneh Nassirzadeh, Mohammad Javad Saei ,

Mahdi Salehi and Farhad Rana Varnosfaderani

Family Conflict Resolution : Purchase role of Urban WomenAnilkumar and Jelsey Josph

Non - performing Assests : PSBDr. R. Velmurugan

Vegetable Price Rise : Rythu Model Solution Prof. Subhendu Dey and Dr. Salma Ahmed

Organizational Flexibility Real Option ApproachProf. Pankaj M. Madhani

Random Walk Behaviour : Indian Equity MarketP.K. Mishra

Management Accounting Benefits : ERP EnvironmentMahesha V. and Akash S.B.

Household Income : Potential EntrepreneurPurna Prabhakar Nandamuri and C.H.Gowthami

Enhancing Organizational Performance : Indian IT Sector Iliyas Mohammed

Stress Symptoms : Structural Equation ModellingG.S. David Sam Jayakumar and A. Sulthan

SCMS-COCHIN [Night View]

INDIA Inc. emerges from here at SCMS-COCHIN

ACCRE D I T E D

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SCMS COCHIN SCHOOL OF BUSINESS, INDIA

Articles005 CEO’s Reputation : Corporate Performance

Farzaneh Nassirzadeh,Mohammad Javad Saei, Mahdi Salehi And Farhad RanaVarnosfaderani

013 Family Conflict Resolution : Purchase role of Urban Women

Anilkumar and Jelsey Jospeh

026 Non - performing Assets : PSB

Dr. Velmurugan

034 Vegetable Price Rise : Rhythu Model Solution

Dr. Salma Ahmed and Prof. Subhendu Dey

043 Organizational Flexibility Real Option Approach

Prof. Pankaj M. Madhani

055 Random Walk Behaviour : Indian Equity Market

P.K. Mishra

067 Management Accounting Benefits : ERP Environment

Mahesha V., and S.B. Akash

075 Household Income : Potential Entrepreneur

Dr. Purna Prabhakar and Mrs. Gouthami

086 Enhancing Organizational Performance : Indian IT SectorIlias Mohammed

095 Stress Symptoms : Structural Equation Modelling

Dr. G.S. David Sam Jayakumar and A. Sulthan

Contents July - September 2013, Vol. X, Issue No. 3

Articles

Skimming & Scanning

110 Managment of Technology - The Key to Competitiveness and Wealth Creation

Devi Pisharady

112 Cases in Strategic Management : Volume II

Dr. C. Sengottuvelu

Overview

M anagers attribute poor performance to temporary financial

factors or provide explanation by self-serving bias. They attribute

good performance to internal factors. Corporate reputation: the creation of its

identity, image, and performance, has been in recent days a “hot” topic for

academic research as it is a valuable strategic asset for every company. Good

reputation helps firm attain and sustain superior financial performance.

Corporate Performance linked to manager’s reputation is not at all a trodden

track in management research. Therefore the topic discussed is a “hotter”

topic for the day. Moreover, the scene set by the researchers is in Iran.

In addition, articles drawn from areas like Family Conflict Resolution, NPA,

Indian Equity, Potential Entrepreneurship, Organizational Performance,

Organizational Flexibility, Structural Equation Modeling of Symptoms, and a

few others with current topics like vegetable price rise, we hope, constitute a

composite balanced meal for a genuine reader yearning for knowledge.

Dr. G. P. C. NAYAR

Chairman, SCMS Group of Educational Institutions.

SCMS Journal of Indian ManagementA Quarterly Publication of

SCMS-COCHIN

Editors

Editor-in-ChiefDr. G. P. C. Nayar

ChairmanSCMS Group of Educational Institutions

EditorDr. D. Radhakrishnan NairProfessorSCMS-COCHIN

Dr. Subramanian SwamyProfessor, Harvard University

Cambridge, MA, USFormerly Professor of Economics

IIT, Delhi

Editorial Board

Dr. V. Raman NairDirector

SCMS-COCHIN

Dr. Radha ThevannoorDirector, SCMS School of

Technology and ManagementCochin

Dr. Abhilash S. NairChair Person-Finance, Accounting

and Control Area IIMK, Kerala

Dr. I.M. PandeyProfessor

Delhi School of Economics,Delhi University

Dr. Azhar KazmiProfessor, King Fahd University

of Petroleum and MineralsDhahran, Saudi Arabia

Dr. George SleebaJoint Mg. Director, V Guard

Industries Ltd., Cochin

Mr. Jiji Thomson IAS Director General

Sports Authority of IndiaGovernment of India, New Delhi

Dr. Thomas StegerChair of Leadership and Organization

University of RegensburgGermany

Dr. Kishore G. Kulkarni Distinguished Professor of Economics and Editor

Indian Journal of Economics and BusinessDenver, US

Dr. Naoyuki YoshinoProfessor of Economics

Keio UniversityTokyo, Japan

Dr. Jose Maria Cubillo-PinillaDirector of Marketing Management

ESIC Business and Marketing School Madrid, Spain

Dr. Mathew J. ManimalaProfessor

Indian Institute ofManagement, Bangalore

SCMS Journal o f Indian Management , July - September, 2013 4

A Quarterly Journal

Editorial

Dr. D. Radhakrishnan Nair

Edi to r ia l Ass i s tan t :

Ms. Nitha Abraham

Prof. K. J. Paulose

Prof. A.V. Jose

Prof. B. Unnikrishnan

Edi tor ia l Commit tee :

Invoke Solar Energy: Save th

Let the buyer beware!What are my rights? It is a point of information, meaning, what I may do according to the rules of

some association or some body politic, and where the rules that are written down and understood

are. I may have the right to bring one guest in, but not two. I have the right to use the pavement,

but not to obstruct it. Different rights may be accorded to different people. A citizen can vote in an election, but not a foreigner.

Rights, here, are a matter of what rules permit.

Societies evolve systems of permission on the one hand, and boundaries that must not be crossed on the other. We can

understand the evolution of systems of promise-giving and keeping, systems of property, and eventually systems of law.

We realize that we have different “positive” rights. It means: systems of boundaries and permissions, and the systems of

status that mean that others must forbear from behaving in various ways. All of these are social constructions, in the sense that

they owe their existence to the actions and habits of the society.

The adjective “right” as in “the right thing to do” or as in “the right decision,” is fine. As right becomes a noun and people start

to talk about rights, everything goes pear-shaped. The moral is that we have to be careful. Ordinary talk of rights as established

and enshrined in custom and law, is fine. Advocating particular policies and changes is fine. Using the language of rights is a

perfectly reasonable way of attempting to persuade each other of the merits of a policy. But thinking of rights, however

cloudily, as affording some kind of metaphysical basis for our advocacy, is not. Thinking of a calculus of rights, unique and

visible to people of reason everywhere, is dangerous in many directions. The more confident one is of a kind of moral calculus

of detailed rights will lead to the spectre of imperialism. The language of rights occupies something of the role of a new

proselytizing religion, impatient of the existence of infidels, anxious to globalize its own discoveries and to suppress whatever

variations and alternatives have evolved elsewhere. The problem lies with people’s hearts, their fears, envies, prejudices and

historical enmities, rather than their heads.

When you buy something, you must have precautions against being cheated. You cannot trust merchants to be honest about

what they sell. Let the buyer beware when shopping for a used car. Several among the lamps among those a dealer offered were

broken. “If a customer isn’t smart enough to try a lamp before he buys it, that’s his problem.” The dealer argued:”Let the buyer

beware!”

Super Trends in Business


A Quarterly Journal

CEO’s Reputation :Corporate Performance

Farzaneh Nassirzadeh, Mohammad Javad Saei,Mahdi Salehi and Farhad Rana Varnosfaderani

Key words: CEO, CEO reputation, stock attractiveness, attribution theory, investors’ judgment

Abstract

Farzaneh Nassirzadeh, Department of Accounting, FerdowsiUniversity of Mashhad, Mashhad, Iran.

Mohammad Javad Saei, Department of Accounting, FerdowsiUniversity of Mashhad, Mashhad, Iran.

Mahdi Salehi Department of Accounting, Ferdowsi Universityof Mashhad, Mashhad, Iran.

Farhad Rana Varnosfaderani , Ferdowsi University ofMashhad, Iran.

hen managers announce news concerning

earnings reduction or loss, they face to significant

costs which affect on managers’, companies’ and

stakeholders’ interests. For instance, such news may decreasecompensation for managers (Matsunaga and Park, 2001),lower their job security (Puffer and Weintrop, 1991) anddecrease stock prices (Skinner and Sloan, 2002). It seemsthat managers who are aware of such negative outcomes, tryto provide explanations and attribute earning reduction orloss to external factors and uncontrollable events in order topretend that they are not responsible for poor performance(Kaplan et al, 1990; Morgenson, 2004). This is based onattribution theory in psychology. This theory was foundedby Heider (1958).

Researches indicate that these explanations and theirplausibility are of high importance and useful for financialanalyzers and investors and they use them in financial

W

The present study aims to investigate the relationship between CEO’s pre-existing reputation and his justifications for poor performance

with investors’ judgment about future performance, and CEO’s current reputation in Iran. Using a questionnaire among non-professional

investors in Tehran Stock Exchange, data were collected and analyzed by Spearman and Man Whitney tests. The results indicate that

from students’ viewpoints, there is a negative relationship between CEO’s pre-existing reputation and justifications for poor performance.

The only difference between students’ and investors’ viewpoints is that from investors’ viewpoint there is no relationship between CEO’s

explanations for poor performance and poor performance persistence. So far, only very few studies have been conducted on the subject

of this study. On the other hand, difference between cultures may cause different findings. The current research is the first study in Iran.

Abstract


A Quarterly Journal

analyses and estimations of company future (Clarkson et al,

1999; Rogers and Grant, 1997).

Many researches were conducted on managers’ incentives for

providing explanations about poor performance however

researches conducted about investors response(market

participants) to these explanations are few.(Cianci and

Kaplan, 2010; Barton and Mercer, 2005). In this research,

investors’ response to CEO explanations and CEO himself

are considered as an explanation resource.

Theoretical issues

As noted before, CEO explanations can be traced back to

attribution theory in psychology founded by Heider in 1985.

Attribution is a process used by people to link events

(behaviours) to the factors created by them (Heider, 1985).

Financial events can be attributed to fundamental factors

providing them or in other words, financial events can also be

attributed. In some accounting researches, for convenience

the term explanation is used instead of attribution.

Social psychologists don’t agree unanimously about

attribution theory and have analyzed it from different

perspectives and suggested different theories. Some of the

important attribution theories are: 1. attribution theory of

Heider’s simple psychology 2. Attribution theory of Davis

and Jones’ Correspondent inference theory 3.Harold Kelley

Covariation theory and 4. Bernard Weiner three dimensional

classification.

One of the most important findings in attribution theory is

that mistakes or biases cause attribution distortions. For

example, evidences indicate that when one judges about others

behaviour he is inclined to over evaluate internal factors effect

and under evaluate external factors effect; these biases are

called fundamental attribution error (Karimi, 1994; Ross,

1997). For example, manager is inclined to attribute poor

performance of sales agency to personal laziness to link to

innovation in competitors’ products. Explanation provided

for this inclination is that one is aware of his situational factors

more than others’ so he attributes his behaviour to situational

factors and others behaviour to their character factors (Karimi,

1994). People and organizations also want to attribute their

success to internal factors such as ability or effort while

external factors such as bad luck are accounted for failure.

This bias is called self-serving bias (Goerke et al 2004; Johns,

1999). In other words, in self-serving bias, one increase his

self confidence by enlarging their share in positive events

such as good financial performance and minimize his share in

negative behaviours such as failure in running company by

reproaching others or attribute it to situational factors to

preserve himself confidence (Karimi, 1994). In companies,

managers provide explanations or attributions for corporate

performance (Saatchi, 1993) or their predictions. They use

self-serving bias to preserve job security as well as their

reputation. For example, when former CEO of Ken Lay

Company underwent a trial for fraud, he accused former

financial manager, Andrew Fastow, as guilty.

The way people interpret events around them affects on their

behavior significantly. People try to perceive behaviour

(event) reasons to take advantage from prediction ability and

control future behaviours (events). In evaluation of corporate

performance, investors should determine behaviour (event)

reasons and responsible resource to use it in their decision

making. These decisions are about both current situation

of company and evaluation of future performance. Managers

are responsible for directing company and they use attribution

or explanations in all aspects of their work. Explanations

provided by managers can affect on investors decisions and

any information effective on investors’ judgment and decisions

is of high importance in accounting. In accounting theory,

decision making plays a pivotal role and the topic of decision

making is emphasized frequently in definition of accounting.

So, it is very important to study how users of financial and

non-financial information make decisions. It can lead to infer

and detect important information for them (Hendriksen and

Breda, 1991).

The present paper is classified as behavioural research. The

main question in behavioural research is ‘’how people really

use accounting information (financial and non-financial) and

other information and process them.’’ Behavioural researches

are of high importance because first other research areas

(capital market, agency theory etc.) don’t address this

question. Secondly, behavioural researches on accounting can

provide a valuable insight about how decision makers response

to particular items of information (Godfrey, 2003).

Research background

Researches indicate that managers are inclined to attribute

poor financial performance to temporary external factors or

provide explanations by self-serving bias. They also want to


A Quarterly Journal

attribute good performance to internal factors. This inclination

was observed both in annual reports (Bettman and Weitz,

1983) and seasonal profit predictions (Baginski et al. 2004,

2000).Baginski et al (2004) found that when managers predict

low profit or loss for the company, they are more inclined to

provide explanations. They obtain credit of good results by

providing these explanations and attribute reproach for bad

results to other factors. So, both investors’ idea about

managers’ ability to provide positive returns is improved and

when board of directors believe that manager is responsible

for good performance but not poor performance, his rights

and job security are improved. Thus, managers are inclined to

provide self-serving disclosures and attributions to attribute

good financial performance to sustainable internal factors and

poor financial performance to temporary external factors

(Aerts, 2005).

Researches indicate that when a company faces poor financial

performance, CEO explanations on poor financial performance

may affect on financial analyzers’ judgment about future

performance of company. In other words, when explanations

provided by CEO are plausible, investors and financial

analyzers’ belief in future performance of company is in higher

level compared with when explanations are implausible. It

means they believe that poor financial performance in past

years is less likely to be continued in next year (Barton and

Merser, 2005; Cianci and Kaplan, 2010). Hirst et al (1995)

study indicates that judgment about future performance is

formed given to plausibi l i ty of explanations about

performance.

Baginski et al (2011) performed a research in which the effect

of explanations on earning revision predicted by analyzers

was studied. They found that there is a relationship between

explanations and revision in earning forecast by financial

analyzers. Their research also indicated that when an

explanation is provided for earning predicted by manager,

analyzers revise their predictions of ESP and predict it as

ascending. Researches indicate that if plausible explanations

are provided by manager, there is significant difference

between estimation of ESP and stock prices by investors and

analyzers in comparison with when explanations are

implausible (Barton and Merse, 2005; Cianci and Kaplan,

2010).

Managers may provide explanations for future performance

voluntarily (for example manager may provide explanations

to predict future earning). They try to increase their

predictions credit or accuracy before investors and analyzers

(Baginski et al, 2000). In addition, more disclosures lead to

reduced capital cost of company (Sengupta, 1998; Botosan,

1997). By reduced capital cost, investors are more inclined to

invest on the company indicating stock attractiveness.

Providing explanations about company performance can affect

on capital cost because it gives more information about the

company. Barton and Merser research (2005) also indicates

negative effect of implausible explanations on capital cost. In

addition, improved judgments about future performance lead

to increased stock attractiveness (Cianci and Kaplan, 2010).

Francis et al (2008) found that there is a negative relationship

between CEO reputation and earning quality, implying that

the more reputable the CEO, the lower earning quality will

be. This finding is consistent with Mlmendier and Tate (2009)

study. Their study indicates that reputation is of negative

outcomes too. They found that company performance declines

compared to past year after manager becomes reputable. In

addition, these reputable managers most likely perform

earnings management in the next year to reach expected

performance and obtain higher compensation. However, Kevin

Koh (2011) findings indicate that managers are more

conservative and their willingness for earnings management is

lower after becoming reputable so that financial reporting

quality increases.

The results of Agarwal (2008) research also indicate a positive

relationship of CEO reputation with corporate performance.

Hirst et al (1995) research indicates that judgment about future

performance of company is formed considering plausibility

of explanations and irrespective of reputation. This finding is

consistent with the result of Cianci and Kaplan (2010)

research. They found that CEO reputation doesn’t affect on

investors’ judgment about company future performance.

Manager reputation affects on his abil i ty to transfer

information to capital markets as credible (Williams, 1996).

A reliable relationship between manager and capital market is

of high importance because theoretical models suggest that

companies’ general information is less reliable experience,

low stock liquidity and higher estimated risk (O’Hara, 2003).

Reduced reliability leads to increased informational risk.

Changes in manager reputat ion may also affect on


A Quarterly Journal

informational risk because manager reputation affects on his

ability to establish a relation with investors as credible. Cianci

and Kaplan (2008) research indicated that there is a significant

and positive relationship between judgments about manager

reliability and investors evaluations about investment

attractiveness in the company.

Barton and Mercer (2005) also found that manager reputation

affects on capital cost and its coefficient is negative. The

results of Agarwal et al (2008) research also indicate that

there is a negative relationship between CEO reputation and

capital cost. The results of Cianci and Kaplan (2010) research

imply a positive and significant relationship between CEO

reputation and stock attractiveness.

Various information and substitutions were used to estimate

and measure CEO reputation and other variables including: 1.

CEO Tenure 2.Past performance of company (adjusted return)

3. Foreign CEO (Milbourn, 2003; Jian and Lee 2011) 4.

Rewards granted by commercial journals and 5. Media exposure

(Johnson et al. 1993).In some researches, scenario was used

to examine the effect of reputation (Cianci and Kaplan, 2010).

Research hypotheses and goals

The present paper aims at studying the relationship between

“CEO pre-existing reputation and his explanations for poor

performance” and “investors’ judgment about future

performance and CEO current reputat ion.” So eight

hypotheses were formulated:

H1: there is a significant relat ionship between CEO

explanations about poor performance of company and

investors’ judgment about persistence of poor performance.



investors’ judgment about next year EPS.



investors’ judgment about investment attractiveness of stocks.

H4: there is a significant relationship between CEO pre-

existing reputation and investors’ judgment about persistence

of poor performance.


existing reputation and investors’ judgment about next year

EPS.


existing reputation and investors’ judgment about investment

attractiveness of stocks.

H7:there is a s ignif icant relat ionship between CEO


investors’ judgment about CEO current reputation.


existing reputation and investors’ judgment about CEO

current reputation.

Research methodology

The present research is fundamental by purpose and

correlational and experimental by method. Data required was

gathered by questionnaire which is considered as one of field

methods.The questionnaire is according to the research

performed by Cianci and Kaplan (2010) which was modified

for higher validity after consulting with a number of

professors. Kronbach alpha coefficient calculated for the

questionnaire is 0.83 indicating good reliability .Information

obtained after analyzing data was used to reach research

purposes. Statistical test used in the research is Spearman

correlation coefficient.

Experimental variables of the research which are independent

variables include: (1) CEO explanations about poor

performance which are changed to plausible and implausible.

(2) CEO pre-existing reputation, changing to three cases of

unknown, favorable and unfavorable. CEO pre-existing

reputation means his reputation before poor performance.

Scenario was used to change independent variables. So

questionnaire includes six states as Table 1 shows below:


A Quarterly Journal

Because all states were offered for individual interviewee, the

effect of their character properties is controlled (Libby et al,

2002; Smith, 2003).

Dependent variables of the research are: (1) persistence of

poor performance (2) next year EPS (3) stock attractiveness

and (4) CEO current reputation. CEO current reputation

means his reputation after poor performance.

Statistical universe and sample

In this research, two tastes groups including postgraduate

students of accounting, management and economy in the main

research and active investors in stock market in experimental

research were used. They both are identif ied as

nonprofessional investors. Students were employed as a

substitution for nonprofessional investors because in

researches focusing on investors’ judgment, tastes are

appropriate who have primary knowledge about accounting

and investment and researchers should avoid professional

tastes unless they are necessary for reaching research

purposes because it may make other researchers’ access to

these valuable resources difficult (Libby et al 2002).

Sample size was obtained 128 using Cookran formula. Totally

190 questionnaires were distributed among postgraduate

students of accounting, management and economy studying

in Ferdowsi university of Mashhad and 158 questionnaires

were gathered from which 30 were eliminated because of

controlling questions and finally 128 questionnaires were used.

In experimental research 24 questionnaires distributed among

active investors in Esfahan stock market branch were used.

Research findings

Descriptive statistics

Among 128 student interviewees, 56 were female and 72 were

male and their average age was 24.5 years old, 41 were

accounting students, 55 management students, and 32 economy

students. 31% of students had record of employment and

10% had record of investment.

Hypothesis tests

As noted, hypotheses were studied using Spearman test. The

results of testing hypotheses are shown in Table 2. As seen,

all hypotheses are supported in significance level of 5%.

Table 1. Questionnaire framework

1 Unknown implausible

2 favorable implausible

3 unfavorable implausible

4 Unknown plausible

5 favorable plausible

6 unfavorable plausible

Scenario NumberScenario studied

CEO reputation Explanation provided


A Quarterly Journal

So it can be said that there is a significant relationship between

independent variables of CEO explanation and pre-existing

reputation and investors’ judgment about persistence of poor

performance, next year EPS, stock attractiveness and CEO

current reputation.

Above tests were performed on real investors and the only

difference between students (considered as a substitution for

nonprofessional investors) and investors is that H1 is rejected

for investors however it is supported for students.

Other findings

In addition to hypothesis results, additional evidences wereobtained about the relationship between CEO reputation andhis explanation plausibility. The results are shown in Table 3.This relationship has been tested using Spearman correlationcoefficient.

Table 2. The results of testing hypotheses

Hypothesis Teststatistic

Significant Test resultError level Type of Relationship

H1

-0.305 0.000 0.05 Accepted inverse

H2

0.355 0.000 0.05 Accepted Direct

H3


H4

-0.388 0.000 0.05 Accepted inverse

H5


H6


H7


H8


Table 3. Test of the relationship between CEO reputation and his explanations plausibility

As evident from test result, as CEO reputation is more

favourable when providing explanations about poor

performance, these explanations are more plausible. This test

was also performed on investors and the result indicates a

significant relationship between CEO reputation and his

explanation plausibility.

In addition, additional test was performed on the effect of

gender on judgments about persistence of poor performance,

next year EPS, stocks attractiveness and CEO current

reputation. This test was performed in the six states

separately and Man Whitney test was used. The results

indicate ineffectiveness of gender on judgments and in other

words, there isn’t a significant difference between male and

female judgments about poor performance persistence, next

year EPS, stock attractiveness and CEO current reputation.

It is of note that these tests were not performed because all

investors were male.

Conclusion

The results indicate that there is a significant relationship

between CEO explanations about poor performance and

nonprofessional investors’ judgment about poor performance

persistence, next year EPS, stock attractiveness and CEO

current reputation. In other words, as CEO explanations are

more plausible, in nonprofessional investors viewpoint, poor

performance is less sustainable, next year EPS will be assessed

higher, company stock will be more attractive and CEO

current reputation is evaluated more favourable.

Hypothesis Significant

0.422 0.000 0.05 Accepted direct

Significant Significant Significant


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The results also indicate that there is a significant relationshipbetween CEO pre-existing reputation and nonprofessionalinvestors’ judgment about poor performance persistence, nextyear EPS, stock attractiveness and CEO current reputation.In other words, as CEO reputation is more favourable, instudents’ viewpoint, poor performance is less sustainable,next year EPS is evaluated higher, company stock has moreattractiveness and CEO current reputation is evaluated morefavourable.

Additional evidences also indicate that there is a directsignificant relationship between CEO reputation and hisexplanations plausibility. In other words, as CEO reputationis more favourable when providing explanations about poorperformance, explanations are more plausible. In addition,evidences obtained indicate ineffectiveness of gender onjudgments and in other words there isn’t a significantdifference between male and female judgments about poorperformance persistence, next year EPS, stock attractivenessand CEO current reputation.

Suggestions for future researches

Suggestions for future researches include:

1. Using other types of attribution(such as ability and labourdifficulty) and comparing them, and

2. Performing research using active professional investors instock market.

Implicational suggestions

Employing managers who are reputable for successful andgood performance can lead to improved performance andsuggest good directions based on past experiences for successof company. If company faces poor performance which areresulted from external conditions, successful managers’explanations can reduce negative effects of poor performanceon investors’ predictions about future EPS and investmentattractiveness on stock.

Research limitations

Performing each research is associated with some limitations;the present research isn’t an exception. The most importantlimitations include:

1. Intrinsic limitations of questionnaire as one of tools ofdata gathering, and

2. Insufficient researches especially domestic researchesabout CEO explanations and reputation and its effect orrelationship with investors’ judgment.

References

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Agarwal, V., R. Taffler, and M. Brown, (2011), “Ismanagement quality value relevant,?” Journal ofBusiness Finance and Accounting, Vol. 38 No. 9 and10, pp. 1184-1208.

Baginski, S. P., Hassell, J. M., and W. A. Hillison, (2000),“Voluntary causal disclosures: Tendencies and capitalmarket reaction”, Review of Quantitative Finance andAccounting, Vol. 15 No. 4, 371-389.

Baginski, S. P., J. M. Hassell, and M. Kimbrough (2004),“Why do managers explain their earnings forecasts?”,Journal of Accounting Research, Vol. 42 No. 1, 1-29.

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Family Conflict Resolution:Purchase role of Urban women

Anilkumar and Jelsey Joseph

Many aspects influence the consumer behavior of men & women as a family consumer of goods purchased for

common family use/consumption. Both internal and external aspects influence the consumer in the market. These

various aspects could be variables like the personal, psychographic, family and social normative variables as also

the perceived behavioral control variables as per the TPB. The Consumer is motivated through persuasive

techniques to change his/her attitude towards the purchase of goods/services. In this study the family aspects are

probed to throw more limelight on the influence of family purchase roles ,conflict resolution style in the current

family purchase attitude-decision making and consequent purchase behavior for durables with specific relevance

to urban Kerala families of Kochi, the fastest growing metro in Kerala, being a key test marketing center for the

entire spectrum of consumer durable products for common consumption with women in focus ,in view of higher

standard of living. The family dynamics are brought in through this FDU study.

Abstract

AnilkumarN, Sai Kripa, Lotus Garden, Hidayat Nagar,HMT Colony P.O, Kalamassery, Ernakulam, Kerala.09447986364(Cell);E mail : [email protected], [email protected],

Dr. Jelsey Joseph, Research Scholar & Chief Manager, Dean,Department of Commerce& Business Management,Karpagam University, Coimbatore, Tamil NaduE-mail : [email protected],

Key words: Consumer Purchase Behaviour, Durables, Family, PurchaseRole Orientation, Consumer attitude, Family buying, Joint decisions, Conflict resolution, WW-NWW Family buy

amily is the most important social institution, a

dynamic entity consisting of interrelated positions,

roles, role behaviours, role clusters, positional

careers and family careers. Family members may have different

roles to play in making decisions within the family; they may

initiate demand or contribute information, decide on where

to buy, which brand and style to buy, how to pay for the

products, how to consume any product, what benefit to expect

from products, and how to share their roles in maintaining

the product. Past research in this area has found that the

roles played by family members differ with regard to the

product being purchased, the stage in decision-making process,

and characteristics of families and spouses (Belch and

Ceresino, 1985; Davis, 1976; Piron, 2002; Webster, 1995).

The changes in education, the advent of career women, and

the growing number of dual-income families have challenged

earlier beliefs on their role structure and purchase influence

F


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(Webster, 1995).Woman now seek upward mobility, equality

through job to derive status, recognition and power for

resolving family conflicts specific to purchase/ consumption

of goods. Kerala has been at the vanguard of consumer trends

(Osella and Osella 2000, Kurien, 1994). The family dynamics,

specifically the conflicts and roles within the family govern

the consumer’s purchase attitude-behaviour, which is better

understood by studying the role conflict resolution in

families(Kim and Lee,1996) because it is the main source of

conflict in families(Kirchler 1993,Lee and Collins 2000).The

urbanization, westernization and gender equality for women

have had wider impact on family buying.The parents and

other family members serve as a channel of information, source

of social pressure/comparison, support for one another to

create a distinct family lifestyle, interaction pattern and

decision making(Sillars 1995). Most family purchases are

observed to be influenced by social comparison and peer

pressure. The subjective norms are the family member’s overall

perception of what relevant persons think he or she should

do(Ryan 1982).

Purchase Roles in Indian Family Units

Family purchase role orientation is made up of norms that

reinforce gender inequalities between male and female,

specifically between husband and wife (Qualls, 1987). Sex

role norms dictate the appropriate behaviour patterns and

roles to be played by each partner. Conflicts may arise if the

ideologies of the husband and wife do not match. Sex role

norm is an important factor in the family decision-making,

especially in the context of the wife’s involvement in the

decision-making processes. Numerous studies have supported

this idea (Qualls, 1987; Scanzoni and Polonko, 1980). It is

anticipated that modernization/acculturation changes many

of the cultural norms, such as sex role norms, creates more

opportunities for women to work outside the house, delays

in marriages, and shifts societal standards (Lee and Beatty,

2002; Qualls, 1987). Many factors have been attributed to

the increasing incidence of women employment in different

societies like in urban Kerala. The explanations vary from

economic necessities of families to the psychological needs

of women. Traditionally women are expected to work at home

and this is considered most essential for the subsistence of

the family. With a large number of women taking up jobs,

necessitated by economic and psychological factors, the role

of women as home maker cum wage earner is being widely

accepted in Kerala. This has necessitated structural changes

in the family organization. Parson (1942) stated that women’s

work involvement introduced a source of strain in family’s

mechanisms of balance. Many studies have dealt with the

socio-environmental conditions affecting role re-allocation

patterns in dual earner families and with the consequences of

various solutions in terms of family structure and family

interaction patterns (Hoffman and Nye, 1974).The role of

family is changing now even faster than in the past. As per

Dreman (1997),changes in family structure, lifestyle, and

family life cycle have caused the family values of community

and belonging to be replaced by individualism and autonomy.

The strength of the family relationship is affected by a number

of factors including communication orientation, family

cohesion, structure, and the adaptability of the family unit

to major positive and negative occurrences to one or more

family members (e.g., major promotion, job loss, etc.) (Heckler

et al. 1989; Hogan, Eggebeen and Clogg 1993; Rindfleisch,

Burroughs, and Denton 1997). Consumption behaviour is

influenced by family relations and MQL. Changes in the

economic environment have led to changes in the roles of

husbands and wives (Cherlin, 1992;McConocho and Tully,

1993). The body of knowledge in sex role orientation is

supported by the fact that more decisions are made using an

egalitarian approach with the husbands and the wives sharing

decision-making tasks. Younger, more educated couples and

couples with higher social class were also found to have

modern sex role norms (Davis, 1976; Filiatrault and Ritchie,

1980). Sex role orientation is found to affect equality or

inequality of power between the spouses (Scanzoni, 1982;

Scanzoni and Polonko, 1980). Attitudes toward the wife’s

career and sharing of responsibilities in the household were

found to influence the determination of roles in the family’s

financial management. Webster (1995) found that the most

important factor for wives in determining role structure for

high involvement products is sex role orientation. In a related

study, Piron (2002) found that husbands of working wives

more often share household chores since their wives started

working outside the home. According to past research

findings, traditional sex role orientation of husbands (Ramu,

1987) family-work role incongruence (Krause and Markides,

1985), child care (Kessler and McRae, 1982), lack of help

available with household chores (Ross et al, 1983) etc. are

some of the factors that contribute to the role overload for

working women to produce psychological distress. According

to Burke and Weir (1976), considerable amount of stress and


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strain confront couples adopting dual earner marriages due to

the reorganization of roles within the marriage, which include

dilemmas of workload, identity, role cycling, social network

norms and discrepancies between personal and social norms

leading to conflicts. Rarnu (1987) observed that women

experience role conflict, role overload and marital stress mainly

because the husbands generally do not alter their domestic

roles. Husband’s participation in household chores can

decrease the role strain for a working wife (Saenz et al, 1989)

and non-participation can increase wife’s role strain which

can affect the smooth family functioning (Galambos and

Silbereisen, 1989). Szinovacz (1977) found in his study of

dual earner couples that when husbands maintain traditional

role expectation and when there exists high segregation in the

task allocation patterns it results in family dysfunction. Maret

and Finlay (1984) in their research on dual earner couples

found that if the wife was employed, there was a greater

likelihood that household chores and child care would be

shared between the couple, and in general, they would have

a more egalitarian conjugal role structure than couples where

the wife was not employed. The parents’ fatigue after long

hours of work, the long hours of separation and the lack of

common experience combine to undermine the cohesion of

dual earner families (Glenn, 1983). High commitment to both

career and family was seen to produce conflicts accompanied

by stress. Time allocated to career pursuits was evidenced

to have potentially negative implications for the marriage

relationship. Ludewig and McGee (1986) found that groups

formed on the basis of husband-wife pattern of commitment

to work differed on the dyadic adjustment. Status competition

between spouses is not inherent in every dual earner marriage

largely influenced by the personality characteristics of

Couples (Philliber and Hiller, 1983).The marital role plays

an important part in consumer decision-making as does the

influence of children. The family members can take up

purchase process roles and act as gate keepers/initiate/

demand or contribute information on merchandise, decide

from where to buy, which brand to buy, how to pay and in

what lot size, how to consume, what benefits to expect , and

how to share their roles in maintaining the product at home

as a common utility. Generally the purchase roles in a family

are multifold like the Initiator(putting up suggestions),

influencer(persuading), Gate keeper-Information

gatherer(secure information on product/ services) ,

Decider(decision maker), Buyer/Purchaser(Purchasing

actor),User (Family members), Maintainer (maintenance

repair/upkeep/servicing) and Disposer. From research in

family decision making, the roles played by family members

differ with respect to the type of product /service purchased,

the stages in the decision-making process, the characteristics

of the families and spouses (Belch and Ceresino, 1985; Davis,

1976; Piron, 2002; Webster, 1995). Multiple roles are played

by a family member. Due to acculturation and social changes,

variations are evidenced in the role of women in family &

society due to their higher education, career , and more

women taking up careers leading to dual-income families

which have challenged earlier beliefs on the role structure and

purchase influence (Webster, 1995). Higher levels of

commitment indicate a highly qualitative marital life and lesser

conflicts in family. Shukla (1987) found that when wives are

employed, they have more power to manage and enjoy more

egalitarian relationship in marriage. Ramu (1987) in a

comparative study on the role perception and performance of

Indian husbands in single and dual earner families found that

dual earner wives are conservative in their role perception. In

the Kerala culture, male partner is considered the real head of

the family (Patrifocal as per Mukhopadyay and Seymour

(1994)) who takes different decisions pertaining to the

functioning of the family. Women were traditionally considered

inferior to men especially in the matter of decision making.

The male dominance in this regard was due to the higher status

and social position that men enjoyed in terms of their higher

educational levels, income and social skills and cultural.. Time

pressures and work-related stresses, acting on both types of

working wives, but believed by researchers in sociology to

produce greater adjustment problems in dual career families

(Bebbington 1973; Douglas 1976b; Hunt and Hunt 1977; and

Rapoport 1971). Dual earner women tend to experience role

strain as a result of playing most of the homecare roles along

with occupational roles. This is a dominant feature absent

among the traditional single earner women. Women in Kerala

take up job primarily to meet the economic necessities of

their homes and not for the psychological needs of power,

esteem, authority and greater freedom or greater female

autonomy (Karve 1953). Low level occupational commitment

of married women is seen to foster the marital interaction, as

observed by Glenn (1983). Decision making patterns in a

marriage are indicative of its leadership style. Depending on

the style of leadership decision making becomes a joint

venture or a unilateral process. The decision making process

in dual earner families tends to become more democratic as


A Quarterly Journal

The previously published works tend to focus on North

American consumers, with the exception of India (Kaur and

Singh, 2005) and Austria (Kirchler, 1993). Several past studies

have been made in confl ict resolut ion strategies

(Nelson,1988;Kaur and Singh 2005), on the frequency in the

use of conflict resolution strategies((Belch etal.,1980) and

various factors influencing the combinations of conflict

resolution strategies(Kim and Lee 1996,Makgosa 2007).

Several combination of conflict resolution strategies are

applied by the spouse and wife like the Assertiveness, Playing

on an emotion, bargaining, disengagement and supplication.The

major conflict resolution strategies have been outlined by

Spiro(1983), Nelson(1988); Kim and Lee(1996) like expert

influence, persuasion & reasoning, legitimate influence,

authority, bargaining, reward influence, emotional influence-

positive/subtle manipulation or negative/punishment, search

more information, play on an emotion, withdrawal,

impressiveness, supplication etc. In this study six types of

conflict resolution styles have been applied to categorize the

strategies used by the couples in Keralite families, viz.,

Aggression, Avoidance, Compromise, Compliance, Reasoning

and Emotion w.r.t purchase attitude-decisions for durables.

Specific Objectives of study:

1. Assess current consumer behaviour pattern in urban

Kerala families for durable goods.

2. Understand differences in the purchase process roles

of women in purchase.

3. Identify the impact of conflict resolution style within

the family on Wife’s attitude-decision making for

purchase of durables for common use of the family.

4. Find any influence of Demo graphics & Socio graphics

on the purchase attitude of women in the family

purchase of durables.

5 Explore any influence of marital quality of wife in the

family purchasing decisions of durable products-white

goods/Brown goods in the family.

Null Hypotheses formulation:

H 01: There exists significantly higher adoption of

aggressive-assertive conflict resolution style by

wives than their spouses to arrive at joint purchase

decision making in the family on consumer durables.

H02: There exists significantly higher adoption of

avoidance-disengagement conflict resolution style by



H03 There exist s ignif icantly higher adoption of

compromise-bargaining conflict resolution style by




compliance-submission conflict resolution style by



H05: There exists significantly higher adoption of rational

problem solving-persuasion conflict resolution style

by wives than their spouses to arrive at joint purchase



emotion-coercion conflict resolution style by wives

than their spouses to arrive at joint purchase decision

making in the family on consumer durables.

H07: Demographic factors do not have significant

influence on wife’s attitude- decision making for

purchase of white goods for common use of the

family.

H08: Social factors do not have significant influence on

wife’s attitude- decision making for purchase of

white goods for common use of the family.

H09: Marital quality does not have significant influence

on wife’s attitude-decision making for purchase of


H10: Conflict resolution style effectiveness within the

family does not have significant influence on wife’s

attitude-decision making for purchase of white goods

for common use of the family.

Research Methodology

Structured questionnaire adopted for primary data collection

from a sample size of 322 housewives from an urban

population of 7 lakh persons and 1.5 Lakh families

(specifically the females)of Kochi metro, in 2012 using


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stratified random sampling of income and geography

(disproportional). The study investigated the family purchase

role structure/conflict resolution styles of wives in the

decision-making of purchasing consumer durables of two

categories, durables for family utility -White goods (like

washing machine, refrigerator, Vaccum cleaner/Water purifier,

Wet grinder/Mixer Juicer, LPG Hob, Dish washer ,MWO/

Induction cooker/OTG), and Brown goods-durables for family

entertainment (3D/LCD/LED/Plasma Colour TV, Home

theatre, PC/Laptop, Air conditioner, 3G mobile phone/I pod,

Premium two-wheeler/Luxury Car/Home Gym) for contrast.

Kerala being the largest market for durables, and Kochi being

the commercial capital, and women are the major consumer

target for marketing, has necessitated the study, generally

applicable to urban Kerala. The research instrument used is

the combined structured questionnaire addressed on family

unit and specific to women with White goods and brown

goods as the attitude object. To ascertain the buying behaviour

of the women, structured questionnaire adopting five point

Likert scale was used (1-Strongly Disagree and 5-Strongly

Agree) and for analysis with statistical tools like Regression

analysis, Chi square, ANOVA have been applied in SPSS17

on the primary data.

Findings-Discussion

The following have been noteworthy based on primary survey

and FICCI 2011 report. More than 90 percent of the women

were from nuclear families. About 82 percent of females had

a family size of not more than four members. The maximum

age range of husbands is 40-50 yrs while the same for

housewives is 30-40 yrs. 80% of households had only 2-4

members. The education level of husbands is maximum in the

Professional level (35%) and among Housewives, Graduation

level (50%). Almost 90% and 82.67% of the husbands &

Housewives respectively of the sample population were

employed in Govt. / Pvt. Sector. The average monthly income

of 40 percent of households were in the range of Rs. 26,000/

- Rs. 45,000/- (L) and 30.33 percent of the households

belonged to the income range of Rs.46,000/- to Rs.75,000/-,

(falling in the income group classification M), for analysis.

The (VL) very low levels of monthly Income (below

Rs. 25,000/- per household) accounted for 13% and the (H)

higher levels of income (above Rs. 76,000/- per household)

were found in 16.66% of the sample population of households.

In 79.67% households, wives make the decisions on purchase

of domestic kitchen durables(white goods) and self help (no

servant) has been practised in the kitchens of 61% households,

usually working housewives. The fuel used in kitchen was

predominantly LPG (88.67% households), wood (7.33%) and

Kerosene (4%) have also been used. The surveyed sample

population had 82.67% Kerala resident and 12.67% were

South Indian (non-Keralite) with 4.67% accounting for North

Indians residing in Kochi. Eighty-seven percent of the

respondents/households indicated that their purchase

intention was dominated by reason (rational motive) weighing

the merits/ demerits and the C-B ratio on durable products.

There is clear opinion on retail outlet from which consumers

prefer to purchase; 50.67% preferred established retail brand

dealers while 35.67% opted for the now ubiquitous margin

free supermarkets/shopping malls. For 39.01% of households

,the others influence is as follows:39.01% influenced by

Family members,17.85% influenced by friends, 15.93%

influenced by close relatives,14.01% influenced by colleagues/

peers,12.08%influenced by neighbors and 1.12% influenced

by others like salesmen/celebrities etc. This shows the

normative influence on attitude towards purchase of durables.

The mass media as a communication source influences the

household attitude as below:32.77% are influenced through

TV Ads-celebrity endorsements,25.11% are influenced

through newspaper Ads,17.02% through Ads/review in

popular household feminine magazines,16.17% through the

WWW(Internet)Web sites/E shopping sites,5.1 % through

Retailer/Dealer network exhibitions/pamphlets and 3.83%

through hoardings/LCD TV Ads/displays in street corners &

shopping malls. Interestingly, there is little influence through

Radio on the urban households. Regarding the quality of the

after sales complaint management-spares services support

received on durables for the households: Only 17.45% rated

the services as excellent, while 69.78% rated the aftercare

services as good, and 9.79% rated the services as satisfactory

and 2.98% rated them as bad(complaints).The likelihood of

repeat purchase of existing ownership of brands (brand

loyalty)in durables in households has been: Most likely

(46.12%),More Likely (17.62%), Less likely (12.03%),

Unlikely (7.28%) and the Undecided (16.95%). With respect

to the final conflict resolver-decision maker in the family for

purchase of durables: In 56.17% households, the conflict

resolver in the household is jointly by involvement of most

members, while in 33.19% households the husband resolves

the purchase conflicts, in 5.53% households only the wife

was the conflict resolver, in 2.98% cases the kids were the


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conflict resolver for purchase decision making and in only

2.12% households were strongly influenced by parents/In

laws. On the sales promotion preference front, the household

attraction towards the various modes of sales promotion

schemes available in the market for the brands/marketers of

durables has been:majority chose Advertisements (44.32%),

Celebrity endorsement (22.45%), Hoardings/Banners/Posters

–Flex boards(19.87%) and others like dealer gifts/discounts

offer pamphlets(13.36%). The purchase behaviour adopted

by the households for durables are broadly : Habit-routine

style adopted by 7.87%, Limited problem solving style

adopted by 19.21%, Extensive problem solving style adopted

by the majority (38.35%) and Variety/choice seeking style

by 34.57% of the households sampled. The overall purchase

attitude towards the act of purchase of modern durables by

the households has been a clear majority of favourable

(62.14%), Unfavourable( 14.58%), Neutral ambivalent

( 13.68%) and a minority of Can’t tell/ Undecided( 9.67%)

in the sample.

The Hus used Aggression/Assertiveness/Legitimacy/Expertise

style more than their wife, with higher mean scores. However

the wife adopted Avoidance-withdrawal/ Disengagement/

arbitrary style more than the Hus which applies in the use of

Compromise/Bargaining/rewarding style as well. The mean

Table A:Factor Analysis on Family Conflict Resolution styles :

score for wife adopting the Compliance/Submissive/Self

effacement/ Supplication style is higher than their Hus,

which is repeated in the use of Emotional/Play up emotional

Card / Empathy/ Coercion style in purchase decisions in

the family. However the spouse had a higher mean score

Factor loading % Variance Cron Alpha

Wife Hus Wife Hus Wife Hus

A Aggression/Assertiveness/Legitimacy/Expertise 10.26 8.31 0.76 0.71

1 I am more knowledgeable/experienced 0.78 0.76

2 I have the legitimate authority 0.82 0.74

B Avoidance-withdrawal/ Disengagement/ arbitrary 9.34 8.34 0.76 0.74

1 I keep away from opinions-not sharing feelings 0.82 0.83

2 I do not engage in decisions of others 0.76 0.72

C Compromise/Bargaining/rewarding

1 I negotiate for mutual agreement 0.79 0.81 28.97 27.18 0.85 0.79

2 I seek compromise by being positive 0.77 0.78

D Compliance/Submissive/Self effacement/

Supplication

1 I plead for a favor as agreement 0.84 0.72 9.88 6.97 0.72 0.83

2 I am disinterested in Spouse’s favor 0.86 0.68

E Problem solving/reasoning-rational/Persuasion by

analysis-arguments/Subtle manipulation

1. I raise rational aspects-intellectual basis

2. I convince/persuade for affectionate acceptancethrough more information

F Emotional/Play up emotional

Card/Empathy/Coercion 0.87 0.74 9.67 21 .96 0.70 0.721 I appeal to doing favor & love 0.85 0.762 I either use threat or deep silence of separation

Purchase decision Conflict resolution style


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in the use of Problem solving/Reasoning-rational/Persuasion

by analysis-arguments/Subtle manipulat ion style of

conflict resolution in family purchase decision making.

Accordingly the following hypothesis are significant/not

significant as hereunder based on ANOVA on Wife and Spouse

groupings .

Wife Spouse

Mean S.D Mean S.D

F Value (Sig

LevelS/NS

A Aggression/Assertiveness/Legitimacy/Expertise 2.26 1.13 2.64 1.24 -3.562+(0.015) NS

B Avoidance-withdrawal/ Disengagement/ arbitrary 1.89 0.94 1.53 0.79 2.051#(0.087) S

C Compromise/Bargaining/rewarding 1.89 0.94 1.53 0.79

D Compliance/Submissive/Self effacement/ Supplication 2.97 1.06 2.75 1.21 3.802+(0.011) S

E Problem solving/reasoning-rational/Persuasion by 3.45 0.92 3.76 0.87 -5.232*(0.002) NSanalysis-arguments/Subtle manipulation

F Emotional/Play up emotional Card/ 2 .05 1.14 1.97 0.98 2.661+(0.048)Empathy/Coercion

Family Conflict resolution

strategy adoptedS. No.

H01: There exists significantly higher adoption of aggressive-

assertive conflict resolution style by wives than their spouses

to arrive at joint purchase decision making in the family on

consumer durables. Null hypothesis is rejected as not

significant statistically.

H02: There exists significantly higher adoption of avoidance-

disengagement conflict resolution style by wives than their

spouses to arrive at joint purchase decision making in the

family on consumer durables. Null hypothesis is accepted as

significant statistically .

H03: There exists s ignif icantly higher adoption of

compromise-bargaining conflict resolution style by wives than

their spouse to arrive at joint purchase decision making in

the family on consumer durables. Null hypothesis is accepted

as significant statistically .

H04: There exists significantly higher adoption of compliance-

submission conflict resolution style by wives than their

spouses to arrive at joint purchase decision making in the

family on consumer durables. Null hypothesis is accepted as

significant statistically .

H05: There exists significantly higher adoption of rational

problem solving-persuasion conflict resolution style by wives

than their spouses to arrive at joint purchase decision making

in the family on consumer durables. Null hypothesis is

rejected as it is not significant statistically .

H06: There exists significantly higher adoption of emotion-

coercion conflict resolution style by wives than their spouses

to arrive at joint purchase decision making in the family on

consumer durables. Null hypothesis is accepted as significant

statistically .

Decision purchase roles in family Units:

Clear division of roles for each member of the family exist

with their participation to meet the collective contribution

for the welfare of the family. The wife’s role in the family

purchase decision was studied by analyzing their decision

making in expressive aspects like selection of the brand,

design, color, and size of durables purchased, the timing of

purchase and dealer/shop from where the durable is

purchased.The need identifier and decision making is found

to be as below (round off):

Table B:Test on difference in preference for adoption of Conflict resolution strategy :


A Quarterly Journal

Reasons for need identification for white goods /Brown goods

are : due to dissatisfaction with the existing durable

(36.2/35.6%), change in financial status(10.1/21.9%),

change in FLCS (13.6/9.2%), availability of new products

with variety (2.3/22.1%), need to replace or exchange old

product in use (15.2/9.6% ), Gift/new house (2.6/1.6/%).The

most important motivation for purchase of durable is to

satisfy the social esteem needs. This is due to social

comparison and peer pressure. Because other ’s possess

the durables, durable products are brought in a house so as

to match the reference group norms/association/impress

others for social status. The Family friends are the most

influential social reference group in this process in the Kerala

society.

In the consumer attitude-decision making for the brand of

the durable to be purchased, wives play not so significant

role in the brand decision for brown goods(15.6%) but quite

significant for white goods(26.1%) with the predominant

being joint decision(33.8%) for white goods, while for brown

goods the spouse is dominant (46.2%) fol lowed by

joint(20.1%), wife(15.6%) and children(13.7%). The children

have a higher say in brown goods(13.7%) than white

goods(11.1%) on the brand choice. On the model/style/Color

choice with intangible attributes or expressive aspect of the

purchase role, wives have a largest say for white goods(31.5%)

Table C: Need identifier role & Decision maker for the family on purchase of durables categories

Family member’scontribution

% for White Goods % for Brown Goods

Wife 34 35 32 38 26 33 13 9 19 12 23 15

Hus 28 19 26 21 22 23 32 35 21 28 24 28

Male Children 2 3 6 2 5 4 19 24 24 25 16 22

Female Children 3 11 9 8 8 9 16 16 20 24 21 19

FDU(Consensus) 33 32 27 31 39 31 20 16 16 11 10 15

REF WM MWO LPG HMGU/F

Pro

Overallrating

CT

V

PC/

Lap

top

Cell

pho

nes

Home

Thea

tre

Split

AC

Units

Overall

rating

fol lowed by spouse(26.8%),then children(17.9%) &

Parents(15.6%). In contrast, for brown goods, spouse

(38.4%) fol lowed by Joint(29.4%),wife(14.3%) and

children(12.5%).The question of where to buy/on the choice

of place or dealer from where the durable is to be purchased is

primarily dominated by spouse for white goods(49.9%) and

followed by parents(19.6%) based on their past experience;

the role of wife comes third only (14.6%). Spouse has a much

higher say for brown goods(61.2%) fol lowed by

parents(14.7%) similar to white goods, with the wife again in

third place(12.8%) and role of children insignificant. Regarding

Table D: Family Unit decision making on purchase of durables categories:

Family member

% for White Goods % for Brown Goods

Wife 26.1 31.5 14.6 12.5 15.6 14.3 12.8 8.5

Hus 24.8 26.8 49.9 39.6 46.2 38.4 61.2 43.7

Children(< 10yrs&<18Y age) 11.1 17.9 7.1 0.6 13.7 12.5 0.91 0.82

Parents 4.2 15.6 19.6 16.1 4.4 5.4 14.7 13.7

Family Unit 33.8 8.2 8.8 31.2 20.1 29.4 10.39 33.28

BrandModel/

style/

Sizing

Where

to buy/

price

When to

buy

BrandModel/

style/

Sizing

Where

to buy

When to

to buy/

price


A Quarterly Journal

when to buy the durables, spouse has the lead role for white

goods (39.6%) followed by Joint(31.2%), parents(16.1%),

wife(12.5%) and insignificant for children. However for brown

goods, comparably, spouses lead (43.7%) with Joint

decision(33.28%) fol lowed by parents(13.7%) and

wife(8.5%),children have insignificant role.

Six types of conflict resolution styles adopted in purchase

decision making were studied herein like the Aggressiveness,

Avoidance/Disengagement, Compromise, Compliance/

submission and problem solving. Based on the demographic

profile of income(very low, low, medium, high ), the conflict

resolving style mean values have been tabulated as belowL

viz., ,<Rs.25K/month=VL Income group(13%),Rs.26-45K/

month =L Income group(40%),Rs.46-75K/month=M Income

group(30.33%),and >Rs.76K/month =H Income

group(16.66%).

Table E: Multiple Purchase roles adopted in Family Unit for durable categories

Sl. no.

1 Suggests/influences purchase in recognition of need/Suggest 17 16.75

2 Controls flow of information regarding purchase decision 11.2 10.55

3 Makes final purchase decision/authority -Decider 13.3 12.15

4 Engages in actual purchase transaction/Purchaser 12.4 11.8

5 Prepares/operates the durable in household for utility/entertaining 14.7 17.2

6 Actually consumes/uses the purchased durables/User 11.9 16.3

7 Takes care of the durables/repairs/servicing/ Maintainer 12.6 9.5

8 Chooses when /how to dispose the old durables/Disposer 6.9 5.75

Total (%) 100 100

Purchase process role adopted by wife in the family % WhiteGoods

% BrownGoods

Regarding the use of Aggressiveness as the conflict resolution

style, the high income group rarely applied the same compared

to other income groups, in that they avoid showdown to save

social image. However there was no significant difference in

the mean scores of WWF and NWWF in adopting aggressive

style of conflict resolution. Regarding the avoidance/

withdrawal style of conflict resolution, the middle income

group significantly adopted the same than other income

groups, being social conformists. There was no significant

difference in the mean scores of WWF and NWWF on the

avoidance strategy. Respondents in the middle income group

used compromise style of conflict resolution significantly

more than other income groups as they are adaptable to

situations by developing compromising stands. There was no

significant difference in the mean scores of WWF and NWWF

however for compromise style. Respondents in the middle

Table F: Conflict Resolution style adopted in Family Units - purchase decisions Durables

Aggression 3.62 3.23 3.84 3.73 2.75 1.46

Avoidance 3.73 3.31 1.87 2.02 4.67 2.71

Compromise 3.42 3.83 1.86 4.94 5.17 4.68

Compliance/Submissive 2.56 2.39 1.21 3.58 4.32 2.47

Problem solving/reasoning 1.97 2.58 1.03 2.64 3.53 2.86

Emotional 1.89 2.17 2.95 2.82 2.06 2.43

Wife’s category Income group family categoryConflict resolving style

WWF NWWF V. Low Low Medium High


A Quarterly Journal

income group significantly used compliance/submissive style

of conflict resolution than the other income groups and

accepts social norms easily. However there was no significant

difference in the mean scores of WWF and NWWF in adoptingcompromise style. The VL Income group used little of reason/problem solving style compared to other income groups andhave higher levels of conflicts due to restricted availabilityof resources. Thus economic constraints/distress could leadto lesser communication within the family. The middle classexhibited most maturity in reasoning style. There is nosignificant difference between the WWF and NWWF groupsin adopting reason for resolving conflicts. The VL /L incomegroups adopted emotional strategy predominantly than theH income group, with the M income group adopting verylittle of this strategy. The NWWF employ more of emotionalstyle of conflict resolution than the WWF. In summary thelow income groups used problem solving, compromise,compliance, avoidance styles significantly lower than otherincome groups but used aggressiveness & emotionsignificantly higher than other income groups; the middleincome groups used positive problem solving, compliance,compromise, aggressiveness and avoidance significantly higher

than other groups; and there has been no significant difference

observed in the adoption of conflict resolution styles between

the WWF and the NWWF in the urban Kerala households.

� Null Hypothesis testing Results:

H07: Demographic factors do not have significant

influence on wife’s attitude- decision making for

purchase of white goods for common use of the

family.

H08: Social factors do not have significant influence on

wife’s attitude- decision making for purchase of





H10: Conflict resolution effectiveness within the family

does not have significant influence on wife’s

attitude-decision making for purchase of white

goods for common use of the family.

H07 a-g: The personal (demographic)aspects of wives does

not significantly influence the favourable attitude

towards the purchase behaviour towards durables.

The null hypothesis is rejected except marginally

for Occupation.

H08: The social(other’s influence ) aspect of wives does

not significantly influence the favourable attitude

towards the purchase behaviour towards durables.

Null hypothesis is rejected.

Table G: Null Hypothesis testing -Chi square test on demographics / other variables.

a Age/FLC Stage 19.817 9.488 S H0 rejected

b Family size 27.951 9.815 S H0 rejected

c Education 21.416 9.488 S H0 rejected

d Occupation 12.079 12.592 NS H0 Accepted

e Monthly Income of Family 22.417 12.592 S H0 rejected

f Family’s Spending pattern 29.682 16.919 S H0 rejected

8 Socio graphics /Peer influence 32.334 16.919 S H0 rejected

9 Marital quality of Life-Family 31.982 9.487 S H0 rejected

10 Conflict resolution style effectiveness –Family dynamics 25.814 9.498 S H0 rejected

Chi - SquareValue (Calc)

Profile of ConsumerH07 a-f: Demographics profile Table Value S/NS Decision


A Quarterly Journal

quality of marital life also does influence the purchase attitude-

decision making .Wives in the joint families are found to be

careful and considerate about the kind of impression they

make while purchasing than their counterparts in the nuclear

families. The Education level of wives has a significant

influence on their purchase decision. As the education level

of wives increased, their ability to take decisions on their

own also improved with higher confidence. The age was found

to have a significant impact on wife’s being dependent on

others for the purchase decision. Similarly as age increases so

does their extent of taking decisions on their own. As age

increases there is decrease in their dependency for taking

purchase decisions on others. The occupation of wives does

not influence their level of consideration of other’s opinions

while purchasing durables for the household. The Income

levels of family influences the wife’s perception that other

people may find fault in their purchase decision making. As

the income increases so does their fear that other people may

find fault in their purchases. A regression analysis with the

consumer attitude as the dependent(EndoG) variable & the

four independent variables like Personal factor, Socio graphic

factor, Marital quality of Life, CR style effectiveness,

Market, has coefficients listed below:



white goods for common use of the family. Null

hypothesis is rejected.

H10: Conflict resolution style effectiveness within the

family does not have significant influence on wife’s

attitude-decision making for purchase of white goods

for common use of the family. Null hypothesis is

rejected.

The Occupation of the respondent(wife) does not influence

the purchase behavior on durables fully , while the personal

aspects like FLC Stage/Age, Family size/structure, Education,

monthly income of family and spending Lifestyle habits

followed significantly influence the purchase attitude-

behaviour towards durables. Hence majori ty of the

demographic variables reject the null hypothesis. Notably,

the Social network (Other’s influence) aspect significantly

influences favourable purchase attitude for durables. Thus

the subjective norms do influence the consumer attitude to

substantial levels. The normative influence outweighs the

personal-psychographic variables in their influence on wive’s

purchase attitude and decision making towards durables. The

Table H:Preliminary Regression Analysis on Exogenous variables

Profile of ConsumerH07 a-f: Demographics profile

Non standardised Non standardisedt Sig

Conf. Interval@5%

B BetaStd error Lower Upper

1 2.083 0.520 4.007 .000 1.503 3.113

Demographics 0.350 0.090 0.346 3.880 .000 0.171 0.528

Sociographics 0.412 0.109 0.384 3.998 .000 0.213 0.752

Marital Quality of Life 0.124 0.100 0.110 -2.247 0.215 -0.132 0.274

C Resolution Styles 0.187 0.073 0.222 3.072 0.042 0.095 0.295

Environmntl/Marketing 0.136 0.098 0.137 2.691 0.023 0.137 0.319

From above Table H, it is surmised that the socio-graphics

is the most s ignif icant factor fol lowed by personal

factor(demographics) and Confl ict resolution style

effectiveness significantly influencing the consumer attitude

at 1%,while there is negative relation between MQL and

the consumer at t i tude at 5%.This can be explained

as when the MQL is higher, there need not be a favourable

purchase attitude as MQL is a psychological construct

involving emotions, though linked to conflict resolution

between the partners, and the marketing factor is also relevant

for the Kerala family units prevailing now.


A Quarterly Journal

Conclusion

Wife’s purchase role, attitude and decision making ability is

affected by the type of family /FDU (joint or nuclear), size

of family, FLC stage, age, education, occupation and income

levels. As the age of wives increases, their confidence and

trust on the purchase decision they take also increases. Higher

education also makes wives free and confident about the

purchase decision they take. Professionals among wives tend

to be more free and relaxed when taking the purchase decision,

they do not give much importance to what others feel about

the purchase decision they take either within the family or in

their social circles. The sociographic profile of housewives is

predominant in the purchase behaviour towards white goods

or brown goods. The Income levels of the family also affects

the way wives perceive that other people feel about their

purchase decisions. Home use white goods- durables like

washing machine and refrigerator purchases have a major

influence of wives. Wives predominantly decide the design,

colour/style and size of washing machines/refrigerators/ MWO

forming the major white goods be purchased in a family, as it

is the wife who generally use the same at home. Kids have

little role in deciding the purchase of durables. The six types

of conflict resolution styles are adopted by both the wife and

spouse in each household as per the discussions/findings cited

above. As the durables involve the personality of both the

product and service ingrained in it, the choice is complex for

the consumer unlike an FMCG product consumed in bulk

volume by the family. Further studies on family dynamics

and confl ict resolution is imperat ive in the modern

consumption spree due to the cosmopolitan outlook of the

Keralites in embracing innovative consumer durables .

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A Quarterly Journal

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Abbreviation Expanded

TPB: Theory of planned Behaviour, WWF: Working wife

family,NWWF:Non working wife family, SN: Subjective norms,

PBC: Perceived behavior control, FMCG: Fast moving consumer

goods, BI: Behavioral Intention, HH:Household,NRI:Non resident

Indian, MQL: Marital quality of Life, FLCS: Family Lifecycle

stage, CRS: Conflict resolution style, MWO: Microwave oven,

OTG : Oven grill toaster, LPG: Liquified petroleum gas, LCD TV:

Liquid crystal display Television, 3 D LED TV: Three dimension

Liquid crystal display Television, STB: Set top Box DTH: Direct

to home, AC: Air conditioner, PC: Personal Computer, DVD:

Digital Versatile disk ;FICC: Federation of Indian chamber of

commerce& industry, CRS: Conflict resolution style; FDU: Family

decision Unit; PEOU: Perceived ease of Use; PU : Perceived

Usefulness.


A Quarterly Journal

anking sector reforms, introduced in 1991, initially

as part of the macro economic adjustment

programme, changed the profile of Indian Banking

particularly of the Public Sector Banks. No longer is it possible

to camouflage inefficiencies of banking under the garb of social

banking. Profitability has emerged as the single-most

important criterion for judging the operational and allocative

efficiency of individual banks (Mujumdar, 1995). The

vibrancy of a banking system depends on its sound asset

structure. The banking sector is under great strain because of

mounting overdues and locking up of funds (Satya Sundaram,

1990). Financing and recovery are the two eyes of banking

system. These two are interlinked and inseparable. Effective

financing can be judged not merely from the quantum of credit

extended but also from the quality of loans extended (Joy Joseph

Puthusserry, 1999). The performance of any bank depends on

many factors like credit policy, managerial efficiency, volume of

business transacted, recovery mechanism, Government

intervention and the like. Among these, loan recovery is an

Non-performing Assets :PSB

R. Velmurugan

Healthy banking system is a prerequisite for a hassle-free growth of an economy. Sanctioning and recovering the loans is one

of the chief functions of a banker. Any failure in recovery would affect the banks and the the nation. The study, undertaken

here, gives a focus on Public Sector Bank branches operating in Coimbatore District of Tamil Nadu. A sample of 214 branches

constituted the study units. The data were collected through questionnaires. ANOVA and Chi-square tests were employed to analyse

the data. Results reveal that age of branch, type of branch, type of loan, riskiness of loan, frequent withdrawal by borrowers,

guarantee invocation, and alteration in repayment schedule, significantly influence the level of NPA. Attempts are also made in the

paper to suggest appropriate strategies to mitigate the menace of NPA.

Abstract

Dr. R. VelmuruganAssistant Professor in Commerce Karpagam UniversityCoimbatore - 641 021E-mail : [email protected]

Key words: Sustainability, Sustainable Entrepreneurship, Triple Bottom Line.

B


A Quarterly Journal

important factor which measures the performance of a bank

(Indrasena Reddy and Someshwar Rao, 1996). Bad loans,

popularly known as Non-Performing Assets (NPAs) these

days, arise because of faulty recovery system of banks.

Borrowers’ inability to stick to loan repayment schedule may

generate far reaching and long-term consequences on the

resource allocation of banks. Spiralling Non-Performing

Assets are hurting banks’ profitability by way of non-

recognition of interest income and loan loss provisioning.

Venkataram and Hanumanthaiah (1979) observed that

continuous accumulation of NPAs in Public Sector Banks

could paralyse the credit structure designed for economic

development. Hence, it is very important to identify the

factors responsible for generation of Non-Performing Assets,

in order to devise appropriate strategies to curtail them.

Therefore, an attempt is made in this study to identify the

causes of Non-Performing Assets, in the Public Sector Bank

branches operating in Coimbatore District.

REVIEW OF LITERATURE

Non-Performing Assets, being a sensitive area in the field of

banking literature, has enticed many researchers to try their hands

on it. Available studies point out several reasons for the unabated

growth of NPA. Stiglitz, Joseph and Andrew Weiss (1981) and

Hancock and Wilcox (1994) were of the view that interest rate

mechanism of banks was the cause of NPA. They felt that

periods of rising interest would witness an accompanying growth

in NPA. There are results which square the blame of NPA on the

bankers themselves. Kulshrestha (1990), Sergio (1996), Martin

Brownbridge (1998), Pradip Kumar Biswas and Ashis Taru Deb

(2004) and Rajender and Suresh (2007) opined that inadequate

assessment of loan portfolio by bankers would lead to NPA.

Delayed disbursement of loan deprives borrowers from making

the best use of the opportunity, thereby forcing them to become

defaulters, as found out by Sajila Kalra and Karam Singh (2000).

Studies by Patel (1996) and Nachane (1999) pointed out the fact

that it was the banker’s poor follow-up that would generate

NPAs. In their haste to register high volume of business and to

achieve predetermined loan targets, bankers often forget to stick

to the sound principles of lending. Such loan accounts mostly

turn out to be NPAs. Views similar to this were expressed in the

studies carried out by Jordan (1998), Dhanuskodi (2006) and

Gunjan M. Sanjeev (2007). Directed lending was found to

promote NPA, as observed by Krueger Anne and Tornell (1999),

Sumant Batra (2003) and Ranbir Singh Honda and Turan (2006).

Priority sector lending has remained one of the main contributors

to the mounting level of NPA. Siddiqi, Rao and Thakkar (1999),

James A. Hanson (2001) and Ravi (2002) found evidence to this

in their research. In the words of Basanta Kalita (2008), the crux

of the NPA problem was in extending loan to non-priority sector.

Economic recession was also cited as a reason for NPA (Yuta

Hoshino, 2002). It is not unusual to expect banks to accelerate

the pace of retail lending during periods of economic prosperity.

Nevertheless, on many occasions, banks have felt the pinch of

bad loans in their retail loan segment. A study conducted by

Wen-Chieh Wu, Chin-Oh Chang and Zekiye Selvili (2003)

confirmed this. Ali Ataullah, Tony Cockerill and Hang Ley (2004)

came out with a finding that political intervention often

encouraged borrowers to skip repayment of loan. Loopholes

that exist in the legal system do also account for NPA. Evidences

to this view are found in the studies of Rajaraman and Vasishtha

(2002) and Sumant Batra (2003).

Several researchers squared the blame on the borrowers.

Muthuswami Gopalan and Balakrishnan (1981), Laxminadhan

(2001) and Shantanu Das (2008) agreed that wilful default by

the borrowers resulted in the piling up of NPA. Narayana

Rao and Dakshina Murthy (1986), Goyal and Pandey (1987),

Kulwant Singh (1996), Rama Rao (1996), Joy Joseph

Puthusserry (1999), Chandrasekaran (2001), Muniappan

(2002) and Rajender and Suresh (2007) found Diversion of

loan for non-productive purpose was found out to be a cause

for NPA.

Thus, studies conducted over a period of time have identified

possible reasons that could cause NPA. These reasons form

the base on which the edifice of the present paper is built.

Several other reasons, identified during discussions the

researchers had with branch managers of Public Sector Banks,

are of course, added to the ones identified by earlier

researchers. The central focus of the paper is to examine the

causes for NPAs in Public Sector Bank Branches in Coimbatore

District, Tamil Nadu.

STATEMENT OF THE PROBLEM

Non-Performing Assets emerge due to several factors.

Manmohan Singh (1999) perceived that lack of organisational

arrangement, faulty operational strategies, procedural default

in identification and selection of borrowers, defects in

processing the loans, defaults in disbursement procedures,

defective lending policies and lack of supervision of end-use


A Quarterly Journal

of credit contributed for the growth of overdues. Rathod

(2000) observed that priority sector lending and outdated

legal systems were some of the major causes that lead to

NPA. Narasimham (2000) pointed out that disbursement of

loans under loan mela - extending loan liberally at reduced

interest rate, usually offered for a period of ten to fifteen

days with simplified procedure - schemes and deficiencies in

the legal system led to NPA. Bhattacharya (2001) found that

diversion of funds, marketing failure, inefficient management,

outdated technology, changes in government policy and wilful

defaults were the factors that fueled NPA. Ramachandra

Reddy, Vijayula Reddy and Sakunthala (2001) were of the

view that the menace of NPA was due to weak credit appraisal,

non-compliance and wilful default. In this backdrop, it

becomes imperative to probe into factors that cause NPA in

Public Sector Banks as perceived by bankers.

METHODOLOGY

Data required for the study have been collected through

questionnaires. Questions pertaining to Profile of the Branch

and the Respondent Banker, Level of Non-Performing Assets,

Causes of Non-Performing Assets have been included in the

questionnaire. Annual Credit Plan (2007-2008) published by

Canara Bank - the Lead Bank for Coimbatore District - revealed

that 300 branches were in operation in Coimbatore District

as on 31st March, 2007. Of these, 214 branches have been

selected through simple random sampling method. Data have

been analysed using statistical tools like (i) Analysis of

Variance (ANOVA) and (ii) Chi-square Test.

LEVEL OF NPA

Level of Non-Performing Assets (NPAs) of Public Sector Bank

branches in Coimbatore district has been measured by giving

scores to priority and non-priority sector-wise NPA-related

questions. Fifteen such questions are included in the

questionnaire. Answers to the questions are rated on a three-

point scale. The scores allotted to the answers range from one to

three. Thus, the maximum score a branch would get is 45. Scores

obtained by each branch is divided by 45 and multiplied by

100 to convert it into an index. This index is termed as ‘NPA

index.’ The calculated values of the indices range between 2.22

and 64.44 and the grand mean NPA index is 29.65. Of the 214

branches, 103 (48.13%) are with NPA index above the average

and 111 (51.87%) are with NPA index below the average.

Based on the NPA index, the branches have been divided into

three groups as branches with low, moderate and high level of

NPA. In order to classify the branches into three such groups,

quartiles have been made use of. Accordingly, branches with

NPA index ranging up to 13.81 are termed as branches with

low level of NPA; those with NPA index ranging between

13.82 and 45.48 are termed as branches with moderate level

of NPA and branches with NPA index ranging above 45.48 are

termed as branches with high level of NPA. Of the 214 branches,

47 (21.96%) are with low level of NPA; 128 (59.81%) are with

moderate level of NPA and the rest 39 (18.23%) are with high

level of NPA.

Thirty variables have been selected to examine if they bear

any association with level of NPA. Analysis of Variance

(ANOVA) has been used to find out if the mean NPA index of

the branches under study differed significantly. Chi-square

test is used to ascertain if the variables significantly influenced

the level of NPA. Levels of confidence chosen to test the

significance of F and X2 statistic are one, five and ten per

cent.

Table -1 consolidates the results of ANOVA and Chi-square

test.

TABLE -1 : Determinants of non-performing assets

Period of Establishment 11.8728*** 33.258***

Branch Type 3.2632** 9.654**

Age of Branch Managers 0.4189 4.297

Bank Experience of Managers 0.2098 4.599

Branch Experience of Managers 1.8223 5.086

Participation in NPA Training 0.0139 0.986

Variables Chi - squareANOVA


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FINDINGS

� Branches started before introduction of banking sectorreforms are with high level of NPA.

� Branches located in semi-urban area are with high levelof NPA.

� Branches which have extended high level of prioritysector loans are with high level of NPA.

� Higher the level of non-priority sector loan extended,higher is the level of NPA.

� Branches, which sense high risk in lending loan topriority sector, are with high level of NPA.

� Branches which feel risk is high are with high level ofNPA.

� Infrequent visit of the borrowers to the bank leads tohigh level of NPA.

� Branches in which borrowers withdraw heavy amountfrom their accounts frequently, are with high level ofNPA.

� Invocation of guarantee leads to NPA.

� NPA arises when borrowers do not make paymentthrough the cash credit account.

� Diversion of funds by borrowers leads to NPA.

Variables Chi - squareANOVA

Priority Sector Loan 27.4431*** 62.990***

Non-Priority Sector Loan 10.6824*** 24.766***

Priority Sector Risk 39.7971*** 74.245***

Non-Priority Sector Risk 23.3016*** 44.771***

Field Visits 0.712 3.049

Enquiry with Guarantors 1.4768 0.691

Infrequent visit of the Borrower 3.1681* 2.531

Frequent Heavy Withdrawal 5.7192** 10.045***

Invocation of Guarantee 8.0143*** 6.615**

Payment non made through the Cash Credit Account 4.3279** 3.112

Diversion of Fund 3.0442* 1.349

Reduction in Net worth of Borrower 1.8662 6.719**

Frequent Bouncing of Cheques 1.4029 1.664

Alteration in Repayment Schedule 12.3337*** 13.226***

Delay in Repayment of Instalment 0.5639 2.154

Delay in Commencing Operations 0.3231 0.949

Change in Government Policy 1.4220 2.486

Delayed Submission of Records 0.0524 0.363

Window Dressing of Financial Statements 0.4477 0.185

Borrowers’ Inability to get Goods on Credit 2.0893 2.042

Less Utilization of Plant Capacity 4.4677** 2.920

Frequent Change in Plan of Operation by Borrowers 0.1395 0.086

Borrower Losing some of his Important Customers 0.6545 2.824

Overdrawn Accounts 1.3340 2.937

*** Significant at one per cent ** Significant at five per cent * Significant at ten per cent


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� Reduction in the net worth of borrowers are with low

level of NPA.

� Branches, whose managers offer alteration in repayment

schedule to borrowers, are with high level of NPA.

� Branches, whose managers have said there is less

utilisation of plant capacity by the borrowing units,

are with high level of NPA.

SUGGESTIONS

Based on the outcome of the study as well as opinions

expressed by branch managers at the time of data collection,

a few suggestions are put forth.

� Regional / Zonal Office has to organise recovery camps

frequently,

� Outside agencies’ assistance may be utilised for

recovering amount from defaulters. The help of Self-

Help Groups may be resorted to,

� Separate recovery cell may be established in branches

with high level of NPA,

� Incentives may be offered to employees based on their

recovery performance,

� Extensive retail lending may be curtailed,

� Appointing separate managers for managing different

types of loans,

� Discouraging sanctioning of unsecured loans ,

� Educating borrowers on the importance of repaying

their dues,

� Utilising local government officials’ assistance while

effecting recovery,

� Seizing the assets of wilful defaulters with the

assistance of seizing agencies,

� Transferring NPA involving big accounts to Regional /

Zonal Offices for taking strenuous action against

defaulters,

� Improving credit appraisal skills of bankers,

� Contacting friends and relatives of defaulters and

requesting them to demand borrowers to settle their

dues,

� Developing a reliable management information system

about the genuine borrowers and wilful defaulters,

� Fixing convenient repayment period,

� Advising farmers to take up agricultural insurance in

order to safeguard from losses due to plant disease and

climatic conditions ,

� Organising camps for educating farmers relating to new

crops to be cultivated or methodology to be adopted

by utilising assistance from agricultural colleges /

universities,

� Demanding businessmen to submit their financial

statements regularly,

� Lending loan for risky ventures on a consortium basis,

� Making surprise visits to borrowers’ premises, to

verify whether physical stocks match with stock

statements provided by the borrowers,

� Encompassing radio-frequency identification (RFID)

for the loan availed or a notation, in the degree

certificate of the borrower, that would provide loan

details,

� Ensuring that the borrowers utilise the borrowed funds

for productive purpose,

� Demanding borrowers to produce additional security,

if needed,

� Seeking a consultant’s opinion while reviving sick but

a viable unit,

� Enquiring borrowers to know if they have availed loans

from other banks,

� Demanding highly liquid security from borrowers,

� Developing branch-specific risk index for each category

of loan based on prevailing local economic conditions,

� Assessing quite frequently the value of security

provided by borrowers and demanding additional

security, if value of security offered diminishes,

� Maintaining loan to value ratio at a satisfactory level,

� Releasing loan amount to borrowers, only, if they give

reasonable explanation for the need of fund,

� Demanding borrowers to produce utilisation certificate

on the previously availed amount, certified by a

chartered accountant,

� Analysing financial and stock statements, to ascertain

actual fund requirements of borrowers,

� Monitoring the borrowers to ascertain whether the

borrowed funds are utilised for productive purpose.


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If misutilisation is found, no further amount should be

sanctioned. Apart from this, the borrowers may be

asked to repay the already availed amount,

� Discouraging invocation of guarantee

� Demanding set t lement of dues immediately,

if invocation is due to severe loss incurred by the

borrower, and

� Asking for new security or guarantor, if the reason for

invocation is due to misunderstanding between borrower

and guarantor.

� Borrowers, who are given an opportunity of alteration

in repayment schedule, have not taken it in good spirit.

Hence, it would be advisable on the part of the bankers

to extend repayment alteration facility only to those

borrowers who would be able to make good use of the

chance to repay the loan.

CONCLUSION

Indian banking system today is in the clutches of Non-

Performing Assets, which have greatly dented the profits of

banks. The worst affected are the Public Sector Banks.

Reacting to the rising level of NPA, Reserve Bank of India

stepped up the provisions that the banks were needed to

create against NPA, with an aim to stem the tide. Measures

that the Reserve Bank of India took though reduced the level

of reported NPAs, nevertheless drastically pulled down the

profitability of five leading Public Sector Banks (Business

Line, January 2011), which accounted for about half of the

market share of Public owned banks. This had led to a

situation of remedy itself causing the disease and a cure

becoming a curse. The only way out possible lies with the

borrower’s now. All said and done, it is they who have to

wake up to the fact that India cannot become an advanced

country as long as its banking system is crippled with the

issue of bad loans. The need of the hour, therefore, is a

mental revolution that has to necessarily happen among the

borrowers so that they turn to be financially disciplined and

repay the loan on time to keep going the banking system

smoothly.

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Vegetable Price Rise:Rhythu Model Solution

Subhendu Dey and Salma Ahmed

Farmers’ markets have in various parts of the world provided an alternative way to shapethe relationship between farmers and

customers. It has been observed that farmers’ markets as a source of direct marketing are beneficial both to the farmers and the

customers. While farmers benefit primarily on account of getting better rates for their produce without their margins being eaten away

by middlemen, customers get fresh vegetables at an affordable price. With the inflation going into the double digits, it has had a

worrisome impact on the prices of vegetables from the customers’ point of view. The farmers also do not reap any benefit of the increased

prices. Some state governments have taken cognizance of this and have taken steps to check the arbitrary rise in prices of vegetables.

This paper looks at finding a long term solution to address this issue and presents the case of Rythu Bazaars – the farmers’ markets

of Andhra Pradesh which have been fairly successful in benefitting both farmers and customers. The paper studies the strengths and

weaknesses of these farmers’ markets and recommends other state governments to consider this model.

Key words: farmers’ market; Rythu Bazaars; strengths and weaknesses; agri-marketing channel; middlemen;

Prof. SubhenduDey Associate Dean – Academic Affairs andHead Knowledge Cell, Globsyn Business School, XI-11&12,Block-EP, Sector V Salt Lake Electronics Complex ,Kolkata – 700091, India Fax: +91 (33) 23573684E-mail: [email protected]

Dr. Salma Ahmed Associate Professor, Department of BusinessAdministration, Faculty of Management Studies and Research,Aligarh Muslim University, Aligarh, Uttar Pradesh, India E-mail: [email protected]

he indiscriminate increase in the prices ofvegetables has been bothering the middle class forsome time now. During early July 2012 a huge

concern was expressed by the West Bengal state governmenton the abnormally high prices of vegetables in the local marketsof Kolkata. According to news reports, hoarders wereresponsible for the price of vegetables shooting above theroof. In order to address the issue, the state government formedan 11-member committee, and the effect was felt immediately,with the prices coming down by about 40 to 50 percent. Thefall in the prices was attributed to increased inflow ofvegetables into the markets. There has been a sense of reliefamong the customers. While this effort from the West Bengalgovernment is praiseworthy, opinions differ regarding itssustainability. A parallel system of marketing where farmerssell their produce directly to the customers without anymiddlemen could provide a sustainable solution to thisproblem. Such a system will not only provide better rates tothe farmers, but also fair price for the customers to purchasetheir vegetables.

T

Abstract


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This paper studies Rythu Bazaars - the farmers’ markets of

Andhra Pradesh to suggest a sustainable model for other states

to emulate.

FARMERS’ MARKETS – KEY TO ADDRESSING PRICEWOES

Agri-marketing channels with multiple independent parties

all contributing considerably to increase in prices have

received substantial attention in recent years. Despite various

agri-marketing channels available, the marketing system for

fruits and vegetables is mostly in the hands of middlemen.

Middlemen exist at various levels between the farmer and theconsumer and exploit through malpractices in weighing,handling and payments. This has resulted in the farmers’ sharein the consumers’ rupee as estimated to be just 40 paise1.

Similar to all manufactured products,agri-products also moveinto the market through various channels. The various agri-marketing channels are depicted in figure 1.However, themajor difference between manufacturing goods and agri-products is on account of the market functionaries involvedin carrying the produce from the farmers to the ultimateconsumers.

Figure 1: Agri-marketing Channels

There is another agri-marketing channel available wherefarmers directly sell their produce to the consumers as shownin the figure below. The figure shows the interactions between

farmers and consumers through the farmers’ markets. Sincefarmers’ markets act only as facilitator, it has been showndifferently from farmers and consumers with dotted lines.

Figure 2: Farmers’ Markets

This model was brought to India in the late eighties, by MSGill, the then Union Agricultural Secretary. Impressed by the

concept of KalGhoj, the Russian farmers’ markets, this modelwas adopted in the states of Punjab and Haryana in the form


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of ApnaMandi, and thus the first farmers’ markets of India

was born. Seeing the success of ApnaMandi, the state

government of Andhra Pradesh started Rythu Bazaars in 1999.

The central idea of these farmers’ markets was to eliminate

middlemen and provide a platform for the direct interaction

between farmers and consumers. The farmers benefit by selling

directly to the customers and not paying any commission to

the middlemen and customers get good quality produce at

reasonable prices.

STUDIES ON FARMERS’ MARKETS

There have been some studies undertaken on farmers’ markets

in various countries of the world. Most of those studies

indicate multiple benefits for both farmers and consumers,

and show how these markets help eliminate middlemen and

thereby creating a sustainable model for getting fresh, locally

grown vegetables at a fair price. Wolf (1997) in a case study

examined responses of consumers with the objective of

comparing the profile of farmers’ market shoppers to those

who do not shop at farmers’ markets. In his research he found

that consumers have indicated that quality and value are among

the most important attributes when purchasing produce. The

case study further concluded that consumers perceive farmers’

market produce to be fresher looking, fresher tasting, higher-

quality, more reasonably priced and as such, better value for

the money, more likely to be grown in their country, more

likely to be locally grown, more likely to be good for the

environment, and more likely to be traceable to the processor

and grower when compared to supermarket produce.

Govindasamy et al (1998) looked at the resurgence of farmers’

markets in New Jersey which had been welcomed by farmers,

consumers, and municipalities. It allowed farmers to capture

a greater share of the consumers’ food expenditure thus

increasing their profitability, while the consumers’ need for

fresh, high quality commodities as well as for farm-based

recreational experiences is met. The survey based study was

undertaken with the objective of finding the efficiency of the

farmers’ markets in terms of management and organization,

providing an overview of various characteristics of managers,

and identifying factors that have an effect on the organization

and well-functioning of these markets. It concluded that when

selecting the markets’ sites factors affecting choice were

visibility, sufficient parking, easy accessibility and traffic

flow, available space for farmers’ stands, proximity to

downtown areas, number of potential customers, safety anduse of public land for insurance and financial purposes. The

insights provided by this research help to identify the qualitiesneeded for successfully managing a farmers’ market as well asthe constraints affecting these markets so that their efficiencycould be improved. Feenstra and Lewis (1999) brought in anew dimension by finding that farmers’ markets offer theproducers opportunities to expand their businesses bydeveloping new market venues (including community-supported agriculture, inst i tut ional food buyers andgovernment food programs) creating value-added products;and making connections with the agritourism industry. Theyconclude that the size and location of host communitiescontribute different kinds of business expansion opportunitiesand markets in rural areas offer some of the strongestcommunity support to vendors and link them with the touristindustry. They also contend that managers of the farmers’markets can help growers capitalize on these opportunitiesthrough the rapport and connections they develop withcommunity businesses, associations and institutions. Trobe(2001) studied the potential benefits of marketing food directlyfrom producers to consumers, and hence circumventing the‘middlemen’ in the food supply chain. This qualitative studyconcluded that benefits have been accrued by both farmersand consumers. Consumers get locally grown, fresh, healthyand, in many cases, organic food at affordable prices, whileproducers get more value of their produce. The methodologywas survey based.

Chengappa (2005) in his study focused on the increasingimportance of agricultural marketing in the current times,especially in the context of economic liberalization andglobalization. He probes into the inefficiency of the marketingsystem and also reviews the institutional developments inagricultural marketing in the country and assesses theirefficiency and adequacy in the present economic andagricultural scenario. The study concludes that the regulatedmarket model is in vogue in India for more than a century andwill continue for many more years. He further concludes thatthe efforts have been made to regulate the trading practices,especial ly buying and sel l ing and to some extent ,standardization and grading. He advocates that in the changedglobal scenario, emphasis should be on the performance of allmarketing functions and therefore all-out effort should bemade by providing required infrastructure, price transmissionand policy support to the agricultural markets. He furthersuggests that an increase in public investment is desired forthe development of market infrastructure. He suggests thatthe government should come up with a comprehensive policyframework to encourage private investment under the systems


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of ‘build, own and operate’, ‘build, own, operate, and transfer’

etc. for the development of rural marketing infrastructure.

Sudha and Gajanana (2005) reviewed the developments and

performance of agricultural marketing institutions in India

with a focus on horticultural sector. The objective of the study

was to examine the mechanism to link production with

consumption. They conclude that though India has achieved

a comparative advantage and self-sufficiency in the production

of a number of agricultural crops, the predominance of pre-

harvest contractor and commission agent as an important

marketing channel continues till date; institutional innovations

integrating production with marketing and trade are yet to

emerge; and institutions integrating small farmers with

domestic and international markets (with a focus on value

addition) are non-existent. They highlight that there exists a

gap with respect to marketing and postharvest handling of

agricultural produce in India. They further conclude that direct

interventions in agricultural markets by the government have

been an important mechanism for improving marketing

efficiency and these interventions have been through a number

of agencies, which have evolved over a period of time. They

contend that the impact of these efforts has been mixed and

efforts to improve the efficiency of agricultural marketing

institutions are still being pursued on a high priority. They

identified that the weakest link has been the inability to

integrate production with marketing and processing for

achieving the ultimate objective of improving access of small

producers to expanding markets and trade.

Inference - It is a well-known fact that middlemen exist at

various levels between the farmer and the customer and both

suffer on account of the existence of middlemen. As mentioned

earlier, the situation is so bad that farmers actually end up

getting only 40 paise for every rupee spent by the customer.

On top of this there is an additional estimated loss in handling

of vegetables in the traditional channel of marketing of about

30 to 35 percent. This leaves very little with the farmers who

continue to remain poor. On the other hand, prices of

vegetables have increased at alarming pace, forcing state

governments like that of West Bengal to take necessary steps

to curb this bizarre rise in prices of vegetables. A look at

Table 1 which compares the prices of some of the vegetables

before the government of West Bengal took measures to check

the price rise as compared to the prices after the mentioned

measures were taken alongside the rates prevailing in the

Erragada market, one of the Rythu Bazaars of Hyderabad

during the same period, will give a clear idea to the readers

about the impact that hoarders and middlemen have on theprices of essential vegetables.

Table 1 – Price Comparison

Period of Establishment 11.8728*** 33.258***

Green Chilly 120 – 200 70 - 100 12

Tomato 30 – 40 25 - 30 22\

Brinjal 40 – 60 30 - 40 8

Ribbed Gourd 25 – 40 20 – 25 12

Capsicum 100 – 150 70 - 100Not available

Ladies finger 20 – 30 20 18

Bitter Gourd 40 – 60 40 12

VegetableErragada Rythu

Bazaar ratesKolkata market rates

post interventionKolkata market ratesbefore intervention

It is quite apparent that despite some good measures takenby the state government, there still exists a huge differencebetween the rates of Rythu Bazaars and the Kolkata markets.As mentioned earlier, there have been some doubts expressedregarding the sustainability of the actions taken thereof andhence the long term control over the rise in price of vegetables.

ANDHRA PRADESH – A PROSPEROUS STATE ANDSETTING UP OF RYTHU BAZAARS

The state of Andhra Pradesh was formed in the year 1953separating certain districts from the erstwhile compositeMadras state, with State Capital at Kurnool. Later the state


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of Andhra Pradesh was created with effect from November01, 1956 merging the Telangana districts situated in theDeccan plateau and delineating Bellary area, making AndhraPradesh the 5th largest state in the Indian Union both in termsof geographical area and population.

The state has a tropical climate with moderate diffusion tosubtropical weather. Humid to semi-humid conditions prevailin the coastal area while arid to semiarid situations pronouncein the interior parts of the state, particularly Rayalaseemaand some districts of Telangana. Area under Horticulture cropsduring 2001 was recorded as 13.78 Lakh Hectares with anannual production of 9.5 Lakh M.Ts, which showed aconsistent year on year growth and in 2006-07 the area wasabout 17.85 Lakh Hectares with production of 163.6 LakhM.Ts.Andhra Pradesh is the second largest producer of fruits,vegetables and flowers in the Country. It is the leader inproduction of Citrus, Chillies, Turmeric and Oil Palm andalso major producer of Cocoa, Cashew, Guava, Coriander,Banana, Ginger and Coconut.

Despite all these, farmers in Andhra Pradesh have notflourished, and hence in this backdrop, the state governmentthought it necessary to set up Rythu Bazaars in order to savethe farmers from getting exploited. These markets providefarmers with certain facil i t ies that help increase theeffectiveness of direct marketing. Among the facilitiesprovided include the entire infrastructure built on a minimum1 acre land in locations near main road, railway stations, busdepots, bus stops, community centres, residential localityetc. The market yards have facilities including sheds, pricedisplay boards, storage of unsold produce, provisions ofweighing scales for all farmers, electricity, telephone, fax,drinking water, toilets with sanitation facility, garbagedisposal/cleaning facilities, and services/facilities for theconvenience of customers viz. parking of vehicles, notes tocoin changing machines, grievance redressal mechanism etc.These markets operate outside the purview of the AgricultureMarket Committees and are managed by Estate Officers(administrative in-charge of the markets) under the control ofRevenue Department of the Andhra Pradesh StateGovernment.

MARKETS SURVEYED

For this research, nine Rythu Bazaars were selected primarilybased on the convenience of the researcher. Out of the 2 RythuBazaars in Hyderabad and 7 at Rangareddy District, thisresearch covered seven market yards – 1 in Hyderabad at

Erragada, and 6 in Rangareddy district at Mehdipatnam,Kukatpally, Saroornagar, Vanasthalipuram, Qutubullahpur,Alwal and Ramakrishnapuram.

FACILITIES PROVIDED AT RYTHU BAZAARS

Location - The Rythu Bazaars surveyed for this research areall located at places which are very close to residential areasthereby enabling maximum number of customers to visit thebazaar. All the bazaars are away from factories and otherindustrial establishments, dairy and poultry farms, kilns,sources of fire, garbage dumping grounds, slaughter housesetc. Sufficient parking and maneuvering spaces have beencreated for vehicles.

Layout - The layout of the market yards have been designedto facilitate easy movement of people (farmers bringing intheir commodities for sale and customers) and vehicles. Thestalls constructed in the market yards have display floors ofthe stall at sufficient height from the ground level to preventinundation. The staff at Rythu Bazaar ensures cleanliness ofthe market yards.

Identifications of Farmers - Farmers are identified from acluster of 10-15 predominantly vegetable growing villages toenable provision of horticulture services, inputs andtransportation arrangements to the Rythu Bazaars effectively.After the clusters are identif ied by the Hort icultureDepartment, a team comprising the Mandal Revenue Officer,Horticulture Officer/Consultant, and the Agricultural Officerin the villages identify the farmers. The team addresses thevegetable growing farmers on the advantages of doing businessat Rythu Bazaars so that they get motivated towards realizingthe benefits of operating from these markets. Among theservices provided are horticulture services, seed supply atsubsidized rates, t ransportat ion arrangements, pricemechanism, and elimination of middlemen. The team thenvisits the fields of the interested farmers and issues temporaryidentity cards on the spot. A week later the farmers getlaminated photo identity cards.

Transport Facility - The market administrators arrange forthe transport facility for picking and dropping the registeredfarmers to the Rythu Bazaars. This is done through a tie-upwith Andhra Pradesh State Road Transport Corporation.

Allotment of stalls – Since the stalls are developed by thegovernment, there is no fixed stall allotted to any farmer. Thestalls are allotted everyday on a first come first serve basis.These stalls are allotted to the farmers free of cost.


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Price Fixation – Fixing of prices for all vegetables is done

through a committee comprising farmers from the representing

mandals and the Estate Officer. The committee receives the

wholesale prices of the vegetables through fax every morning

between 0730 to 0800 hours. This data is provided by the

Marketing Department. About 20-25 percent is added to the

wholesale prices to arrive at the Rythu Bazaar prices but not

exceeding the retail prices in the local areas. For different

varieties of the same vegetable, different prices are fixed. The

prices are displayed at prominent places in the market yards

for the ease of both farmers and customers. Estate Officers

ensure that the fixed prices are strictly adhered to and they

also resolve disputes if any.

Supply of weighing scales – All the registered farmers are

supplied weighing scales at the market yards free of cost.

This ensures assurance of fairness in weighing and both farmers

and customers do not have to bother about losses on account

of improper weighing. The weighing scales are issued every

day and at the end of the day the same is returned by the

farmers to the market officials.

Farmers resting room cum training center- A room of

size 3.6 m x 6 m acts as resting rooms for the farmers. The

rooms are also used as a training center for imparting training

on nursery development/vermicomposting/biofertilizer

preparat ion integrated pest management, nutr i t ion

management etc.

Small Sized Godown– There is also a provision for a small

50/100 MT capacity godown for storing non-perishable goods

for short durations.

Market Office – An office is created for the staff. The office

has equipment like computer, printer, telephone,fax machine

etc. for the day-to-day running of the markets.

Other facilities – Among the other facilities provided at the

market yards, are electricity,water supply, sewage systems/

garbage disposal, plastic crates, fire-fighting equipment etc.

THE RYTHU BAZAAR MODEL

This section undertakes a study of the strengths of Rythu

Bazaars which the authors feel, are necessary for sensible

policy making. Like any other model there are some

weaknesses in the Rythu Bazaar model as well which havemainly cropped up on account of improper execution and not

because of inadequacies in the planning. Some of the

weaknesses have been touched upon in this section, which

are very clearly on the operational front.

Strengths

This section focuses on the areas of strength of Rythu

Bazaars.

Government Assistance in the development of RythuBazaars – Rythu Bazaars are located in government plots

convenient to farmers as well as customers. Built in a vacant

land of minimum 1 acre, the infrastructure is provided by the

government as has been mentioned earlier. The market yards

are mostly set up by the state government. For setting up of

agricultural markets, funds are sourced from NABARD

(National Bank for Agriculture and Rural Development)

through RIDF (Rural Infrastructure Development Fund) and

NCDC (National Cooperative Development Corporation).

� Other Assistance from the State Government – Apart

from developing the market yards, free supply of weighing

machines and free transport to the farmers’ market in

selected Andhra Pradesh State Road Transport

Corporation run buses, is also provided to the farmers.

Horticultural services and seeds supplied at subsidized

rates also benefit the farmers.

� Quality of vegetables – In another research done by

Dey (2012), it was found that 92.9 percent customers

were satisfied with the quality of vegetables sold at these

market yards.

� Quantity of vegetables sold every day – During the

week days, the quantity of vegetables that are brought to

each of the market yards is in the range of 2000 - 2500

quintal. This goes up by about 500 quintal in the weekends.

� Total worth of vegetables sold every day – The total

worth of transactions that happen on an average on week

days ranges between 15 - 18 lakhs which goes up to 25 -

30 lakhs during weekends.

� Immediate realization of cash - Sale of vegetables in

Rythu Bazaars is only for cash and hence there is no

problem of delayed payment or bad debts.

� Number of farmers and customers at Rythu Bazaarsevery day – As a case study, the researchers took the data

of the Erragada Rythu Bazaar of Hyderabad which is a

model Rythu Bazaar. It has been observed that on


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weekdays on an average 300 to 400 farmers operate in the

market. The number of customers visiting the market yards

ranges from 16000 to 20000. These numbers go up

significantly during the weekends and holidays to 500 to

600 for farmers and 25000 to 30000 for customers.

� Price Fixation - Price is determined by the Estate Officers

in consultation with the farmers’ committee. The process

is transparent and the prices are usually 20 – 25 percent

higher than the whole sale price and lower than the local

retail market prices in the area. Even the customers benefit

as they receive the vegetables at a price which is lower

than the supermarkets.

� Proper Weighing - When the farmers enter into a Rythu

Bazaar the vegetables brought by them are weighed

correctly and then the quantity is entered in a register.

The farmers therefore do not lose on account of faulty

weighing practices. Also the customers get vegetables that

are weighed accurately.

� Administrative support – Every Rythu Bazaar has an

Estate Officer, Assistant Estate Officers, Supervisors,

Night Watchman, Office Boys, and Sweepers.

� Mobile Rythu Bazaars - Supervisors at Rythu Bazaars

keep a track of the quantity of produce that comes into

the market yards each day which helps them divert some

of these produce to be sold at some select localities through

mobile vans known as Mobile Rythu Bazaars. Rythu

Bazaars also encourage bulk purchases for marriage and

other functions which enables higher turnover in the

market.

Challenges

Following are the challenges found in the Rythu Bazaars:

� Storage facilities – Despite the Rythu Bazaar manual

clearly mentioning about the provision of a small 50/100

MT capacity godown for the members to store their non-

perishable goods and other commodities for short

durations, 84 percent of the farmer respondents were

moderately to highly dissatisfied with the provision of

storage facility.

� Cold Storage facilities - Lack of cold storage facilities

to preserve unsold vegetables of the previous day affects

the business of the farmers. Cold storage facilities would

ensure that farmers do not resort to selling their vegetable

at a much cheaper rate in the evening as compared to the

rate fixed by the price fixation committee in the morning.

This would help increase the earnings of the farmers. 78.9

percent farmers surveyed said that they do not get the

same rate in the evening as they get in the morning and

when asked about the reason behind the same 68 percent

of them felt that it was because of lack of storage facilities.

� Insufficient number of stalls – With the number of

farmers operating from these markets, in many of the

market yards, there exists a need to increase the number

of stalls. Also the makeshift stalls adversely impact trade

during rainy season affecting all those farmers who do not

have concrete stalls.

� Competition from wholesale markets - The farmers’

markets face stiff competition from wholesale market.

The bulk buyers prefer to buy from the wholesale market

as the price fixed at Rythu Bazaars is 20 percent higher

than that of the wholesale market. Also the large numbers

of wholesale markets make the competition tough for the

Rythu Bazaars. For example there are 20 functional

wholesale market yards in Hyderabad (7) and RR District

(13) as compared to only 9 Rythu Bazaars.

CONCLUSION

The study shows that the strengths of Rythu Bazaars are

highly significant and the model if implemented properly can

address the issue of disproportionate price rise of vegetables

effectively. States where such farmers’ markets are not in

existence can start thinking about adapting the Rythu Bazaar

model in the larger interest of customers and the farmers –

especially the small and marginal farmers.

END NOTE

1. www.rythubazars.com Functional% 20manual18.9.06.doc

REFERENCE

Chengappa, P. G. (2005), “Inst i tut ional Aspects of

Agricultural Marketing in India”, Institutional Change

in Indian Agriculture; National Centre for Agricultural

Economics and Policy Research; 331 – 348

DeySubhendu; “Key Drivers for Farmers and Consumers of

Rythu Bazaars – A Study of the Farmers’ Markets of

Andhra Pradesh” Asian Journal of Research in Business


A Quarterly Journal

Economics and Management, Vol. II Issue – VI, June

2012; 48-57

DeySubhendu; “Rythu Bazaar – A Study of the Supply Chain

of the Farmers’ Markets of Andhra Pradesh,” The IUP

Journal of Operations Management, Vol. XI, No. 3,

2012; 43-66

Feenstra, Gail., and Christopher Lewis, (1999), “Farmers’

markets offer new business opportunities for farmers”,

California Agriculture 53(6):25 – 29

Govindasamy, R., J. Italia, and A. Adelaja, (1998), “Farmers’

Markets: Consumer Trends, Preferences, and

Characteristics, ” The State University of New Jersey

Rutgers.

Sudha, M. and T.M. Gajanana, (2005), “Insti tutional

Arrangements for Linking Horticultural Production,

Marketing and Processing”, Institutional Change in

Indian Agriculture; National Centre for Agricultural

Economics and Policy Research; 393 – 414

Trobe, Helen La. (2001), “Farmers’ markets: consuming local

rural produce”, International Journal of Consumer

Studies, 25, 3, 2001, 181–192

Wolf, Marianne McGarry. (1997), “A Target Consumers

Profile and Positioning for Promotion of the Direct

Marketing of Fresh Produce: A Case Study,” Journal of

Food Distribution Research 28(3):11–17

http: / /www.telegraphindia.com/1120705/jsp/calcut ta/story_15693345.jsp

http://www.anandabazar.com/archive/1120705/aj-kol.html

http: / /www.rythubazars.com/Select Monthly All VegRbzwiseReport.aspx

http://en.wikipedia.org/wiki/Bazaar

http://www.telugudesam.org/ghmc/farmersmarket.html

http://apshm.ap.nic.in/Andhra_Pradesh.html

http://agmarknet.nic.in/amrscheme/rythu_bazarmodel.htm

www.rythubazars.com/Functional%20manual18.9.06.doc

ht tp : / /www. thehindubus iness l ine .com/ indus t ry-and-economy/government-and-policy/article3595195.ece

http://articles.timesofindia.indiatimes.com/2012-07-04/kolkata/32536041_1_chilli-wholesale-price-retail-markets

http://news.westbengalonline.in/Green-chilies-Mamata-and-the-price-war-1607

http://articles.economictimes.indiatimes.com/2012-07-02/news/32508469_1_price-rise-prices-of-essential-commodities-grain-prices

http://dc.asianage.com/kolkata/price-monitoring-markets-begins-592

http://articles.timesofindia.indiatimes.com/2012-07-06/kolkata/32565294_1_vegetable-prices-vegetable-vendor-wholesale-market


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Organizational Flexibility:Real Option Approach

Organizational flexibility is the main capability that enables organizations to face environmental fluctuations, as it makes

them more responsive to change. This paper study the long term impact of HR practices on organizational flexibility with

help of real option approach. Concept of real option is very important in understanding various HR options created by HR

practices. HR options are to be viewed as a sub-set of real options. HR options are generated through a specific type of HR

practices that are intended at building a HR capability to respond to future uncertain events. Paper develops a conceptual

framework to identify the uncertainties associated with human assets and provides measurement approach by deploying

methods of extended NPV and real options. Better HR practices in terms of HR planning, recruitment and retention

strategies will effectively respond to external environment and hence enhances organizational flexibility.

Key words: HR practices, Uncertainty, Organizational flexibility, NPV, Real Options

Abstract

n the present environment of globalization andincreased competition, most organizations considertheir employees often called human resource (HR ) to

be their most valuable strategic assets. It is well recognizedthat one of the sources of sustainable competitive advantageresides in non-tradable, difficult to imitate, firm-specific HRassets of the organization (Sirmon, Hitt & Ireland, 2007). HRassets are valuable for the organizations because of theirability to create, use and share knowledge. Hence, developinga critical mass of employees who are knowledgeable or skilledmay constitute a potential source of competitive advantagefor the organizations. The organizations do not achieve andsustain a competitive advantage simply by possessingknowledge-based resources. Hence, if organizations areseeking competitive advantage through HR, they should designHR practices in ways that allow it to leverage and exploitthese resources and enable employees to use the knowledgefor competitive edge.

I

Pankaj M. Madhani

Prof. Pankaj M. Madhani, Associate Professor,ICFAI Business School (IBS), IBS House, Near GNFCTower, S.G. Road, Bodakdev, Ahmedabad - 380054,E mail: [email protected]


A Quarterly Journal

Literature Review

Organizational flexibility is the main capability that enablesorganizations to face environmental fluctuations, as it makesthem more responsive to change. The l i terature onorganizational change considers flexibility to be one of thedynamic capabilities through which organizations tacklechange (Wright & Snell, 1998; Zajac et al, 2000). Flexibilityhas been defined as an entity’s ability to change its policies,practices or procedures quickly and easily to adapt to thediverse and changing demands of the environment (Rowe&Wright, 1997).

The organizat ions most sensi t ive to changes in theenvironment have a strategic organizational capability thatenables them to change easily and thus produce acceptableresults without incurring high reorganization costs. Thus,organizational responsiveness is based on the concept offlexibility (Antonio & José-María, 2009). Organizationalflexibility in the broad sense includes different kinds offlexibility defined by a set of resources, processes andmanagerial functions. This paper uses the term organizationalflexibility to refer to the overall flexibility of an organizationdefined by a set of HR practices.

HR practices represent organization capabilities that createvalue for the organization by developing enabling human skillsand behaviour (Sanyal & Sett, 2011a). The success oforganizations in the present competitive environment largelydepends upon the calibre of their HR capital and innovativeHR practices. Recent research on best HR practices has shownthat the HR function is a source of competitive advantage andas such it is indeed an important success factor of theorganizations. The use of strategic HR practices and processesfor managing human capital can give a clear performanceadvantage through cost savings from increased utilization,lower turnover, and higher productivity of work force.According to the theory, the management of people, also calledas human resource management (HRM) involves effective HRplanning as well as practices in order to help organizationssuccessfully accomplish their business goals. With effectiveHRM practices, adequate returns to stakeholders will begenerated by enhancing labour productivity, social legitimacy,and organizational flexibility (Boxall & Purcell, 2003).

With regard to human resources, functional and numericalf lexibi l i ty have been emphasized as ways in whichorganizational flexibility can be influenced through HRpractices (Friedrich et al, 1998; Kalleberg, 2001). Namely,

numerically flexible organizations adjust the workforce to

changes in demand, hiring to bring in new skills as needed and

on the other hand implementing layoffs to eliminate redundant

or obsolete skills; while functionally flexible organizations

employ a stable core of cross-functional workforce that adapts

their work to changes in demand (Atkinson, 1984). Boxall &

Purcell (2003) call numerical and functional flexibility short-

run responsiveness and extend this concept to the longer

horizon. They cite Dyer & Shafer (1999) to introduce the

concept of long-run organizational flexibility. The focus of

their concept is not on adjusting workforce to demand, but

rather on improving organization’s ability to respond

environmental uncertainty and enhance organization flexibility.

HR professionals in some organizations focus on solving

operational, day-to-day business problems because of a lack

of understanding of broader, strategic issues (Tichy, 1983).

Consequently, HR departments in these organizations are

reactive, fire fighting departments and are not as effective as

they could be. Hence, effectiveness and efficiency of HR

practices were thus predominantly tested for their short-term

effects. Most of the prior research has focused mainly on

different ways in which HR practices contribute to labour

productivity and consequently to improved financial

performance. However, lack of adequate longitudinal research

design hindered the development of conceptual as well as

empirical work that emphasize more long-term impact of HR

practices such as the effect on organizational flexibility (Berk

& Kaše, 2010). This research works in this direction and

focuses on study of long term impact of HR practices on

organizational flexibility.

Measurement and Evaluation of OrganizationalFlexibility

It is important to understand that strategic HR planning and

practices will take a long term view of things. Most of the

methods for evaluating HR practices, have failed to take into

consideration the uncertainties inherent in HR assets and the

projects in which they are engaged. Therefore, these evaluation

methods have performed poorly in evaluating the effects of

HR practices on the ability to properly manage future

opportunities as they lack the ability to measure either the

current value of HR assets or their flexibility (Sanyal & Sett,

2011b). Measuring the effects of HR practices on the

organization performance, has been a very popular research

agenda in the strategic human resource management (SHRM).

One area that is still missing in the SHRM literature is a


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valuation methodology that can measure the value oforganizational flexibility created by HR practices.

The issue of valuing flexibility has already been addressed infinance research (McDonald & Siegel, 1986), especially inthe project appraisal and capital budgeting techniques by usingconcept of the discounted cash flow (DCF) methods such asthe net present value (NPV) and internal rate of return (IRR).When applied to HR investment, such NPV approach measuresthe present value of future cash flow derived from investmentin HR by discounting such future cash flow by an appropriaterate representing riskiness of cash flow associated with suchHR investment. As a decision rule, positive NPV projects areaccepted for investment (Bowman & Moskowitz, 2001).

Traditional Investment Decision Tools: MajorLimitations

Managerial flexibility in increasing or deferring investmentswhile awaiting new information, is an important aspect ofcorporate strategy but hardly incorporated in the traditionalDCF model (Smit & Trigeorgis, 2004). The simplicity andconsistency made NPV tool the most widely used projectappraisal tool for practitioners. Nonetheless, it demonstratesweaknesses in dealing with uncertainty, complexity, and aboveall, flexibility. In an NPV approach, different managementforecasts of project values are weighted in order to get a singleforecast of the average project value, thereby neglecting theextra information in the entire data set. NPV approach failsto fully incorporate the myriad options that are usuallyassociated with many investment projects. Because theinvestment project is a set of different options, a model isneeded to account for uncertainty and to permit flexibility.

While conceptually relatively simple NPV rule with followingshortcomings limits its scope of valid application (Madhani,2009):

1. It does not explicitly deal with uncertainty whenvaluing the investment project;

2. It does not consider the extent of management’sflexibility to respond to uncertainty over the life ofthe investment project.

3. It ignores the value of creating options. Sometimesan investment that appears uneconomical whenviewed in isolation may, in fact, create options thatenable the organizat ion to undertake otherinvestments in the future should market conditionsturn favourable.

When these shortcomings exist in an investment project, theNPV consistently underestimates the value of a project as itignores the value of the implicit options that management hasin the project. Such techniques use tangible factors and donot take into account intangible factors such as futurecompetitive advantage, future opportunities, and managerialflexibility. Major shortcomings of NPV rule is explainedbelow:

Dealing with uncertainty

Traditional NPV calculations do not factor the investment’srisk except for an increase in the discount rate used in thecalculation. They also leave no scope for changing the courseof action when new information becomes available. Decisionunder conditions of uncertainty should be made on the basisof the current state of information available to decision makers.Current project valuation by NPV method has proved itselfto be incomplete as it fails to properly account for uncertainty.If the expectation of the NPV were negative for theinvestment, the conventional approach would be to reject theinvestment. However, if one has the ability to delay thisinvestment decision and wait for additional information, theoption to invest later has value. This implies that theinvestment should not be undertaken at the present time. Itleaves open the possibility of investing in future periods.The weakness of NPV approach is its failure to account forhow uncertainty, rather than implying a higher risk-adjusteddiscount rate, can increase the value of a project investment.Therefore, by assuming management’s passive commitmentto a certain operating strategy, NPV usually underestimatesthe upside value of investment.

Dealing with flexibility

In the context of managerial flexibility, determining the priorityof potential investments is vital in strategic planning. NPVrule assumes a fixed scenario without any contingencies. StaticNPV fails to factor in the full range of opportunities that anew and innovative strategy may create for a firm in the future.NPV approach assumes that all future cash flow is static,neglecting the real-world options to stop investing in theproject or change course because of market circumstances.NPV has then no regard of flexibility through the life of theinvestment project. Managers of the investment may takestrategic decisions along the investment process according tothe way conditions (market or others) evolve. TraditionalNPV tool fails as it neglects the value of flexibility: howmanagers would respond to unfolding events in uncertain


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markets. This approach assumes project risks remain constant

over the life of the strategy. It also, fails to factor in the full

range of opportunities that a new and innovative strategy

may create for a firm in the future. These rules can mean very

wrong decisions, for investing in projects in which waiting is

better, or not investing in good emerging technologies with

high growth options.

Managers have the flexibility to sell the asset, invest further,

wait and see or abandon the project entirely. NPV based

approaches assume implicitly that a project will be undertaken

now and operated on continuously at a set time scale, until

the end of its expected useful life, even though the future is

uncertain. Therefore the NPV ignores the upside potential of

added value that could be brought to the project through the

flexibility and innovations of management to alter the course

of investment. The NPV rule also has the effect of ignoring

the presence of any flexibility that management has to respond

to a changing environment. This can fundamentally change

the realized (as compared to the expected) value of a project.

The NPV rule would provide an accurate estimate of a

project’s value only if there is either no flexibility or if there

is no uncertainty. However, the combination of uncertainty

and managerial flexibility leads to the presence of real options

in capital investment decisions. Where this combination exists,

the NPV approach is flawed as a decision rule. It gives

estimates of project value that are biased downwards because

it ignores the value of the real options incorporated in the

project.

Dealing with options

Traditional investment appraisal techniques such as NPV can

be conceived as being concerned with a one-shot valuation of

an investment in an asset. The initial investment is followed

by a series of (often) uncertain cash flows over time. NPV

approach neglects the insight which arises from recognizing

the phased nature of many investment decisions, which may

begin with exploratory phases before final asset investment

decisions are made. Many investment projects have in effect

an options phase prior to the asset phase. During the options

phase, investments are not being made in an asset to generate

a stream of cash flows but to establish the opportunity (but

not the obligation) to subsequently invest in such an asset.

With a standard NPV analysis, it is not practical to capture

the full value of an investment strategy that involves real

options. The NPV method implici t ly assumes pre-

commitment to future plans and defines an investment decision

as a now (go) or never (no go) proposition; it does not properly

take into account the value of a wait-and-see strategy to make

decisions as the value of the project evolves and uncertainty

is revealed.

Real Options: Major Benefits in Dealing with Uncertainty

Real options theory (Dixit & Pindyck, 1994) suggests that

options on assets (tangible or intangible) help better exploit

future opportunities for expanded returns while reducing

downside risk. Real option describes an option to buy or sell

an investment in physical or intangible assets rather than in a

financial asset. By definition, a real option is the right, but

not obligation, to take an action -to buy or sell an investment

in physical or intangible assets - at a predetermined price

called the exercise price for a predetermined period of time

i.e. the life of the option (Trigeorgis, 1996). Background of

real options lies in financial options where the underlying

asset (i.e., the assets on which an option is written) is a

financial security traded in a capital market. Real options are

of two types: call and put options. A call option provides its

holder with the possibility to purchase, whereas a put option

gives the possibility to sell a particular (financial, physical,

intangible) asset at a pre specified exercise price. In addition,

such options can be classified with regard to the time they

can be exercised. Specifically, options with a fixed maturity

(i.e., a specific date on which the option can be exercised) are

called European options, whereas those that can be exercised

anytime up to their maturity are known as American options

(Hull, 2005). The option value is contingent upon the value

and other characteristics of the underlying asset.Real options

are appropriate as a tool for strategic reasoning and the

valuation of several types of flexibility created by strategic

management. Thus, organizations might find it valuable to

make an initial investment in flexibility to create the option

to defer, expand, grow, abandon, or flexibly switch the mix or

the output scale.

Real options approach is a method of evaluating and managing

strategic investments decisions in an uncertain business

environment. It seeks to quantify numerically each of the

investment options available in a particular situation and refers

to the application of option pricing theory to investment of

non-financial or real or brick and mortar assets. Real option

can also be defined as a right to take an action in the future,

without an obligation to do so. Real options analysis promises

much in terms of providing improved estimates of project’s

expected value. However, this does come at a price –the extra


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analysis required and the additional complexity of the

valuation model. This approach has the potential to includethe value of the project from active management and strategicinteractions. Real option seeks to uncover and quantify aproject’s embedded options, or critical decision points. Thegreater the uncertainty and flexibility results into the greaterthe value of management’s options. The best known optionpricing model in financial economics is the Black-Scholesoption pricing model (Black & Scholes, 1973). It is based onstochastic calculus.

There are several other benefits for decision makers if theydecide to use real option analysis:

1. It forces a change in the emphasis of decision makers(and the valuation process) from ‘predicting thefuture outcome perfectly’ ( the NPV rule) toidentifying what can (or rather should) be done aboutresponding to business uncertainty.

2. It gives decision makers the ability to identify the

optimal levels of flexibility.

3. By focusing management’s attention on responding

optimally to uncertainty as it evolves, it promotes

a sense of discipline for the management of assets

that extends over the entire life of the project –not

simply when the decision is originally made.

Analogy between Financial and Real Option

Real option is a right but not an obligation to acquire the

present value of expected cash flows by making an irreversible

investment outlay on or before the date the opportunity will

cease to exist. Real options only have value when investment

involves an irreversible cost in an uncertain business

environment. Real option is compared with financial option

as shown in Table 1:

As explained below, different options are endowed withdifferent sources of flexibility. This flexibility means that aninvestment in HR is undertaken under more favourablecircumstances than assumed by the traditional DCF model.

The growth option for early investment

This option refers to the ability of the organization to makeHR investment for future requirements. In recession or down

cycle of economy, cost considerations will dominate the HR

practices and strategies. In a recession the demand for the

goods and services of the organization and, in turn, the

demand for the workforce will go down (Madhani, 2010 b).

Right HR planning, recruitment practices and retention

strategies will take advantage of the recession and arm the

organization with the best of the newly available talent.

Layoffs caused by economic downturns typically produce

1 Call Option Option to invest

2 Stock price Present value of expected cash flow

3 Exercise price Present value of investment outlays

4 Time to maturity Length of deferral time

5 Risk-free rate Time value of money

6 Variance of stock returns Volatility of investment’s returns

7 Dividends Project cash flow

8 Short maturity (in months) Longer maturity (in years)

9 Personal assumptions and actions have Personal assumptions and actions drive theno bearing on valuation value

10 Competitive or market effects are irrelevant Outside factors drive the value to its value and pricing

11 Marketable and traded security with comparable Not traded and proprietyand pricing information in nature with no market comparable

Financial Option Real Option

Table 1: Financial Versus Real Option

Sl.No.

(Source: Madhani, 2009)


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alternative or switch use, making use of functional flexibilitywill be superior to the churning alternative.

Real Options in HR Practices: Enhancing Flexibility ofOrganizations

Concept of real option is very important in understandingvarious HR options created by HR practices. HR options areto be viewed as a sub-set of real options. HR options aregenerated through a specific type of HR practices that areintended at building a HR capability to respond to futureuncertain events and hence, not all HR practices are options.Bhattacharya & Wright (2005) defined HR options as“investments in the human capital pool of an organizationthat provide the capability to respond to future contingentevents”. In this way, certain HR practices are valuable to theorganizations because they increase their flexibility.

HR options provide a strategic organizational capability toadapt to future contingent events and flexibly manageuncertainties arising from fluctuations in the value of theunderlying human asset. The valuation of each of these HRoptions created by HR practices should be approached byconsidering the source of their flexibility (i.e., the nature ofthe HR practices of the organization). If flexibility is createdby an HR option to expand and grow, then a call option shouldbe used in the valuation model. Conversely, a put option ismore suitable for valuing flexibility created by an HR optionto abandon. Retraining and relocating the work force can bringconsiderable productivity gains to the organization, this willalso add to the effectiveness and flexibility of the workforce.Following are major types of workforce flexibility:

Co-ordination Flexibility

Co-ordination flexibility is the extent to which the organizationcan reconfigure the chain of resources and redeploy theresources. These flexibilities are choices that firms make withrespect to the dynamic environment. Variety of skills in theworkforce and ability to acquire diverse skills from contingentworkforces are the indicators of co-ordination flexibility(Wright & Snell, 1998).

Functional Flexibility

Functional flexibility implies that employees are able to workon different tasks and under diverse circumstances and thatthe costs and time needed to mobilize employees into newduties or jobs are low (van den Berg & van der Velde, 2005).It is critical that the core employees of an organization are

large supplies of highly qualified and experienced individualsin the employment market. Such downturns or recession alsoprovide surpluses of high-quality fresher or inexperiencedjob applicants graduating from colleges and universities,available at relatively cheaper cost. This means that, duringeconomic downturn the bargaining power is with theorganizations.

Thus, organizations can invest in human capital for futurerequirement during economic downturns by stockpiling high-quality key personnel critical to strategic initiatives. Suchhiring practice will also increase retention rate of work forceas workers hired during a recession may not switch jobs afterthe recovery starts because of the preference for the statusquo in decision making. Satisfied employees stay at theirjobs and do not search for information on other employmentbecause of the increased loyalty effect and organizationalcommitment effect. Lower turnover among employees hiredduring economic downturns is also a result of their increasedrisk avoidance (Madhani, 2011 b).

The option to alter operating scale

In terms of real options theory, this option refers to the abilityof HR investment to adjust the operating scale of HRinvestment (i.e. to expand HR deployment or to contract andoffshore) according to the specific needs of the organization.The ability of the organizations to expand or contract at alater point in time adds value to the HR investment and henceinfluences the investment decision. The flexibility to adjustemployment levels (numerical flexibility) and the flexibilityto adjust working hours (temporal flexibility) will impact HRinvestment decisions by influencing the value of the optionto alter operating scale.

The option to abandon or to switch use

This option refers to the ability of the organization to disposeof its HR investment project and divest by layoff / terminationas well as to turn the HR investment to an alternative use.The value of best alternative use of HR investment, in turn, isnot only affected by the flexibility of the workers employedbut also by the broadness of their skills (functional flexibility).If employees do not have the flexibility to perform new tasks,subject to employment protection laws, to dismiss unskilledemployees and replace them by newly hired ones (i.e.churning) to compensate for a lack of functional flexibility.As long as some part of the organization-specific knowledgeheld by the incumbent employees will still be valid in an


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functionally flexible so that in a changing environment, they

can take over other jobs through job rotation. Organizations

should also strive for functional flexibility of employees

through job enrichment (vertical) and enlargement (horizontal).

Organizations facing uncertainties due to rapid fluctuations

in product mix and volume, are expected to have greater

strategic flexibilities and are likely to show superior long term

performance if they are able to create the requisite functional

as well as numerical flexibilities in their workforce (Atkinson,

1984). Such flexibility involves, adjusting the workforce itself

to changes in demand, hiring to bring in new skills as needed

and presumably implementing layoffs to eliminate redundant

or obsolete skills, as well as relying more on “contingent”

work. Such flexibilities may be achieved in a number of ways

such as multi-skilling, systematic job rotation and constitution

of temporary project teams. Organization with cross-trained

and multi functional workforce allows them to adapt to the

ups and downs of market without work force lay off or

downsizing.

Reward Flexibility

Reward flexibility will mean that the workforce of the

organization will be rewarded for their excellent performance

which will finally lead to better performance for the

organization. Many organizations offer their employees some

sort of reward for excellent performance. Organizations may

change proportion of fixed and variable pay in pay mix of

employees according to product life cycle (Madhani, 2011

a), organizational life cycle (Madhani, 2010 a) and business

life cycle (Madhani, 2010b).

Locational Flexibility

Locational flexibility of the employees will lower the expenses

for the organization. Non core activities of the organizations

can be outsourced. Dell and many other computer hardware,

software as well as financial services organizations in US

have outsourced back end customer services functions to India.Many organizations now use information technology and webbased solutions to create virtual conferences or tele-conferencewhere the employees are at different parts of the world, butattend meetings virtually. This can save the organization ontravel and other organizational overhead costs.

Resource Flexibility

Resource flexibility is the extent to which a resource can beapplied to a larger range of alternative uses, the costs anddifficulty of switching the use of a resource from onealternative use to another and the time required to switch.Individual skill breadth and ability to acquire new skills arestrategic HR indicators of resource flexibility (Wright & Snell,1998).

Research Methodology: Development of a ConceptualFramework and Valuation Models

The contribution of HR practices to organizational flexibilityshould also be included in measurements to provide a soundfoundation for understanding the value-creation and decision-making processes. The organizations with flexible workforcecan react efficiently to any environmental changes. Flexibilityis valuable to organizations as it provides them with the abilityto adapt to changing environment when faced with uncertainty(Kulatilaka & Marks, 1988). Flexibility is created by thoseorganizational capabili t ies that manage uncertaintiesproactively (Kogut & Kulatilaka, 2001).

HR Practices for Dealing with Uncertainties: A Conceptual

Framework

A conceptual framework is developed to identify theuncertainties associated with human assets (Table 2). It alsolists the factors that contribute to uncertainties at theindividual, organizational and market level. Uncertainties ofhuman assets can be related to returns, volume, combinationsand costs as shown in the framework.


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Table 2: Uncertainties Associated with Human Assets: A Conceptual Framework

Sources of UncertaintiesUncertainties

Individual Organization Market1) Uncertainties of return

a) Demand for future

skills

b) Turnover of

employees

c) Skill Obsolescence

d) Lower productivity

e) Lower quality of hire

f) Higher cost of

employee

2) Uncertainties of volumeand combinations

a) Variations in numberof employeesrequired

b) Variations in

c) deploymentof HR assets

3) Uncertainties of

costs

a) Variations intotal employee outlayvis-à-vis cash flow

a) Employee dissatisfaction

b) Lack of commitment

c) Voluntary turnover ofemployee

d) Erosion of existing skills

e) Inability to learn newskills

a) Absenteeism

b) Resistance tochanges in workarrangements

a) Overuse/misuse ofemployee benefits

b) High guaranteed pay/bonuses

a) Changing skill profile ofemployees

b) Mismatch with marketrequirements

c) Turnover of critical skill groupor high profile employees

d) Inability to generate /accommodate new skills andlearning

e) Inability to institutionalizeknowledge

f) Lack of employee, training anddevelopment plan

g) Lack of concern for employeesh) Breach of psychological

contracti) Poor reputation of firm

j) Lower job security

a) Variations in demand fornumber of employees indifferent units / jobs

b) Lack of slack/ buffer

c) High human capitalleverage

a) Variations in profitability

b) High operating leverage

c) High financial leverage

a) Demand fornew skills

b) Uncertaintyregarding availability of new skills

c) Changing careerpatterns

a) Variations indemand

a) Business cyclestages such asrecession /slump

b) Competitivepressures forcost reduction

c) Organization lifecycle stagessuch as maturityor decline

(Source: Developed by author, adapted from Bhattacharya &Wright, 2005)


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Flexibility in strategic decision making is a critical factor for

organizations facing ever- increasing market competition in

the current era of globalization (Madhani, 2008). Boyer et al,

(2003) go to the extent of describing strategic planning as ‘an

exercise in managing flexibility’. Specifically, Bhattacharya

& Wright (2005) saw HR as a strategic asset and set the

conceptual model to consider HR practices as creating ‘real

options’ in terms of reducing the uncertainties of return,

volume, and costs. Specifically, they defined HR options as

“investments in the human capital pool of an organization

that provide the capability to respond to future contingent

events.”

The ability of an organization to use the flexibilities of its

firm specific resources effectively and efficiently over a range

of operating conditions leads to superior outcomes (Sanchez,

2004). Fundamental basis of sustainable superior performance

of a firm is its organizational capability to exploit current

assets and dynamically match its future resources and

capabilities with its surrounding environments. Hence,

organizations must simultaneously focus on the exploitation

of existing assets/opportunities and the exploration of new

opportunities thrown up by environmental uncertainties

(March, 1991). According to Bhattacharya & Gibson (2005),

flexibility of employee skills, employee behaviors and HR

practices represent critical sub dimensions of HR flexibility

and are related to superior performance.

Real options theory are more suitable for handling HR

uncertainty and providing organizational flexibility for two

reasons: First, it highlights the value of flexibility tied to HR

investment and emphasizes that the flexibility to adjust to

changes in the economic environment does add to the NPV of

HR investment. Second, by distinguishing different types of

real options, it helps to identify the relevant types of

flexibility in HRM that may add value to HR investment.

From the different types of real options presented in the

literature (Trigeorgis, 1999), the option to alter operating

scale and the option to abandon or switch use are of interest

for HR managers, as they arguably are both influenced by HR

flexibility. In situations of uncertainty, organization’s

flexibility to be able to adjust to changes in the economic

environment (e.g. to re-organize work or to adjust employment

levels) adds value to HR investment options. According to

investment theory, the value of flexibility is captured by the

concept of ‘real options.’

Valuation Models for Measurement of HR Flexibility

HR flexibility represents the set of HR options and associated

HR practices that enable the organization’s management and

employee to dynamically adapt its knowledge, skills,

resources, capabilities and future operations to a changing

business environment. Many practitioners have recognized

that the NPV and IRR approach could not properly capture

the value of HR flexibility when adapting to emerging

circumstances of an organization in a dynamic environment.

As according to NPV approach, the value of the HR

investment is based on the estimated net cash flows arising

from this HR investment, which are then discounted at a

hurdle rate that reflects the prevailing price of the project’s

risk to get their present value. However, by adopting this

approach when facing HR investment decisions, organizations

do not account for the value of flexibility - sometimes referred

to as “strategic value” that is created when the investment in

HR is made.

Contrary to the logic of NPV, in real life, HR managers are

able to revise and to some extent modify initial HR investment

decisions as more information becomes available and the

uncertainty from the outset of the investment is partially

resolved (Smit & Trigeorgis, 2004). Therefore, DCF

approaches often result in undervaluing the investment

opportunit ies , which can lead to myopic decisions,

underinvestment, and the eventual loss of one’s competitive

position (Hayes & Gravin, 1982).

To overcome these problems, valuation models have been

developed that measure the ability of organizations to

capitalize on favourable future opportunities (Trigeorgis,

1993). Instead of NPV, a new criterion, expanded NPV

(ENPV) (Trigeorgis, 1995), was conceptualized as shown

below:

Expanded NPV = Direct NPV + Value of Options from

Active Management Decision

Expanded NPV = Direct NPV + Value of Flexibility

This relationship is shown below in Fig. 1. As shown in Fig.

1, expanded NPV goes beyond establishing the traditional

NPV (or static NPV) and includes the value realized by active

decision making in the post investment period, i.e. the value

of real options created by such investment.


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Illustration

To illustrate this concept, let us consider the valuation of anHR investment decision regarding the hiring of work force byan existing organization. Following the NPV approach, allcurrent and future net cash flows from such HR investmentare taken into account, whereas the extended NPV approachadds the value created by the opportunity to launch a newoperational division or reducing outsourcing requirement usingnewly hired men power, or by some other ‘real options’ alsocalled as HR options.

Limitations of Real Options

Extrapolation of the Black-Scholes option pricing model toreal options is filled with problems. Many of the assumptionsthat underlie financial options do not hold in the real optionscontext and scarcity of data makes it more challenging. Dataregarding volatility are difficult to estimate since theunderlying investment opportunities are not traded in themarket place. By their very nature many of these options areof an exploratory nature and historical data about them willnot be available. Many other differences between financialand real options make valuation of real options by Black-Scholes option pricing model make less reliable. However,some of these problems may be handled by alternative rigorousmodels such as Monte Carlo simulation or binomial optionmodels (Copeland & Tufano, 2004), which focus on

mathematical rigour, and to some extent add to vagueness of

the underlying idea. Regardless of this fact, the main advantage

of the real options stays in reshaping the value of strategic

thinking in investment decision making.

Conclusion

HR practices are expected to create and sustain a competitive

advantage and thus to help organizations successfully

accomplish their business goals. Better HR practices in terms

of HR planning, recruitment, training and retention strategies

will effectively respond to external environment. It is

imperative for HR managers to develop methodology for

measuring effectiveness and effectiveness of HR practices.

The problem of measuring and evaluating HR practices in

order to manage them, however, is not new and relates to the

broader issue of valuing intangibles. Measurement of flexibility

offered by HR practices requires some innovative approach

such as ENPV and real options. Such valuation is challenging

because of problematic data gathering, the intangible nature

of HR assets and the lagged effects of HR practices. Still,

there are many benefits of applying real options in HR

practices as explained in this research paper. Even if the real

options framework suggested in this paper does not provide

easy solutions, it still provides a challenging way of thinking

about HR options, their nature and how they contribute to

value creation by enhancing organizational flexibility.

I

I

Flexibility value

Option to defer

NPV = V – I of follow on investment

Option premium

Exp

ande

dN

PV

V

Where,V = Present Value of Expected Cash FlowI = Present Value of Investment Outlays

o

Fig. 1: Real Option Value with Managerial Flexibility

(Source: Developed by author, adapted from Smit & Trigeorgis, 2004)


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Random Walk Behaviour :Indian Equity Market

P K Mishra, Assistant Professor in EconomicsCentral University of Jharkhand, Brambe,Ranchi, India-835205E-mail: [email protected]

Key words: India, Efficient Market Hypothesis, Random Walk Behaviour, Equity Market

he study of the Efficient Market Hypothesis andRandom Walk Theory has attracted the attention ofmarket participants, academicians and researchers

for the last several decades. Eugene Fama was one of theearliest to theorize capital market efficiency as an academicconcept of study through his published dissertation in 1965,but the empirical tests of capital market efficiency had beguneven before that by Louis Bachelier, a French mathematician,in his 1900 dissertation ‘The Theory of Speculation.’ PaulAnthony Samuelson published a proof for a version of theefficient market hypothesis in 1965 and in1970 Famapublished a review of both the theory and the evidence forthe hypothesis. A market is said to be efficient if it respondsimmediately and accurately to all available information. Onthe other hand, the random walk theory asserts that stockprice movements are unpredictable and they follow a randomwalk. Therefore, past stock price movements are of no use topredict future price movements (Fama, 1965). Kendall (1953)suggested that stock prices move randomly. This could be anindication that financial markets operate with high degree ofefficiency (Gitman, Joehnk, and Smart 2011). This means

The main objective of this study is to investigate whether prices in India’s emerging equity market follow a random

walk process as stated by the efficient market hypothesis. Therefore, this study examines the weak-form of market

efficiency in India’s stock market by testing the random walk hypothesis through multi-approaches, specifically unit

root, and runs tests on the daily price of S & P CNX Nifty index of National Stock Exchange over the period from

January 2008 to Mid-March 2013. The empirical results provide the evidence of stationarity indicating that stock

prices do not follow the random walk process.

Abstract

T

P.K. Mishra


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that no investor has a monopolistic access to informationrelevant to price discovery. Therefore, no investor will beable to consistently derive above-average risk-adjusted ratesof return. Keeping in view such implications of efficient markethypothesis and random walk theory, this paper proceeds toempirically their validity in the context of Indian equitymarket.

The rest of the paper is organised as follows: section 2 is anoverview of the India’s equity market; section 3 is an outlookof the efficient market hypothesis and random walk theory;section 4 reviews the existing literature, finds the researchgap and puts forward the research problem; section 5 discussesthe data and methodology of the research; section 6 makesthe analysis; and section 7 concludes.

II. India’s Equity Market

The history of the equity market of India spans 200 years. Itis the oldest in Asia and older than New York stock market.The formal inauguration of the stock exchange at Bombaydates back to 1899. Since then it has been witnessing manybooms and slumps. The second world war of 1939 gave asharp boom which was followed by a slump. As in December1946, there were only 7 stock exchanges in India having 1125listed companies. This scenario radically changed as onDecember 1985 with 14 stock exchanges and 4344 listedcompanies.

In 1991 Indian economy has accepted the norms ofliberalization and globalization. As a consequence it was foundinevitable to lift the Indian stock market trading system atpar with international standards. So, on the basis of therecommendations of High Powered Pherwani Committee, theNational Stock Exchange was incorporated in 1992 by IDBI,ICICI, IFCI, all insurance companies, selected commercialbanks and others. Hitherto, the equity market of India hascaught the attention as an important alternative source offunding for the corporate sector and its role in the process ofoveral l economic development has started assumingimportance.

India’s equity market in 2007 features a developed regulatoryenvironment, a modern market infrastructure, a steadilyincreasing market capitalization and liquidity, better allocationand mobilization of resources, a rapidly developing derivativesmarket, a robust mutual fund industry, and increased issuertransparency. The market capitalization in the year 2007-08is Rs.51, 38,014 Crores. The market capitalization as a

percentage of GDP in India stood at 92% as in June 2008.The number of registered FIIs reached 1403 by June 2008.The number of DEMAT accounts increased to 63, 62, 845 inthe year 2007. The turnover ratio in India increased to 82% in2007 from 20% in 1992. The stock market volatility decreasedto 1.1% in 2007 from 3.3% in 1992. In the derivative segmentof Indian capital market, the annual derivative volumesincreased to $1601billion. Similarly, in the mutual fundsindustry, about 41 mutual fund firms have been trading theirfinancial products. All these cast an emerging and moderncapital market environment in India. Thus, it can be said thatIndia’s equity market is passing through exciting periods bywitnessing a process of ever-increasing globalization andinnovation in the financial markets. This is the period, venturecapital funds and hedge funds have added new dimension tothe market dynamics.

However, such a march did not last long. In 2008, globalfinancial crisis took away India’s market into its grip. Thisyear has been recorded in the world history as a year markedby financial markets turmoil and the wipe out of hundredyear old institutions. Precisely, during 2008-09, Indiansecurities market witnessed a slowdown in line with globalscenario. The primary market witnessed 13.80% down inresource mobilization, and in the secondary market, all stockssaw major corrections in their prices. The mutual fundsindustry withered large scale redemptions and moreimportantly, foreign institutional investors pulled out moneyon a larger extent from the Indian markets.

Despite, Indian economy remained one of the fastest growingeconomies in the world, as it managed to come out of theslowdown, post global financial crisis, during 2009-10. Stockprices recovered during this period in keeping with therecovery in global financial markets. And, Indian economymaintained its position as one of the fastest growing economiesin the world. But the Sovereign debt crisis and prolongedslowdown in the Euro area and the US have begun to havetheir impact on India’s growth prospects, the resilience ofthe Indian economy notwithstanding. In the primary market,the resource mobilized through public and rights issues hasfallen from about Rs.144 billion in the first half of 2011-12 toRs.100 billion during the same period in 2012-13. Thesecondary market has been affected too. While the market-cap to GDP ratio has fallen marginally to 64.3 percent inSeptember 2012 from 65.7 percent a year ago, the averagedaily market turnover during the first half of 2012-13 hasfal len by 9 percent from the level prevail ing in thecorresponding period of 2011-12.


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Amidst these gloomy trends, there were some green shoots in

the securities market. Net FII investment stood at US$ 8.4

billion in the first half of 2012-13 compared to US$ 2.1 billion

in the corresponding period of the previous year. Volatility in

the equity market has fallen as reflected in a decrease in the

volatility of the benchmark index S&P CNX Nifty 50, from

1.4 percent in September 2011 to 0.9 in September 2012. As

per World Bank report, the total number of listed domestic

companies in India is 5112 across 19 stock exchanges.

However, the uncertainty and risk stemming from the slower-

than-desired pace of economic recovery, looming end-of-year

fiscal cliff, and continued economic shockwaves emanating

from Europe make this an especially challenging time for

Indian equity market. Since India is relatively better off than

the rest of the world, Morgan Staley cites Indian stock

markets as an attractive destination even if there are plenty

of headwinds as far as Indian economic fundamentals are

concerned. Morgan Staley believes that the Indian stock market

offers good opportunities in terms of diversification and stock

picking because its corporate fundamentals seem more stable.

All these prepare a strong background why such a topic has

been selected for investigation. India’s sectoral diversification

and low level of volatility seems the best across major

emerging equity markets. As a result more global investors

are keen and keeping an eye on upcoming corporate earnings,

a good reason Indian market is preferred. In this context, it is

highly essential to know whether India’s equity market does

not confirm to random walk behaviour, the research

hypothesis, a good reason why investors and foreign

institutional investors pour easy money into India.

III. Efficient Market Hypothesis and Random WalkBehaviour

An efficient equity market is a market where the share prices

reflect new information accurately and in real time. Equity

market efficiency is judged by its success in incorporating

and inducting information, generally about the basic value of

securit ies, into the price of securit ies. This basic or

fundamental value of securities is the present value of the

cash flows expected in the future by the person owning the

securities. Stocks must be efficiently priced, because if the

securities are priced accurately, then those investors who do

not have time for market analysis would feel confident about

making investments in the capital market.

In finance literature, the Efficient Market Hypothesis (EMH)

asserts that financial markets are ‘informationally efficient.’

That is, one cannot consistently achieve returns in excess ofaverage market returns on a risk-adjusted basis, given theinformation publicly available at the time the investment ismade. There are three major versions of the hypothesis:‘weak,’ ‘semi-strong,’ and ‘strong.’ Weak form EMH claimsthat prices on traded assets (e.g., stocks, bonds, or property)already reflect all past publicly available information. Semi-strong form EMH claims both that prices reflect all publiclyavailable information and that prices instantly change to reflectnew public information. Strong form EMH additionally claimsthat prices instantly reflect even hidden or ‘ insider’information.

The validity of the efficient market hypothesis has beenquestioned by critics who blame the belief in rational marketsfor much of the financial crisis during 2007 and 2010.Defenders of the EMH caution that conflating market stabilitywith the EMH is unwarranted; when publicly availableinformation is unstable, the market can be just as unstable.

EMH allows that when faced with new information, someinvestors may overreact and some may under-react. All thatis required by the EMH is that investors’ reactions be randomand follow a normal distribution pattern so that the net effecton market prices cannot be reliably exploited to make anabnormal profit, especially when considering transaction costs(including commissions and spreads). Thus, any one personcan be wrong about the market – indeed, everyone can be –but the market as a whole is always right.

In weak-form efficiency, future prices cannot be predicted byanalyzing price from the past. Excess returns cannot be earnedin the long run by using investment strategies based onhistorical share prices or other historical data. The tools oftechnical analysis will not be able to consistently produceexcess returns, though some forms of fundamental analysismay still provide excess returns. Share prices exhibit no serialdependencies, meaning that there are no ‘patterns’ to assetprices. This implies that future price movements aredetermined entirely by information not contained in the priceseries. Hence, prices must follow a random walk. This ‘soft’EMH does not require that prices remain at or nearequilibrium, but only that market participants not be able tosystematically profit from market ‘inefficiencies.’ However,while EMH predicts that all price movement (in the absenceof change in fundamental information) is random (i.e., non-trending), many studies have shown a marked tendency forthe stock markets to trend over time periods of weeks orlonger and that, moreover, there is a positive correlation


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between degree of trending and length of time period studied(but note that over long time periods, the trending is sinusoidalin appearance). Various explanations for such large andapparently non-random price movements have beenpromulgated. But the best explanation seems to be that thedistribution of stock market prices is non-Gaussian (in whichcase EMH, in any of its current forms, would not be strictlyapplicable). The problem of algorithmically constructingprices which reflect all available information has been studiedextensively in the field of machine intelligence. For example,the complexity of finding the arbitrage opportunities in pairbetting markets has been shown to be NP-hard.

IV. Literature Review

There have been an extensive number of empirical researchesinvestigating the weak-form of market efficiency for differentfinancial markets around the world. For instances, severalstudies were performed in the context of developed financialmarkets. Lee (1992) tested the weak-form efficiency for 10industrialized countries (Austria, Belgium, Canada, France,Italy, Japan, the Netherland, Switzerland, U.K. and Germany)using the variance ratio test and the weekly stock returns forthe period 1967-1988. His findings indicate that the RandomWalk Hypothesis (RWH) is not rejected concluding weak-form efficiency for these markets. Also, Choudhry (1994)examined the stochastic trends of individual stock indices inseven OECD countries (U.S., U.K., Canada, France, Germany,Japan and Italy), using Augmented Dickey-Fuller (ADF),KPSS unit root test and Johansen’s cointegration test. Theresults show that these stock markets are efficient during thesample period. On the other hand, Al-Loughani and Chappel(1997) studied the U.K. market using Financial Times StockExchange (FTSE) 30. They conclude that FTSE 30-share indexdoes not follow a random walk. Worthington and Higgs (2006)examined the weak-form market efficiency for twenty-sevenemerging markets. The serial correlation and runs testsconclude that most emerging markets are weak-forminefficient. However, when multiple variance ratio tests areutilized, results were in general consistent with the serialcorrelation and runs tests. Also, Worthington and Higgs (2004)tested twenty European countries from August 1995 to May2003, utilizing serial correlation test, run test, AugmentedDickey-Fuller test and variance ratio test. They found thatonly five countries Germany, Ireland, Portugal, Sweden, andthe U.K. meet the most stringent criteria for random walk,while France, Finland, the Netherland, Norway, and Spainmeet only some requirements for a random walk. Similarly,

Karemera et al. (1999) studied the random walk hypothesisfor fifteen emerging stock markets using monthly index dataexpressed in both U.S. and domestic currencies. They concludethat when utilizing the multiple variance ratios and using theU.S. and domestic currencies, 10 out of 15 emerging stockmarkets are consistent with the random walk hypothesis.

Some other studies related to European emerging equitymarkets were also accomplished. Guidi , Gupta, andMaheshwari (2010) found that stock markets for Central andEastern European countries do not follow a random walk.Similarly, Smith and Ryoo (2003) used the variance ratio teststo examine the RWH for five European emerging equitymarkets. The results indicate that the hypothesis is rejectedfor the markets of Greece, Hungry, Poland, and Portugalbecause returns have auto-correlated errors, in Turkey; theIstanbul stock market follows a random walk. On the otherhand, Hassan et al, (2006) conducted a test of efficiency onseven European emerging markets using data from December1988 through August 2002 and utilizing several methodsincluding Ljung-Box Q statistic, runs and variance ratio tests.Their results, except Greece, Slovakia, and Turkey, marketsin Czech Republic, Hungary, Poland, and Russia are foundunpredictable. Gilmore and McManus (2003) concluded thatthe markets for the Czech Republic, Hungary, and Poland arenot yet weak-form efficient. On the other hand, Abrosimovaet al, (2005) examined the Russian stock market using datafrom September 1995 to May 2001. They concluded thatevidence supports weak-form efficiency in the Russian stockmarket. Also, Borges (2007) studied the Lisbon stock marketfrom January 1993 to December 2006. His results indicatethat the Portuguese stock market index has been approachingrandom walk behaviour since year 2000. Panas (1990) revealsthat Athens stock market is an efficient at the weak-formlevel. This contradicts the results of Dockery and Kavussanos(1996) who investigated the efficiency of the Athens stockmarket (ASM) using roots test. Their findings show that ASMis informationally inefficient. Results on Turkey stockmarkets were mixed. Zychowicz et al, (1995), Antoniou et al,(1997) and Tas and Dursonglu (2005) rejected the randomwalk hypothesis confirming that Istanbul stock exchange (ISE)is weakly inefficient. On the other hand, Buguk and Brorsen(2003) could not reject the random walk hypothesisconcluding that ISE is weak-form efficient.

Several studies also were conducted on some African countriesstock markets. Rapuluchukwu (2010) and Olowe (2002) foundthat Nigerian stock market follows a random walk behaviour


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and is weak-form efficient. On the other hand, Dickinson and

Muragu (1994) tested the Nairobi stock exchange (NSE) usingthe autocorrelation and runs tests. The results support theweak-form efficient market hypothesis implying that NSE isweak-form efficient. Contrary results were obtained byParkinson (1987) where the runs test rejected the RWHindicating that NSE is not weak-form efficient. Akinkugbe(2005) examined the weak-form efficiency in Botswana stockmarket for the period June 1989 to December 2003 using unitroot tests. The results indicate that Botswana market is weak-form efficient. Batuo Enowbi, Guidi, and Mlambo (2009)evaluated the efficient market hypothesis for four Africanstock markets, Egypt, Morocco, South Africa, and Tunisia,utilizing parametric and non parametric tests. Results showthat only South Africa stock market exhibited a random walk.Also, Smith (2008) tested 11 African equity markets from2000-2006 and found that they are not weak-form efficient.Similarly, Jafferis and Smith (2005) tested seven African Stockmarkets, South Africa, Egypt, Morocco, Nigeria, Zimbabwe,Mauritius, and Kenya starting in the early January 1990s andending in June 2001. The results indicate that South Africastock market is weak-form efficient during the entire periodwhile Egypt, Morocco, and Nigeria became weak-formefficient towards the end of the period. Similar study wereconducted by Smith, Jafferis and Ryoo (2002) on eight Africanstock markets using multiple ratio tests. For seven markets,Botswana, Egypt, Kenya, Mauritius, Morocco, Nigeria andZimbabwe, the hypothesis is rejected. However, South Africastock market found to follow a random walk.

Other studies related to Latin American emerging equitymarkets were also performed. For instance, Ojah and Karemera(1999) found that markets for Argentina, Brazil, Chile, andMexico exhibited random walk behaviour and they are weak-form efficient. On the other hand, Grieb and Reyes (1999)utilized the variance ratio tests to examine the equity marketsof Brazil and Mexico. Their findings indicate that Brazilmarket exhibited a greater tendency towards random walk.However, Urrutia (1995) rejected the RWH for the equitymarkets of Argentina, Brazil, Chile, and Mexico when thevariance ratio test was used, while the runs test shows weak-form of efficiency.

The Asian countries stock markets also have been tested forthe weak-form efficiency of the efficient market hypothesis.Hoque, Kim and Pyun (2006) studied the random walk validityfor eight emerging equity markets in Asia including, HongKong, Indonesia, Korea, Malaysia, the Philippines, Singapore,Taiwan and Thailand. They found that stock prices of the

eight Asian countries do not follow a random walk with thepossible exception of Taiwan and Korea. Similarly, Islam andKhaled (2005) and Mobarek and Keasey (2002) rejected theRWH indicating that Dhaka stock market in Bangladesh donot follow a random walk. Also, Abeysekera (2001) reachedthe same conclusion for Colombo stock exchange indicatingthat Sri Lanka stock Market is weak-form inefficient.Mookerjee and Yu (1996) concluded that Shanghai stockexchange and Shenzhen stock exchange in China exhibitedsignificant inefficiencies. Laurence (1986) utilized the runstest and the autocorrelation test on Kuala Lumpur stockexchange and the stock exchange of Singapore. They foundthat both markets are not weak-form efficient. This is contraryto Banes (1986) where he found that Kuala Lumpur stockexchange in Malaysia is weak-form efficient. Similar resultswere reached by Chang et al, (1996) and Chang and Ting(2000) rejecting the RWH and concluding that Taiwan stockmarket is weak-form efficient. Also, Cheung and Coutts(2001) used the variance ratio methods to examine theefficiency of Hang Seng index in Hong Kong covering theperiod from January 1985 to June 1997. Their results confirmthat Hang Seng index follows a RWH. Groenewold (1997)examined the weak form efficiency for Australia and NewZealand covering a full sample period of 1975-1992. Theresults of the unit root tests show that both indices wereconsistent with non-stationary implications of the weak-formof the efficient market hypothesis. The autocorrelation testprovides evidence of return predictability.

Also, several studies were performed on the Middle Easternstock markets. Al-Jafari (2011a) and Al-Jafari (2011b) foundthat both Bahrain and Kuwait equity markets areinformationally inefficient at the weak-form level. On theother hand, Jaradat and Al-Zeaud (2011) found that AmmanStock Exchange (ASE) is inconsistent with the RWH and isnot weak-form efficient. Similar results were obtained byMaghyereh (2003) who found that ASE does not conform torandom walk model and informationally inefficient. Thiscontradicts Civelek (1991) who found that the industrialsector of ASE is weak-form efficient. Also, Awad andDaraghma (2009) concluded that the Palestinian securitiesmarket is inefficient at the weak-form level. On the otherhand, Omran and Farrar (2006) investigated the RWH for fiveMiddle Eastern countries. Their findings rejected the RWHfor all markets. Also, Abdmoulah (2009) tested the weak-form efficiency for 11 Arab stock markets using GARCH-M(1, 1) and found that all markets are weak-form efficient.Similarly, Marasheh and Shrestha (2008) examined the UnitedArab Emirates securities market. They found that data contains


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unit root and follow a random walk meeting the criterion ofweak-form market efficiency. Similar results were obtainedby Mustafa (2004) who concluded that the UAE market isweak-form efficient. Butler and Malaikah (1992) examinedstock returns behaviour in Saudi Arabia and Kuwait during1985-1989. They found that the Saudi stock market isinefficient, while the Kuwaiti stock market is efficient. Thisis contrary to Hassan, Al-Sultan and Al-Saleem (2003) whichthey found that Kuwaiti stock exchange is weak forminefficient. Similarly, Abraham et al, (2002) examined theweak-form efficiency for Bahrain, Saudi Arabia and Kuwaitmarkets using the variance ratio test and the runs test for theperiod October 1992 to December 1998. Results of both testsrejected the RWH in all three markets concluding that theyare weakly inefficient markets.

Studies on market efficiency of equity market in India areonly a few in the finance literature. The studies such as Sharmaand Kennedy (1977), Barua (1980, 1987), Sharma (1983),Ramachandran (1985), Gupta (1985), Srinivasan (1988),Vaidyanathan and Gali (1994) and Prusty (2007) support theweak form efficiency of Indian capital market. There havebeen some studies like Kulkarni (1978), Chaudhury (1991),Poshakwale (1996), Pant and Bishnoi (2002), Pandey (2003),Gupta and Basu (2007), Mishra (2009), Mishra and Pradhan(2009), Mishra (2010), Mishra et al (2011), and Mishra (2011)do not support the existence of weak form efficiency in Indiancapital market. This disagreement regarding the EfficientMarket Hypothesis has generated a research gap and thus,this paper proceeds to reinvestigate the issue in the contextof the India’s equity market for the period Jan 2008 to Mid-March 2013. This sample period has been selected due to thefact that the equity market has shown the volatility behaviourduring this phase due to domestic as well as internationalcontagions.

V. Data and Methodology

The objective of the paper is to examine the validity of theweak form efficient market hypothesis in India’s equity marketfor the sample period spanning from January 2008 to Mid-March 2013. This period has been selected to see the impactof global economic and financial crises and domestic marketslowdowns on the efficient market hypothesis and randomwalk theory. For the purpose, we have used the dataset ofdaily stock returns of India’s equity market based on thedaily adjusted closing values of the S & P CNX Nifty. Thedata have been obtained from the yahoo finance. The seriesconsists of 1284 number of observations. The returns (R

t)

have been calculated by taking a logarithmic difference ofprices of two successive periods. Symbolically, it may bestated as follows: R

t =lnp

t-lnp

t-1where p

t and p

t-1 are the adjusted1

closing prices for the two successive periods. As is evidentfrom the aforesaid review of extant literature, there are severalmethods we can test the efficient market hypothesis andrandom walk theory. We use Run and Unit Root tests in thisstudy.

The Run Test: Run test is the most commonly used non-parametric test of the random walk hypothesis. It does notrequire that return distributions are normally or identicallydistributed (the condition that most stock return statisticscannot satisfy). At the same time, it eliminates the effect ofextreme values often found in the return data. This providesa solid alternative to parametric serial correlation tests inwhich distributions are assumed to be normally distributed.Runs test is a non-parametric test that is designed to examinewhether successive price changes are independent. A run canbe defined as a sequence of consecutive price changes withthe same sign. The non-parametric run test is applicable as atest of randomness for the sequence of returns. Accordingly,it tests whether returns in Indian equity market is predictable.

To perform this test, let na

and nb respectively represent

observations above and below the sample mean/median and rrepresent the observed number of runs with n=n

a+n

b

The expected number of runs can therefore be calculated byemploying the following formula:

The standard error is represented by:

Since returns are not normally distributed, the presence of

structural breaks or outliers in the series can bias the test

results. To control for such issues, we can use in the runs test

mean or median as a base. However, using the median can

yield more reliable results when there are outliers. The null

hypothesis for this test is for temporal independence in theseries.


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Unit Root Tests: Unit root tests are commonly used to testthe stationary property of a time series data. The mostimportant unit root tests are Augmented Dickey-Fuller(ADF), the Phillips-Perron (PP) and the Kwiatkowski,Phillips, Schmidt and Shin (KPSS) tests.

ADF Test: Dickey and Fuller (1979) have developed a test,known as Augmented Dickey -Fuller (ADF) test. The testconsists of estimating the following regression:

Where, Δ Rt is the first difference of the R

t,β

1 is the intercept,

β2,

ρ are the coefficients, t is the time or trend variable, m isthe number of lagged terms chosen to ensure that ε

1 is white

noise, i.e. ε1 contains no autocorrelation; ε

1 is the pure white

noise error term, is the sum of the lagged values of

the dependent variable ΔRt . Using the above equation, the

null hypothesis (H0) of a unit root is ρ=0 which is tested

against the alternative hypothesis (H1) that ρ<0 . The

acceptance of null hypothesis implies the existence of a unitroot, which means the time series under consideration, is non-stat ionary thereby indicat ing that the market showscharacteristics of random walk and as such is efficient in theweak form. The rejection of null hypothesis implies the non-existence of a unit root which means the time series R

1 is

stationary and do not show characteristics of random walk.And, hence is not weak form efficient.

PP Test: Phillips and Perron (1988) suggested a non-parametric method of testing for a unit root. The PP methodestimates the following equation:

Where, Rt is the monthly compounded rate of return calculated

on the basis of BSE and NSE monthly stock price indices, x1

are optional exogenous regressors which may consist of

constant, or a constant and trend, ρ and δ are parameters to be

estimated, and, ετ are assumed to be white noise. The null

and alternative hypotheses of this test are H0 : α = 0 and

H1 : α < 0 . The null hypothesis that the time series is non-

stationary is rejected when test statistic is more negative than

the critical value at a given level of significance.

KPSS Test: This test was developed by Kwiatkowski, Phillips,

Schmidt and Shin in 1992. The KPSS test assumes trend-

stationary time Rt under the null hypothesis. The KPSS

statistic is based on the residuals from the OLS regression

Rtof on the exogenous variables: x

t: R

T=x’

tδ +u

t

The KPSS attempts to test the null hypothesis that series is

stationarity against the alternative hypothesis of non-

stationarity. And, this null hypothesis is accepted if the test

statistic is less than the critical value; otherwise rejected.

VI. Preliminary Analysis

In order to obtain a better understanding of the behaviour of

stock prices/returns, a preliminary analysis of the data has

been carried out and results are reported in the Figure-1 and

Table-1. The figure-1 shows the time series plot of the return

data based on the Nifty index covering the aforesaid period.

It is clear from this plot that the data exhibit strong volatility.

It is evident from the Fig.1 that from the second quarter of

2008 till the end of first quarter of 2009 shows greater degree

of volatility of Indian stock market due to the impact of

global financial slowdown. Furthermore, during the fourth

quarter of 2010 and till the end of second quarter of 2012 the

market remained volatile, especially due to the impact of Euro

Zone economic crisis. Since then it has been showing a bit

stable and increase in stock market activities.

Mean -0.076669

Median -0.006373

Maximum 0.163343

Minimum -0.877269

Std. Dev. 0.160404

Skewness -2.822339

Kurtosis 11.70832

Jarque-Bera 5761.802

Probability 0.000000

Descriptive Statistics Nifty Based Daily Return

Table 1: Descriptive Statistics of Nifty Based Daily Return


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The Table-1 summarizes the descriptive statistics of the Niftybased daily return series. The distribution is not normal asskewness is less than one and the kurtosis is above three.Jarque-Bera statistic is 5761.8 and the probability of obtainingsuch a result under the normality assumption is zero. Thus,it rejects the null hypothesis that the series is normallydistributed. Thus, the stock price index, i.e., S & P CNXNifty does not follow the random walk. Thus Indian capitalmarket is not efficient in weak-form of Efficient MarketHypothesis.

VII. Empirical Analysis

Figure 1: TS Plot of Adjusted Daily Closing S & P CNX Nifty Index

In order to test the random walk behaviour and efficiency ofIndia’s equity market, we have used the Runs test and theUnit root test. The results are presented in Table-2, 3 & 4.

The Results of the Runs Test: The positive Z indicates thatthere are too many runs in the sample which suggest negativeserial correlation or autocorrelation. In our case, there are toomany runs in the sample with zero observed level ofsignificance. Thus, the null hypothesis that Nifty based dailyreturn series is random, is clearly rejected. In other words,the runs test clearly shows that India’s equity market is weak-form inefficient.

Test Value(a) -0.0766689

Cases < Test Value 356

Cases ≥ Test Value 928

Total Cases 1284

Number of Runs 709

Z 13.476

Asymp. Sig. (2-tailed) 0,000

Run Test Nifty Based Daily Return

Table 2: Runs Test with Mean as the Base

Table 3: Runs Test with Median as the Base

Test Value(a) -0.00637Cases < Test Value 642Cases ≥ Test Value 642Total Cases 1284Number of Runs 771Z 7.147Asymp. Sig. (2-tailed) 0

Run Test Nifty Based Daily Return


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The Test Results of Unit Root Test: The results of unit roottests are presented in Table-4. The ADF, PP and KPSS testshave been performed in level form with intercept and inter-cept & trend. All these tests reject the null hypotheses. TheADF and PP tests reject the null hypothesis of existence ofunit root. It means the Nifty based daily stock return series

is stationary and does not show the features of random walk;hence the India’s equity market is not efficient in weak form.Furthermore, the KPSS test accepts the null hypothesis thatthe series is stationary. This is the confirmation that the In-dia’s equity market does not show the random walk behav-iour and is not efficient in weak form.

ADF with Intercept -19.68 -3.43 Reject the Null Hypothesis

ADF with Trend and Intercept -19.72 -3.96 Reject the Null Hypothesis

Type of Test PP Statistic Critical Values at 1% Inference

ADF with Intercept -895.96 -3.43 Reject the Null Hypothesis

ADF with Trend and Intercept -902.9 -3.96 Reject the Null Hypothesis

Type of Test KPSS Statisticc Critical Values at 1% Inference

ADF with Intercept 0.5 0.73 Accept the Null Hypothesis

ADF with Trend and Intercept 0.5 0.21 Accept the Null Hypothesis

Table 4: Results of Unit Roots Tests

Type of Test at 1st Difference ADF Statistic Critical Values at 1% Inference

VIII. Conclusion

In recent years, the equity markets of developed and

developing countries are passing through a critical phase of

relatively high volatility and low liquidity thereby generating

the forces of market risk. And, India is no exception. The US

sub-prime crisis of 2008 and most recent Euro zone debt

crisis have wobbled the India’s equity market. In this context,

it is highly essential that the random walk behaviour and

efficiency in the information flow in India’s equity market

should be tested. Thus, the paper examined the random walk

behaviour and efficiency of the Indian equity market using

run test, and unit root tests. All these tests imply that the

Indian equity market does not follow random walk behaviour

and also, indicate that it is informationally inefficient at the

weak-form level. So in Indian market, it may be possible to

realize abnormal returns by using historical sequences of stock

prices, data related to trading volume, and other market related

information.

Such finding is no surprise in case of India. Despite the reforms

in the market structure, trading and regulations, Indian capital

market does not show efficiency in the flow of information of

any kind that may allow the market participants to make

some abnormal gains. Therefore, to some extent they can beat

the market thereby making excess returns. Such type of

behaviour shows the predictability of Indian capital market

and exposes to global contagions. Particularly, the FIIs have

become the primary movers and shakers of Indian equity

market as at least observed in last 2-3 years. This not only

adversely affects the confidence level of domestic investors,

but poses the potential threat to the capital formation of the

nation in general and the growth of Industries in particular.

Hence, it is imperative that the Indian regulators and policy

makers should embark on strong financial supervision, better

accounting, fair disclosure norms, reliable information

gathering and reporting, and corporate governance.

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Key words: Management Accounting, ERP, Benefits, Accountants, IT professionals, Satisfaction, India.

Mahesha V. M.Com., Assistant ProfessorDepartment of Post Graduate Studies and Research inCommerce, Karnataka State Open UniversityMuktagangotri, Mysore – 570006. Karnataka, India.Email:- [email protected].

Dr. S.B. Akash, Associate Professor & Chairman Dept. of Postgraduate studies & Research in Commerce Rani ChannammaUniversity

Management Accounting Benefits:

ERP EnvironmentMahesha V. and Akash S.B.

reat competition in the area of trade and theemergence of globalization compel companies toemploy the technology used by their competitors

to survive; therefore we are facing with an increasing trend inthe use of these technologies. One of the latest informationtechnologies used by the organization is Enterprise ResourcePlanning (ERP). ERP systems have been recognized as themost important development in the corporate use ofinformation technology since 1990 (Davenport, 1998),promising seamless integration of all the information flowsthroughout a firm. ERP system enables organizations to collectavailable information in all areas of activity in an integratedand coherent way and provide this data and the resultsobtained from them to its users at various organizational levels.One of the main users of this information is managementaccountants. Burns and Vaivo (2001, 389-390) identified fourparticular roles in their summary of literature on the changing

Abstract

The principal aim of this study is to investigate the accounting benefits of the adoption of an ERP system in relation to

ERR user satisfaction. This study explores the impact of the ERP system on accounting information and practice. This

study also examines whether differences exist between accountants and IT professionals concerning how each group assesses

ERP accounting benefits and ERP user satisfaction. The participants of this study consist of 75 accountants and 130 IT

professionals from 48 companies in India. The empirical evidence confirms a number of accounting benefits derived from

ERP systems particularly for accounting process. Furthermore, this research identifies factors related to accounting which

affect the level of ERP user satisfaction. The results of this study will provide stimulus for consequent research in the field.

G

,


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role of management accountants – the provider of costinformation, the controller/scorekeeper, the internal businessconsultant providing business support and the member of thestrategic management team. Management Accountants areconstantly trying to solve problems and direct managers usingthe integrated information provided by this system as well astheir competitors’ strategic financial and non-financialinformation. Due to the upward trend of using ERP systemsand its introduction into Iranian organizations, in this studywe review and evaluate the role of accountants in theimplementation of Enterprise Resource Planning system. Theresults suggest that the accountants have apposite role in theimplementation of ERP.

Recent changes in the business environments which have takenplace under various titles such as removal of unnecessaryregulations, privatization and globalization have prepared thegrounds for the evolution of existing firms into largemultinational companies and have compelled the companiesto search for new strategies in order to survive and furthercontinue the success. On the other hand it is observed thatinformation and communication technology (ICT) not onlyhave influenced and revolutionized the information systemsbut also have a significant effect on the way activities oforganizations are performed. So it seems that this technologycan provide conditions which enable companies to reflectagainst the created environmental changes and as a result leadto developments. However, in new business environmentswhich are based on ICT, in order to keep their usedtechnologies up-to-date and hence maintain their competitivecapacity, companies are under increasing pressures. ERPsystem is an instance of such technologies different types ofwhich (such as Sap, Ban, JD Edwards and, Oracle) areavailable, to the users.

ERP and Management Accounting Benefits

Information technology (IT) has brought about many changesin recent years. Companies have begun to adopt enterpriseresource planning (ERP) systems, which integrate severalbusiness procedures/departments while sharing one database(Rom and Rohde, 2006). The emergence of enterprise resourceplanning systems has signified the beginning of a new era inthe business environment, where companies can integratebusiness processes/applications and respond to real-timeinformation (Stefanou, 2002; Nicolaou, 2003; Spathis, 2006).This has resulted in the replacement of a major number ofinformation systems (IS) by one single ERP system. ERPsystems have significantly changed the way business data iscollected, stored, disseminated and used. This change in

information processing orientation affects the accountingprocess (Sutton, 2006). Nevertheless, the focus of the relevantliterature has been on ERP systems in general and there isl imited published scientif ic evidence on the ERPimplementation processes and their effects on accounting inparticular (Granlund and Malmi, 2002; Sutton, 2006). Nicolaouand Bhattacharya (2008) pointed out that “firms whichimplement an ERP system must be conscious of andcircumspect enough to realize that ERPs are different fromother IT systems. They bring about global changes to firms’business processes and as such their deployment presentsnot a finale but the start of post-implementation activities.”Overall, it seems that there is a positive relationship betweenERP implementation and operational efficiencies (Matolscyet al, 2005; Nicolaou and Bhattacharya, 2008).

According to recent studies, the implementation of ERPsystems affects the accounting processes and the accountants’role (Granlund and Malmi, 2002; Scapens and Jazayeri, 2003).Booth et al (2000) examined to which extent the applicationof an ERP system can lead to the adoption of new accountingpractices by an enterprise. It was found that ERP systemsconstitute sources of data for new accounting practices andare able to support these practices. More specifically, Romand Rohde (2006) found that ERP systems seem to be ofassistance in terms of the collection of data and theorganizational breadth of management accounting. This wasfurther confirmed by Javernpaa (2007), who noted that suchsystems lead to the adoption of new management accountingpractices and accountants are able to carry out routineactivities more effectively, to handle large databases morequickly and to report in a faster and more flexible way. Thefindings of another study (Hyvïnen et al, 2008) whichpresented the development of a management accountingcontrol system, suggested that IT accounting solutions ingeneral force accountants to not only study the logic of thesolution, but also to invent ways of combining accountingand management rationalities. Newman and Westrup (2005)also, using empirical evidence, demonstrated that even thoughthe relationship of accountants and technologies such as ERPshas become increasingly intertwined, accountants continueto use their position to reshape and advance their professionalexpertise. As a conclusion, we are in the position to arguethat ERP systems have impact on the accounting processesand on the accountants’ role.

In a study by Shang and Seddon (2002), a comprehensiveframework for assessing the benefits derived from ERPsystems is proposed. This framework tries to classify ERPbenefits into five dimensions: operational, managerial,


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strategic, IT infrastructure, and organizational. Esteves (2009)based on this classification in order to develop a benefitsrealization road-map for ERP usage in the context of smalland medium-sized enterprises (SMEs). His analysis suggeststhat ERP benefits realization dimensions are interconnectedand that managers should perceive this realization as acontinuum cycle along the ERP post implementation period.Some of the benefits that were examined by Esteves (2009)were: cycle t ime reduction, cost reduction, quali tyimprovement, improved decision making, supportorganizational changes, increase IT infrastructure capabilityand business flexibility.

Differences in perspectives related to ERP performance

We will now take a look at research studies which tried toexamine differences in perspectives related to ERPperformance between different groups of users. Chang (2006)compared IS integration in high-tech organizations from theIT and general management perspectives. All the organizationsthat participated in the study had implemented an ERP system.The results showed that IT and general managementperceptions of IS implementation were very similar.Furthermore, ITs’ overall important assessments of businessfunctions were more strongly correlated with their overalllevel of implementation and they tended to rate systembenefits and system reliability more highly. Sayed (2006)focused on the mechanisms and dynamics of expertiseconstitution where it is understood as an accomplishment orachievement. He tried to study the interrelation of accountantsand ICTs in a modern technology environment. He found thatthere is no dilution of expertise in relation to ICTs. Rather,some accountants are promoting themselves as a group ofrelevant experts in deriving benefits from these systems. Theresults of this study indicate that accountants see ERPs as achance for them to expand their skills and knowledge. Theobjective of another study was to determine whetherdifferences exist in perceptions related to ERP performancebetween two organizational stakeholder groups: businessmanagers and IT professionals. The results indicated that nosignificant statistical differences exist between the two groupswith the exception of one dimension: ERP success, i.e. vendor/consultant quality. Holsapple et al (2006) tried to determineERP success, in terms of user characteristics, ERP fitnessfactors and user satisfaction. This study indicated that ERPuser satisfaction among management users was greater thanamong non-management users. Longinidis and Gotzamani(2009) also, found that users from network department areless satisfied with ERP than are users from other departments(sales and supportive). In their study they stated that ERP

users from different departments use different functionalmodules and interact with different interfaces of the mainERP system. Although previous studies have examineddifferences in perceptions concerning benefits and usersatisfaction, there are no academic studies that assess anydifferences in the perceptions between accountants and ITsparticularly in terms of accounting benefits and ERPsatisfaction level related to ERP performance. Thus, our studywhich invest igates the accounting benefi ts and usersatisfaction associated with the ERP application by theaccounting department of an enterprise, is based on empiricallyresearched evidence.

ERP and user satisfaction

In the literature there are studies which tried to assess usersatisfaction related to ERP performance and operation.Somers et al (2003) argue that the realization of benefits fromERP systems depends on supporting effective use ofinformation technology and the satisfaction of IT users. Theynote that user satisfaction with information systems is oneof the most important determinants of the success of thosesystems. Wu and Wang (2007) agree that user satisfaction isan evaluation mechanism for determining system success andthus their study looked at key user satisfaction as a means ofdetermining system success. Their study took place in Taiwanand 205 questionnaires were completed by key users of ERPsystems in a large number of companies. The results indicatedthat there is a relationship between key user satisfaction andperceived system success. Their research identified that user’ssatisfaction evaluation for ERP system is multidimensionaland is related to “ERP product,” “contractor service” and“knowledge and involvement.” Longinidis and Gotzamani(2009) also, identified three factors which seem to affectsatisfaction of ERP users: Interaction with the IT department,Pre-implementat ion processes and ERP product andadaptability.

Calisir and Calisir (2004) claim that while much money hasbeen spent on the implementation of ERP systems, previousresearch has demonstrated that potential users may not usethem. They conducted a survey, which aimed at examiningvarious usability factors affecting end-user satisfaction withERP systems. Data were gathered from 51 end users in 24companies. The results showed that perceived usefulness aswell as learnability are determinants of enduser satisfactionwith ERP systems. Additionally, perceived ease of use andsystem capability affect perceived usefulness, while users’guidance influences both perceived usefulness and learnability.


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Koh et al (2006) investigated ERP adoption by Greekcompanies and explored the effects of uncertainty on theperformance of these systems through six case studies. Theyfound that there were major differences between ERP adoptionin Greek companies and companies in other countries. InGreece, the internal enterprise’s culture, resources available,skills of employees and the way ERP systems were perceived,treated and integrated within the enterprise and in the supplychain play a critical role in determining the success / failure ofthe adoption of ERP systems.

Methodology

A quantitative approach was adopted in terms of the collectionand analysis of the data. Using a probability sample design,systematic sampling was applied and a sample of 164companies in India was drawn that had adopted an ERPsystem. After liaising with the employees in charge of

accounting and ERP systems in those companies, the finalsample was reduced to 48 companies (those that agreed totake part in the study). The participants were 75 accountantsand 130 IT professionals. All the companies that participatedin the survey implemented an enterprise system at least oneyear ago. The data were gathered with the questionnairemethod. The questionnaire forms were returned to us by faxor e-mail and some were completed in person. Responsesrange from ‘‘not at all’’ (1) to ‘‘perfect’’ (7) on a 7-pointLikert type scale. Previous studies have indicated satisfactoryreliability for these variables (Spathis and Constantinides,2004; Spathis, 2006). The tests such as á-Cronbach and factoranalysis have been taken to ensure the reliability and validityof the scale obtained. The study used t-test to measure anystatistically significant differences in the responses betweenaccountants and IT professionals and we also used regressionanalysis to identify relationships between satisfaction andindependent variables.

Table – 1: Demographic Characteristics

A. RespondentsPosition held in the FirmAccounting 75 36.58IT (ERP) 130 63.41Total 205 100GenderMale 153 74.63Female 52 25.36Total 205 100Age (in years)25 to 35 years 66 32.1936 to 45 years 84 40.97Above 45 years 55 26.82Total 205 100Work Experience (in years)1 to 4 years 72 35.124 to 6 years 48 23.41Above 6 years 85 41.46Total 205 100

B. CompaniesType of IndustryManufacture 21 43.75Service - Research and Development 11 22.91Commerce 16 33.33Total 48 100

C. ERPType of ERPIndian ERP Software (A1 ERP, Adaxa Suite,Adempiere, Compiere, ERPNEXT etc.,) 31 64.5

Not Indian ERP Software (SAP,NAVISION, JD EDWARDS, etc.)Total 17 35.41

48 100.00

Particulars Response Percentage (%)


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The empirical evidence presented in this study was solelyobtained via the questionnaire that was answered byemployees from companies that had adopted the ERP systemfor at least 1 year in India. As can be seen in Table 1,accountants constituted 36.58% of the sample, while ITsconstituted 63.41% of the sample. The mean age of therespondents was 40.1 years and the respondents’ mean totalwork experience was 15.6 years. The mean years at currentposition was 8.4 years. According to the “type of industry,”43.75 %of the companies were from the manufacturing sector,22.91% were from the service sector and 33.33% were from

the commerce sector. Moving on to the “type of ERP”, itwas decided to divide the ERP software packages into twomain categories: “Local- Indian ERP software packages” (suchas A1 ERP, Adaxa Suite, Adempiere, Compiere, ERPNEXTetc.) and “International ERP software packages” (such as SAPERP, NAVISION ERP (MICROSOFT), JD EDWARDS ERP,etc.). 64.50% of the companies that participated in the studyhad adopted a local ERP system. It seems that companieswhich operate in India, tend to adopt local software packages.Further information on demographic characteristics isprovided in Table 1.

Table 2. Validity and reliability analysis of ERP system accounting benefits

ERP system accounting benefits Factor loadings % of variance

Factor 1: IT accounting benefits 18.369

It gathers data more quickly 0.811

It produces results easier 0.799

It processes results more quickly 0.763

It gathers data easier 0.762

It is more flexible in general 0.664

Factor 2: Operational accounting benefits (time) 17.032

Reduction of time for closure of monthly accounts 0.88

Reduction of time for closure of quarterly accounts 0.856

Reduction of time for closure of annual accounts 0.792

Reduction of time for issuing of financial statements 0.703

Factor 3: Organizational accounting benefits 14.184

Increased flexibility in information generation 0.769

Increased integration of accounting applications 0.666

Improved decisions based on timely and reliable information 0.562

Improved quality of reports – statements of account 0.55

Improved internal audit function 0.548

Factor 4: Managerial accounting benefits 10.356

Improved working capital control 0.783

Increased used of financial ratio analysis 0.74

Reduction of time for issuing payroll 0.506

Factor 5: Operational accounting benefits (cost) 6.396

Reduction of personnel of accounting department 0.902

Total variance explained (%) 66.338

Prior to the presentation of the research findings, we wouldlike to refer to the modules that the companies operate in theERP environment, Almost all companies that participated inthe study operated the f inancial accounting module.Additionally, the majority of the companies operated stockpurchases, a fixed asset register, costing, sales-marketing and

management accounting modules. The operation of suchmodules demonstrates that the companies that operate anERP have a primary concern to integrate their accountingprocesses into that system. This is due to their expectationthat ERP will have a positive impact on their accountingprocesses. Paradoxically, the payroll module, which forms an


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integral part of the accounting system, is only operated by57.5 percent of the companies that participated in the study.The survey findings are divided into three main sections andeach section corresponds to a specific research question. Thefirst section explores the accounting benefits derived fromthe ERP system implementation. The second section providesinformation about the opinions of both accountants and ITpersonnel and discusses whether or not there are statisticallysignificant differences concerning how each group measuresaccounting benefits and ERP user satisfaction. In the lastsection we try to examine ERP user satisfaction in relation toaccounting benefits, modules implemented and ERP cost.Empirical evidence showed that the respondents have quoteda number of benefits in accounting practice derived from ERPsystems. The variables related to accounting benefits of ERPsystems were factor analyzed using principal componentanalysis (PCA) with varimax rotation as a commonly usedtechnique for summarizing a set of variables into independentsubsets. The results are presented in Table 2.

PCA highlighted five dimensions (named after Shang and

Seddon’s (2002) and Spathis (2006) classification) involving:

1. IT accounting benefits: ERP gathers data more quickly

and easier, ERP produces results more quickly and easier.

2. Operational accounting benefits (time): reduction of time

for closure of monthly, quarterly and annual accounts

and reduction of time for issuing financial statements.

3. Organizational accounting benefits: increased flexibility

in information generation and integration of accounting

applications, improved decision making, improved

internal audit and improved quali ty of reports –

statements of account.

4. Managerial accounting benefits: improved working

capital control, increased use of financial ratio analysis

and reduction of time for issuing payroll.

5. Operational accounting benefits (cost): reduction of

personnel of the accounting department.

Table 3. Benefits and satisfaction of ERP system in relation to group of users

IT accounting benefits 5.632 0.975 5.642 1.209

Operational accounting benefits (time) 5.11 1.246 4.907 1.222

Organizational accounting benefits 5.353 0.979 5.356 1.051

Managerial accounting benefits 4.666 1.451 4.62 1.387

Operational accounting benefits (cost) 2.48 1.652 2.22 1.499

ERP user satisfaction** 5.35 1.103 5.05 1.182

Variables Accountants IT Professionals

Mean MeanStd. dev. Std. dev.

The next section presents results about the perceptions ofaccountants and IT professionals concerning accountingbenefits and ERP user satisfaction level. Details are displayedin Table 3. Respondents have quoted a number of benefitsand advantages in accounting information and practice derivedfrom ERP systems. The most highly-rated perceived benefitsachieved following ERP implementation involve: ITaccounting benefits, organizational accounting benefits andoperational accounting benefits (time). Each of the aboveperceived benefits was given a mean score between “5 = highdegree” and “6 = very high degree” by the respondents. Suchfindings prove that the inclusion of accounting processes inthe ERP system lead to the emergence of various accountingbenefits that receive high scores. “Managerial accounting

benefits” also received a high score “mean = 4.649 = highdegree.” On the other hand, the variable “operationalaccounting benefits (cost)” is the benefit that received thelowest rating (mean = 2.39 = very low degree). It seems thatERP adoption in the accounting department does not have animportant effect on personnel reduction. This finding is alsoconsistent with the results of O’Leary (2004), who foundthat only 12% of the companies which participated in hisstudy and had implemented an ERP system, had also seen areduction of personnel due to this implementation. There areno statistically significant differences concerning themeasurement of the accounting benefits between accountantsand IT professionals. It seems that the respondents of ourstudy (both accountants and ITs) viewed ERP as beneficial


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for the accounting processes in their organizations. However,it seems that there is a statistically significant differenceconcerning ERP user satisfaction in the way that accountantsand ITs estimate this variable (t = -2.046, p < 0.042). Eventhough accountants and IT professionals rated ERP user

satisfaction highly, the results show that there is a statistically

significant difference in their perceptions concerning this

variable. Overall, accountants seem to be more satisfied with

ERP performance compared to IT professionals.

Table 4. Means and Correlations

ERP User Satisfaction 5.240 1.000

IT Accounting benefits 5.640 0.593** 1.000

Operational accountingbenefits 5.052 0.464 0.5061.000 1.000

Organizationalaccounting benefits(time) 5.354 0.481 0.635 0.552 1.000

Managerial accounting benefits 4.649 0.373 0.488 0.524 0.596 1.000

Operational accountingbenefits (cost) 2.390 0.048 0.045 0.184 0.174 0.207 1.000

Modules 6.660 0.028 0.066 0.077 0.054 0.108 0.048 1.000

ERP cost 2.432 0.246 0.111 -0.045 0.116 0.086 0.115 -0.081 1.000

Variables MeanERPUser

Satisfaction

ITAccounting

benefits

Operationalaccounting

benefits

Organizationalaccounting

benefits (time)

Managerialaccounting

benefits

Operationalaccounting

benefits(cost)

Modules

ERPcost

The last research question concerns satisfaction of ERPadoption and its relation to accounting benefits, number ofmodules implemented and ERP cost. As shown in Table 4,the mean of the perceived ERP user satisfaction is 5.240. Theaverage number of modules implemented is almost seven outof eleven and the average cost of ERP is 2.432% of annualsales. The mean of perceived IT accounting benefits is 5.640,the mean of perceived operational accounting benefits (time)is 5.052, the mean of perceived organizational accountingbenefits is 5.354, the mean of perceived managerial accountingbenefits is 4.649 and the mean of perceived operationalaccounting benefits (cost) is 2.390. Statistically significantcorrelations exist between the dependent variable “ERP usersatisfaction” and the independent variables “IT accountingbenefi ts ,” “operat ional accounting benefi ts ( t ime),”“organizational accounting benefits,” “managerial accountingbenefits,” and “ERP cost.” These findings further confirmthe strong link between these variables within this context.However, perceived “operational accounting benefits (cost)”and “modules” are not correlated with “ERP user satisfaction.”

Conclusion

The aim of the present study was to investigate the accountingbenefits derived from ERP application in the accounting

department and whether differences between accountants andIT professionals exist concerning the measurement ofaccounting benefits and ERP user satisfaction. Moreover, thisstudy tried to evaluate the effect of accounting benefits,number of modules implemented and ERP cost on ERP usersatisfaction. Companies that operate in India and haveadopted an ERP system provided the data presented here.This study explored the impact that the ERP system has hadon accounting information and practice. The studies conductedby Spathis and Constantinides (2004), Spathis (2006) andKanellou and Spathis (2007) explored the accounting benefitsof adopting enterprise systems in India and this study can beseen as an extension of those studies, as it also explored ERPuser satisfaction and its relation to accounting benefits. Thus,the study is currently one of the first complete sets of dataavailable on Enterprise Resource Planning Systems in Indiain relation not only to benefits but also to ERP usersatisfaction.

Reference:

Robert W.S, Mostafa J (2003), “ERP Systems andManagement Accounting Change: Opportunities orImpacts? A Research Note,” European AccountingReview, Vol 12, No 1, Social Science Research Network


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Joseph F.B (2005), The Effect of ERP SystemImplementations on the Usefulness of AccountingInformation, Social Science Research Network.

Rom A, Roha C (2007). “Management accounting andintegrated information systems: A literature review(Periodical style).” International journal of accounting

information systems.

Jack L, Kholeif A (2008). Enterprise Resource Planning and acontest to limit the role of management accountants(Periodical style), Accounting Forum, ELSEVIER.

David S, Frederic A (2010). “Project preparedness and theemergence of implementation problems in ERPprojects.” Information & management (Periodical

style).

Booth, P., Matolscy, Z. and Wieder, B. (2000), “The impactsof enterprise resource planning systems on accountingpractice: The Australian experience,” The Australian

Accounting Review, Vol. 10 No. 3, 4-18.

Brazel, J. F. and Dang, L. (2008), “The effect of ERP systemimplementations on the management of earnings andearnings release dates,” Journal of Information

Systems, Vol. 22 No. 2, 1-21.

Calisir, F. and Calisir, F. (2004), “The relation of interface

usability characteristics, perceived usefulness, and

perceived ease of use to end-user satisfaction with

enterprise resource planning (ERP) systems”,

Computers in Human Behavior, Vol. 20, 505-515.

Chang, H.H. (2006), “Technical and management perceptions

of enterprise information system importance,

implementation and benefits,” Information Systems

Journal, Vol. 16, 263-292.

Colmenares, L. (2009), “Benefits of ERP Systems for

Accounting and Financial Management,” Allied

Academies International Conference: Proceedings of

the Academy of Information and Management Sciences

(AIMS), Apr. 2009, Vol. 13 No. 1, 3-7.

Deloitte Consulting (1998), ERP’s second wave: maximizing

the value of ERP-enabled processes, New York, NY:

Deloitte Consulting.

Esteves, J . (2009), “A benefits realization road-map

framework for ERP usage in small and medium-sized

enterprises,”Journal of Enterprise Information

Management, Vol. 22 No. 1/2, 25-35.


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Key words: Entrepreneurial orientation, Entrepreneurial resourcefulness, Socio-demographic factors, Household income, Entrepreneurship.

Dr.Purna Prabhakar Nandamuri Assistant Professor, IBS, IFHE University, Hyderabad,Andhra Pradesh, India.Mobile: +919440661551,Email:- purnapnandamuri@g mail.com

C.H.Gowthami, Assistant Professor,ITM Business School, Warangal-506001, A.PPh: +919849789131

Household Income :On Potential EntrepreneurPurna Prabhakar Nandamuri and C.H.Gowthami

revailing over the menace of unemployment hasbeen a target for the policy makers as well as theimplementers. One of the futuristic options available

is creat ing opportunit ies of self-employment orentrepreneurship. One can create opportunities for his/herselfand become an earning source by opting entrepreneurship asa career. Alam (2009) noted that entrepreneurship is like anengine for the development of the economy, creation of jobsand social adjustment of the economies of developing nations.The tempo and advancement of an economic system largelydepends on the emergence of new generation entrepreneurs. Asurvey of Mckinsey and NASCOM estimates that 110 to130 million Indians will be searching for jobs by 2015 (Popli,2010). Policymakers and academics around the globe agreethat the role and pace of entrepreneurship is significant forthe development of society. Hence, fostering entrepreneurialawareness and positive attitudes towards entrepreneurship

Abstract

The advancement of an economic system depends on the emergence of new generation entrepreneurs. It is appropriate to spot

out the influence of the fundamental socio-demographic factors on entrepreneurial orientation. The purpose of this study is

to analyze the association of household income with entrepre3neurial resourcefulness of management students. A sample of

200 final year post-graduate management students, selected randomly from 20 management institutes, were served with a

structured questionnaire to be marked on a five-point scale The responses were tested with ANOVA and multiple comparisons

were made and the relevant box plots were derived for inter-group comparison with the help of SPSS-19. The findings

establish that household income had a profound impact on entrepreneurial resourcefulness.

P


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are high on the policy agenda of several economies (OECD,2010). At the same t ime what one understandsentrepreneurship to be is not always viewed equally and thishinders making fact-based policy (GEM, 2011). The idea isthat, for individuals, nascent attitudes and perceptions aboutentrepreneurship affects those planning to venture into.Hence, it is the obligation on the prevailing education system,apart from the other institutions existing, to charge thegraduating youth with entrepreneurial orientation.

Researchers have identif ied various determinants ofentrepreneurship. As per the Global EntrepreneurshipMonitor - 2002 report, around 12% of adult population wasinvolved in entrepreneurial activities among 37 countriesrepresenting 62% of the world population. While less than3% of adults were involved in entrepreneurial endeavors inJapan, Russia and Belgium, more than 18% were so engagedin India and Thailand. Thus the level of entrepreneurialactivity was observed to be the highest in the developingAsian countries. The salience of entrepreneurship in Indiahas been intensifying in recent times. The percentage ofentrepreneurial activity in India was 17.9%, as compared toUnited States-10.5%; UK-5.4%; and Japan-1.8% (GEM,2002). In a recent survey by the Deloitte group, India ranks2nd globally as home to the fastest growing technology firms.In a survey conducted by the National Knowledge Commission,of the 95% who valued education as a foundation forentrepreneurship, 53% consider education a key trigger toevoke entrepreneurial orientat ion (NKC, 2008).Entrepreneurial orientation refers to the processes, practices,and decision-making activities that lead to new entry(Lumpkin & Dess, 1996). Entrepreneurship is a process ofopportunity identification and the creation of an organizationto exploit the opportunity. Entrepreneurial behaviour isdefined as the constellation of functions, activities and actionsinvolved in the perception of opportunities and the creationof organizations. An emergent body of research seeks to spotout fundamental factors that motivate individuals towardsentrepreneurial activity. Some of these factors relate to specificindividual differences in family background, education, age,sex, or personal attributes (Zhao et al, 2005). It is not onlythe skills but also some other factors like family background,personal characteristics, entrepreneurial support, socialrecognition, and risk-taking capability that matter in nurturinga successful entrepreneur.

Factors affecting entrepreneurship can be grouped under fourmain headings; demographic factors, social factors,

psychological factors and external factors outside of them.The contents of demographic/personal factors are age, maritalstatus, gender, income level and education. Social factors canbe considered as culture and society, family and religious values(Stephen, 1998). Previous research shows that entrepreneurshave the ability to act quickly during the emergence of newopportunities, and that there is an important relationshipbetween the capabilities of the entrepreneur and the activities(Hardy, 1999). In terms of individual approach, demographicvariables have an important role in being entrepreneurial. Inaddition, many factors such as age, marital status, socio-economic status, individual background and family incomeaffect being entrepreneurial (Coulter, 2001). However, fromthe review of the earlier researches, it can be concluded thatentrepreneurial characteristics are not universal. There is noprecise regulation or a set of traits independent acrosssituations to guide the entrepreneur to success. Psychologicalcharacteristics like ability to take risk and desire to besuccessful stand against common apprehensions associatedwith entrepreneurial success. Socio-Economic features likecaste, parental background, technical and professionaleducation, financial backup, location advantage and easy accessto market are also found to have strong correlation withentrepreneurial success (Azhar, 1999).

Entrepreneurial Resourcefulness

Being resourceful is the key to becoming a successfulentrepreneur. Resourcefulness is an important heuristic thatextends beyond other cognitive constructs such as self-efficacy and awareness. Both research and practice suggestthat resourcefulness as a construct has cognitive, affective,and behavioural components that allow it draw from ‘the toolbag’ of other skills. Resourcefulness offers the field ofentrepreneurship a rich construct that combines not only thecreative use of financial resources, but also numerous non-financial resources that lead to firm survival and firmperformance (Bradley & Mitchell, 2005). Entrepreneurialresourcefulness refers to the ability to self-regulate and directone’s behaviour to successfully cope with difficult, stressfuland challenging si tuat ions (Meichenbaum, 1977).Entrepreneurial resourcefulness comprises three genericcompetencies - cognitive, affective and action-oriented(Kanungo & Misra, 1992). Entrepreneurial behaviour is afunction of entrepreneurial resourcefulness. Sasi and Sendil(2000) argue that by hypothesizing that entrepreneurialresourcefulness influences entrepreneurial behaviour, thepredictive power can be enhanced. Min (1999) includes


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creativity, visionary, optimistic and innovator in the top tenattributes that entrepreneurs share. Gartner (1990) andSaayman et al (2008) also support the importance ofinnovation in entrepreneurship. Drucker (2002) says that allthe entrepreneurs he has ever met have ‘a commitment to thesystematic practice of innovation.’ Levitt (2002) argued thatcreativity may be ‘more of a millstone than a milestone’because of the shortage of creative people in business.According to Russell and Faulkner (2004), it is through timesof upheaval that entrepreneurs are often resourceful byspotting opportunities in the environment and using theircreativity to bring about innovation. Thus, all the findingssuggest resourcefulness as a key attribute for an entrepreneur.

However, the nature of the relat ionship betweenentrepreneurial resourcefulness and other relevant factors inentrepreneurship has not been made explicit or empiricallytestable to date. As entrepreneurial orientation theories haveemerged primarily from research among the developedcountries, it is vital to observe the scope to which these applyin the milieu of developing countries such as India where thepolicy makers are looking upon the under-25 population asthe future pool of entrepreneurs and employment originators.The purpose of this study is to verify the extent of theinfluence of the factor of household income on entrepreneurialresourcefulness of management students and to suggestreforms to the curriculum of entrepreneurial education.

Household Income

Financial wealth provides another important precursor ofentrepreneurial growth aspirations. High-income householdsare not only able to better provide the necessary financialresources to fuel entrepreneurial firm growth, but high-incomehouseholds are, because of their social position, more likelyto see more entrepreneurial growth opportunities (Dunn &Holtz, 2000). Exogenous influences, like demographics,society, traits, financial support, and culture, affect theattitudes and also the intentions indirectly and behaviours tobecome entrepreneurs (Shapero & Sokol, 1982). Out of theexogenous factors family support is one of the most importantas it proves to be backup of the entrepreneur. Familycharacteristics have implication on emergence of new business,recognition of opportunity, start up decisions and resourcemobilizations (Aldrich & Cliff, 2003). Financial resources inthe family have direct bearing on entrepreneurial intentions(Raijman, 2001). A series of studies (Evans & Jovanovic,1989) has identified that a lack of financial resources

constrains new and small firms. The theory of liquidityconstraints assumes that a major concern of emergingentrepreneurs is obtaining finance, which would imply thatthe receipt of capital increases an individual’s likelihood ofbecoming self-employed, both through the direct supply ofcapital and through the increased likelihood of bankersproviding capital . However, research on nascententrepreneurship has shown mixed evidence and has generallyfound no effects of household wealth and income (Kim et al.,2003) but a positive effect of individual income (Van Gelderen,1999). The family support model used to explain the financialor social support of their families (Timmons, 1994). Wang &Wong (2004) found that the parents’ financial and social statuswere not significant influence on the self employment.

Review of Literature

The entrepreneurial attitudes of business students have beenthe focus of several recent multi country studies. Akhtar et al(2011) found a significant impact of parents’ income onentrepreneurial acceptability of the university students atUniversity of Karachi, University of Balochistan Quetta andGomal University D I Khan in Pakisthan. Jorunn et al (2011)studied the relationship between resources, entrepreneurialorientation and performance in farm-based ventures and foundthat financial capacity, unique competence and entrepreneurialefforts influence performance in the investigated firms. Sujani(2011) found that there was no significant relationshipbetween family income and overall entrepreneurial intentionamong the students in Sri Lanka. Hence, the family incomefactor has not affected on the entrepreneurial intention ofacademics. Further, this study reveals that field of study,education level, gender and family business experiencesignificantly affected the intention in starting one’s ownbusiness while the financial ability of the undergraduates’family is not related to their business interest.

Linda and Helena (2010) explicated the roles that bothobjective environmental conditions and entrepreneurialperceptions of opportunity and resource availability play inthe process of firm creation. Utilizing longitudinal data onnascent entrepreneurs, it was found that the entrepreneurs’opportunity perceptions mediate between object ivecharacteristics of the environment and the entrepreneurs’efforts to start a new venture. Contrary to the pre-researchexpectations, a similar mediating effect for perceived resourceavailability was not found. The findings of Erkko and Zoltan(2010) suggested a posit ive relat ionship between anindividual’s household income and growth aspirations. Cindy


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et al (2010) found that demographic factors such as gender,household incomes and student status were positively relatedto their entrepreneurship intentions of students studying atthree universities in China.

A recent study (Frazier & Linda, 2008) of family and consumerscience students determined that self-efficacy beliefs relatedto self-employment were positively influenced by exposureto entrepreneurship through family, work, and educationalexperiences. Erkko and Zoltan (2007) found that householdincome was shown to be a particularly strong predictoremphasizing the importance of financial assets and socialcapital for entrepreneurial growth expectat ions. Thesignificant influence of household income on growthaspirations may be due to several reasons. It may indicatethat entrepreneurial growth opportunities may be, to someextent, socially stratified. Household income is an importantdeterminant of one’s social class. High-income householdsmay have better social connections, and they therefore mayget to see better growth opportunities. Another possiblemechanism may concern resource acquisition. It may be thathigh-income households are simply better able to act on theopportunities that they see by mobilizing their householdwealth for the pursuit of entrepreneurial growth. A highhousehold income may also create an expectation for a certainlifestyle, the pursuit of which could then be reflected onentrepreneurial growth aspirations. Kim et al (2006) foundno significant effects of household income and wealth onentrepreneurial entry. Both studies attributed the findings tothe limited resources required for start-ups which are oftensmall in size. Mueller (2006) also found no significant effectsof household income on an individual being a nascententrepreneur. However, Henley’s (2005) findings establishedsignificant positive effects of housing equity on self-employment. These were supported by Hundley (2006) whofound that family income is significantly associated with theprobability of self-employment. Examining the importanceof family financial capital on the transition into self-employment of youths, Dunn and Holtz-Eakin (2000) foundpositive and significant effects at both the individual andfamily level.

Chan (1996) attempted to investigate the correlates ofentrepreneurial orientation of vocational and technical studentsalong five categories, namely: (1) students’ personalcharacteristics (2) family-related matters (3) school-relatedmatters (4) working experience and (5) environmental factors.The findings of this study showed that entrepreneurialorientation was affected by each of the variables under the

following three categories: school-related matters, workingexperience, and environmental factors. However, it was foundthat not all the variables under the categories of students’personal characteristics and family-related matters weresignificantly affecting entrepreneurial orientation. Under thecategory of students’ personal characteristics, statisticalresults indicated that gender has significant effect on theentrepreneurial orientation of students. On the contrary,ethnicity showed no significant difference in entrepreneurialorientation, with all the ethnic groups showing similar levelof entrepreneurial orientation. Other than that, findings onfamily-related matters revealed that there were no significantdifferences in entrepreneurial orientation along family income,parents’ education, and parents’ occupation respectively.Some studies also argued that individuals with little capitalalso pursue an entrepreneurial career out of necessity (Mueller,2006).

In view of the contradictory empirical evidences, the presentstudy aims to contribute to the existing literature on theassociation between the household income and entrepreneurialorientation of potential entrepreneurs.

Objective

The principal aim of this research is to identify the associationbetween household income and entrepreneurialresourcefulness.

Hypothesis

The family income exerts is a s trong influence onentrepreneurial resourcefulness of management graduates.

Methodology

The most probable source of future entrepreneurs is the youthof a country. They are the product of the society and theyreflect the prevalent attitudes (Veciana, Aponte, & Urbano,2005). Therefore it was decided to study the youth studyingin colleges. A sample of 200 final year postgraduatemanagement students were selected randomly from leadingmanagement institutes in Warangal region of the state ofAndhra Pradesh. The respondents were served with aquestionnaire schedule containing 6 statements (Table 1)adopted from the EAO scale of Robinson et al (1991) (to bemarked on a five-point scale, denoting 5 = strongly agree; 4 =agree; 3 = unable to answer; 2 = disagree; and 1 = not at all).The responses are tested with ANOVA and mult iplecomparisons were made through post-hoc test (Tucky HSD)for observing variations with the help of SPSS-19.


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Table-1: Entrepreneurial resourcefulness with components

S.1. I have specific goals in my life Goal orientation

S.2. I always try to be innovative and creative Innovativeness

S.3. I spend some time every day on new ideas New ideas

S.4. I try to invent new product/service or improve existing one Invention skill

S.5. I try to take-up problems that nobody has looked at yet Problem solving

S.6. I can take control in unstructured situations Controlling

Inference

Results and Analysis

The monthly household income has been categorized into threeranges for the purpose of the present study as follows:

i. More than `50000 per month - High income range

ii. Between `20000 - `50000per month - Middle income range, and

iii.Less than `20000 per month - Low income range

Each component of resourcefulness is tested for variancebetween the three income groups and the corresponding meansare compared for an in-depth understanding (Table-2). Aftermultiple comparisons of the mean values of the three groupsthrough Tukey’s technique, corresponding ‘box plots’ also

have been generated to make the analysis morecomprehensive. It is a common observation that a dataexploration should always begin by looking at a graphicaldisplay of the data. Box plots can be used to summarizecomplex results from multivariate analyses. The Box plot isused to visually identify patterns that may otherwise behidden in a data set. The box plot gives graphical informationof the location, dispersion and the skewness of a data set.Further it draws attention to certain potential outliers andallows a visual appreciation of lack of symmetry. Thuscomparative box plots pertaining to the competency ofentrepreneurial resourcefulness are used to compare thedefined three ranges of monthly household income of therespondents.

Table-2: Resourcefulness Household income

S1 - I have specific goals in my life 47.436 .000 High Middle 1.94608*Low 1.59848*

S2- I always try to be innovative and creative 47.983 .000 High Middle 1.94608*Low 0.87121*

Low Middle 1.07487*S3- I spend some time every day on new ideas 218.359 .000 High Middle 2.44118*

Low Middle 2.21390*S4- I try to invent new product/service or 52.735 .000 High Middle 1.94608*improve existing one Low 0.78030*

Low Middle 1.16578*S5- I try to take-up problems 34.671 .000 High Middle 1.50980*that nobody has Low 0.60606*looked at yet Low Middle 0.90374*

S6- I can take control in unstructured situations 39.556 .000 High Middle 1.48529*

Low 1.14439*

* The mean difference is significant at the 0.05 level.

ANOVA Multiple Comparisons : Post Hoc (Tukey HSD)

F Sig.(1) Monthlyhousehold

income range

(J) Monthlyhousehold

income

MeanDifference

(I-J)


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Discussion:

A) Variance: The statistically significant F values (Table-2) obtained through ANOVA for goal orientation 47.436;innovativeness - 47.983; new ideas-218.359; invention skill -52.735; problem solving - 34.671 and controlling skill -39.556,imply the existence of differences of perception among therespondents from three different household income rangesregarding resourcefulness as an essential competency.

B) Multiple Comparisons: Further, the mult iplecomparison of the means of the three groups through Tukeytechnique establish that the respondents with a higherhousehold income (>`50000) yield relatively high meanvalues on all the components of resourcefulness differingsignificantly at 0.01 level with the other two groups belongingto middle (between ` 50000 - ` 20000) and lesser (<` 20000)monthly household income ranges respectively (Table-2).

Regarding the component of goal orientation, the respondentsfrom higher monthly household income differ with those ofmiddle range household income by a mean difference of1.94608 and from those hailing from low family income rangewith a mean difference of 1.59848. Thus, the respondentshailing from high-income families stand ahead of the othertwo groups on their preference for goal orientation. Similarly,the same group stays ahead of those from middle range familyincome on the component of innovativeness with a meandifference of 1.94608; 2.44118 for new ideas; 1.94608 forinvention skill; and 1.50980 for problem solving. The

respondents hailing from low household income range stand

in between the groups with high and middle household incomes

on all these components. Regarding controlling skill, both the

high (> `50000) and low (<`20000) household income groups

differ with the middle range income group (`20000 - `50000)

with the significant mean differences of 1.48529 and 1.14439

respectively.

C) Box Plots: The observations from the corresponding box

plots are explained in terms of location, dispersion and

skewness of the responses of the three groups.

Comparison of Location: The median of higher family income

(> `50000) group (4.5000) is greater than those of low

(<`20000) household income (3.0000) and middle range

(`20000-`50000) income group (2.0000) for goal orientation

(Figure-1). On the components of innovativeness and

invention skills, the high and the low monthly household

income groups oscillate (Figure-2 & 4) between the median

values of 4.5000 to 4.0000. It is interesting to note that in the

case of preference for new ideas (Figure-3), the respondents

with low family income yield absolutely higher median value

(5.0000) than high income group (4.5000). However, both

the high and low family income groups exhibit similar median

(4.0000) for problems (Figure-5). For the component of

controlling skills also, the higher and lower family income

groups move together with a similar median of 4.0000 keeping

themselves much ahead from the middle household income

backgrounds with a median of 3.0000 (Figure-6).


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Comparison of Dispersion: The inter-quartile range (1.00) ofthe respondents with high family income (> ‘50000) is shorterthan that of middle income (‘20000 - ‘50000) background(2.00) which in turn is shorter than the range (3.00) for lowhousehold income (<‘20000) group implying that the samplevariability of respondents with less household income is highin comparison with the other two groups and the variabilityof the middle income group is higher than high monthly incomegroup regarding goal orientation (Figure-1). Thus there is aninverse association of sample variability on goal orientationwith household income since the variability decreases as thehousehold income increases. Regarding the component ofinnovativeness (Figure-2), the sample variability of the lowas well as the middle range income groups is similar with aninter quartile range of 2.00 and higher than that of high incomegroup (1.00), invention skill (Figure-4), and problem solving(Figure-5). The sample variability of low and high incomegroups is similar (1.00) and lesser than the same value (2.00)of middle household income group for new ideas (Figure-3).Regarding the component of controlling skill (Figure-6), theresponses of low and middle household income groups showsimilar variance with an inter-quartile range of 2.00 while thehigh monthly income group exhibits lesser variance (1.00).

Comparison of Skewness: The measure of skewness explainsthe degree and direction of asymmetry. The distribution ofthe high income group is skewed to the left (-0.656) for goalorientation and the lower tail of the respective box plot islonger than the upper tail indicating that the data sampled areconcentrated on the high end of the scale while the distributionsof the respondents from middle and lower income householdsare skewed to the r ight with lengthy upper tai ls byconcentrating on the lower values of the scale. The high andlow household income groups show more or less similarskewness to the left on the aspects of innovativeness (-0.656& -0.857) and invention skill (-0.656 & - 0.781) while theresponses of middle income group were skewed to the righton both these aspects (0.594 & 0.594 ) with long tails.Regarding the issue of new ideas, the distribution of the lowincome group is highly left-skewed with a Pearson’sCoefficient of -1.213. The distributions of the low and highHousehold income groups was moderately left-skewed (-0.380&-0.426 respectively) on the component of controlling skillwhere as that of middle income range is approximatelysymmetric (-0.080).

Outliers: Outliers are the extreme values that deviatesignificantly from the rest of the sample and they can exist

above or below the whiskers of the box plot. It is statisticallyproved that regardless of size, at least 30% of samples drawnfrom a normally-distributed population will have one or moredata flagged as outliers. Data outside the outer fences areconsidered to be extreme outliers. In the present data set, thepresence of the extreme outliers in the distribution of lowhousehold income group for the issue of new ideas under thecomponent of innovation (Figure-3) may be evidence that apopulation has a non-normal distribution.

General observations: The respondents from higher householdincome show a consistently strong belief on goal orientationas the median value concerned (4.5000) is higher than theupper quartile values for the other two groups with lesserfamily income. Thus it can safely be said that goal orientationis strongly associated with household income of therespondents.

The competencies of innovativeness, new ideas, inventionskill and problem solving attract a consistently strongpreference from both high and low family income groups asthe median values of both the groups on the four issues reclinebetween 4.0000 and 5.0000 whereas the same values for middleincome group hover around 2.0000. Consequently, it can beinterpreted that these traits are significantly influenced bythe family income level of the respondents. Similar dispersionis observed for the component of controlling skill as the medianvalues of high and low household income (4.0000) groups issame and higher than that of middle income group (3.0000)which meant that controlling skill proved to have a strongassociation with household income of the sample group.

Conclusion

From the analysis of the data, it can be concluded that theentrepreneurial resourcefulness is strongly associated withthe household income of the respondents. The group withhigher household income leads on all the competencies tested– goal orientation, innovativeness, new ideas, invention skill,problem solving and controlling skill, followed by those fromlower income families on more or less all the components.However, the issue of generating new ideas attracted arelatively stronger preference from low income group. Therespondents hailing from families with middle householdincome comparatively trail behind the high and low householdincome groups on all the components of entrepreneurialresourcefulness. Thus the household income of the potentialentrepreneurs emerges to be a critical determinant ofentrepreneurial orientation.


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The research provides some vital insights to the field ofentrepreneurship. It is recommended that the controllingbodies of management education should aim at reforming theentrepreneurship training curriculum to motivate themanagement graduates hailing from middle and low familyincome levels towards entrepreneurship through more andmore exposure to industrial and business activities to ensurea bright future for the nation.

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Enhancing Organizational Performance:Indian IT Sector

Iliyas Mohammed

The purpose of this study is to examine the relationship among Human Resource Management, Knowledge

Management Capability and Organizational Performance. A questionnaire based survey was used to collect primary

data. Responses were received from 246 employees working in Indian Information Technology sector. Partial least

square path modeling was used for data analysis. The results show that Human Resource Management Strategies

influence Knowledge Management Capability which in turn enhances Organizational Performance. This paper is

limited to Indian Information Technology employees. Therefore the influence of culture should be considered in

further studies. Upcoming research can be intended for different countries in order to carry out a comparative study.

Abstract

Dr. S. Iliyas Mohamed, Assistant Professor,Dept. of Computer Science , Jamal Mohamed College,Thiruchirapally - 620020

Key words: Human Resource Management, Knowledge Management Capability and Organizational Performance

he growing attention around human resource

management (HRM) has caused a considerable body of

empirical research to come into sight, investigating the

influence of HRM practices on organizational performance.

Human resource management practices have the potential to

enhance organizational performance (Marchinton and Wilkinson,

2003). Researchers have identified the best human resource

management practices which can be associated to organizational

performance. They are high levels of teamwork, performance-

related pay, decentralised decision making, comprehensive

employee recruitment and selection procedures, limited status

differences, extensive training, employee involvement and internal

communication arrangements, internal career opportunities and

broadly defined job descriptions (Jones and Wright, 1992; Pfeffer,

1994; Jackson and Schuler, 1995; MacDuffie, 1995; Marchinton,

1995; Milgrom and Roberts, 1995; Delery and Doty, 1996; Becker

and Huselid, 1998; Pfeffer, 1998; Wiesner and McDonald, 2001;

Bowen et al 2002; Guest et al 2003; Michie and Sheehan, 2005; de

T


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Kok et al 2006). There are mechanisms which play a very

important role in strengthening the relationship between human

resource management and organizational performance. Human

resource management plays a vital role in companies which are

directed towards knowledge management (Cabrales et al, 2010).

This study focuses on whether knowledge management capability

acts as a mediator in the relationship between human resource

management practices and organizational performance. The direct

relationship between human resource management and organiza-

tional performance and human resource management and knowledge

management capability, are also tested. The study aims to propose

a model to explore the relationship between human resource

management, knowledge management capability and organizational

performance.

Research Objectives

The cardinal objective of the study is to seek empirical

relationships among human resource management, knowledge

management capability and organizational performance. However,

to achieve this overall objective, following sub-objectives have

been formulated:

1. Perform meta-analysis of the contemporary research and

identify the variables of human resource management,

knowledge management capability and organizational

performance.

2. Develop and validate a metric to measure the above variables

of study.

3. Undertake an empirical research to seek relationship between

the above variables.

4. Develop an empirically validated model to fill the research

gap in explaining the relationships between the above study

variables.

Literature Review

Human resource management and knowledge managementcapability

Narasimha (2000) suggests that effectively HRM is the key to

amplifying the effect of knowledge management. In fact, HRM

strategies can influence employees’ beliefs and values, which

consequently affect organizational culture (Marshall et al 1996).

It is concluded that HRM has significant influence on organizational

knowledge repository and management. Thus, HRM policies in

selection, training, performance appraisal, etc, must be aligned

with knowledge management strategies to enhance

organizational functioning (Svetlik and Stavrou-Costea, 2007).

The work done by Ikeno et al (2007) leads to the conclusion

that appropriate human resource management is one of the

critical factors for effective knowledge management. Thus, :

the hypothesis evolved is ;

H1 . Human resource management affects knowledge

management capability.

Human resource management and organizationalperformance

Research has established positive relationship between human

resource management and organizational performance. Osman

et al (2011) indicated that three main human resource

management practices namely employee relations and

communication, career planning, and job/work design have

the highest influence on organizational performance.

Moideenkutty et al, (2010) examined the relationship between

Human Resource Management (HRM) practices and

organizational performance and indicated that organizations

that implemented highly selective staffing, extensive training,

performance management practices and employee

empowerment had higher performance.

It is inferred that

H2.Human resource management impacts organizational

performance.

Knowledge management potential and organizationalperformance

Knowledge management potential (KMC) has been recognized

as a key factor for gaining and sustaining a competitive

advantage (Rezgui, 2007). In his statement, Jantunen (2005)

believed that knowledge-based assets and organizational

learning potentials are critical for organizational innovation

ability. In addition, Bogner and Bansal (2007) suggest that

there are three components in the KM systems that influence

firm performance: the firm’s abil i ty to produce new

knowledge, its ability to build on that knowledge, and its

effectiveness in capturing a high proportion of subsequent

spin-offs. In accordance with the studies discussed above, it

is conclude that :

H3. Knowledge management capacity changes organizational

performance.


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Research Methodology

This basically is an empirical study and as the name suggestsit relies on experience or observation alone, and it can even bewithout due regard for system and theory. This is basically adata-based research, coming up with conclusions which arecapable of being verified by observation. The starting pointof this research has been a working hypothesis on theinterrelationship between human resource management andknowledge management potential , human resourcemanagement and organizational performance, knowledgemanagement capability and organizational performance.Empirical research is most appropriate when proof is soughtthat certain variables affect other variables in some way andhence this approach has been adopted in this research.

As far as the approach is concerned, it is both qualitative aswell as quantitative in nature. It is qualitative because thevery formulation of hypothesis is qualitative in nature as itinvolves the study of the theoretical models which exist anda thorough understanding and reasoning if there could be anassociation between the variables of study. Literaturepertaining to human resource management, knowledgemanagement potential and organization performance have beenstudied to understand the bearing of each one of them, andused in the formulation of the working hypothesis.

Respondents

The respondents were employees working in Indian ITindustry. The sample size of the study is 246 employees,disproportionate simple random sampling was used asstratification wise response was not important for the specific

purpose of this research, pilot study was undertaken with a

sample of 45 random employees so that modifications and

simplifications of the jargons used were incorporated. Theinstrument had been validated for content, construct andcriterion validity. Finally, the metric in the form of a self-administered questionnaire (Appendix I) with 5-point Likertscale was served to 300 employees (response rate 82%), tocollect the data.

Procedure

The respondents were contacted through online survey. Theanonymity of respondents was guaranteed to ensure that therewould be no bias in their response.

Questionnaire and measures

This study employed a self-administered and structuredquestionnaire, with most of the questions developed throughmeta-analysis of the literature. Meta-analysis is basically aresearch procedure where all the literature relevant to thestudy is scanned and the most of the variables of interest areseparated and scanned for the association with other variablesso that a relation can be established between these variablesof study. This would be of particular use while developing ametric for measurement. Even though standard metrics wereavailable for some of the dimensions of study as this study isspecially oriented towards the three variables of interest, thequestions needed rephrasing to suit the purpose and hencevalidation was to be carried out. One expert evaluated thequest ionnaire, which then was pre-tested with f iverespondents. The five respondents were chosen because oftheir expertise and knowledge. On the basis of the commentsand evaluations from both the expert and the five respondents,some questions have been re-worked on for the sake of

Figure 1. Hypothetical Research Model


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improving the clarity, readability and understandability ofquestionnaire.

The questionnaire thus developed had separate sections for humanresource management(5), knowledge management capability (3),organizational performance (6). In addition to these sections therewas a separate section on socio-demographic characteristics,including age, gender, designation, level of education, and income.

Sample Characteristics

Out of the 246 respondents 81% were male and 19% were femaleemployees of IT. Experience wise 53% of the respondents had 2-5 years of experience, 22% of the respondents had less than twoyears of experience, 16% of the respondents had 6-10 years ofexperience and 9 % of the respondents had more than ten years ofexperience. About 43% of the respondents were drawing a salaryof more than ̀ 50,000 per month, 36% were in the range of ̀ 30,000to `50,000,16% of the respondents were drawing a salary of`20,000-30,000, and only 5% were drawing a salary in the rangeof less than ` 20,000. Majority of them were in the age group of25 to 30 years (63%), quite a sizable number were less than 25years (19%), a small number were in 35-45 years of age (13%) andin the category of above 45-55 years only 5% of the respondentswere present. Qualification wise, 38% of the respondents werePost graduates, and 30% of the respondents were Under Graduatesand other respondents were professional/PhD holders.

Data Analysis and Results

Method

The analysis of data employed partial least square (PLS) approachto structural equation modelling (SEM). The reason for this choiceis the simple fact that partial least square path modelling (PLSPM)is an analytic technique that runs principal component analysis(PCA) and regression analysis simultaneously. Thus, PLSPM isconsidered to be a more efficient analytic technique than theconventional method, in which, PCA and regression analysis areperformed separately. Further PLSPM successfully avoids multi-collinearity and measurement errors, while addressing the cause-effect relationships among the research constructs. There are twoapproaches, namely, covariance and PLS based approach. Thecovariance – based approach for SEM needs a larger sample (thedefinition of large size varies from one author to another viz. somedefine it as sample having more than 100 subjects and some othersdefine it as a sample having more than 200 subjects, at least threeindicators and typically requires reflective mode). PLS pathmodelling (PLS-PM) is generally meant as a component basedapproach to SEM that privileges a prediction oriented discoveryprocess to the statistical testing of causal hypotheses. Further,

PLS does not make assumptions about the population or scale of

measurement and there are no distributional requirements (Fornell

and Bookstein, 1982). Another benefit of PLS over other SEM

techniques such as AMOS, LISREL is that it allows both

formularized and reflective indicators to be used in the model

(Fornell and Bookstein, 1982). Therefore, this study used PLS

technique using SmartPLS® software. The PLS analysis pursued

here is a two-stage approach by first assessing the measurement

model (validity and reliability), and then assessing the structural

model by an estimate of the paths between the latent variables in

the model and its predictive power.

Measurement Model

This study investigated the internal consistency of the metric and

used three validity assessments viz., content validity, convergent

validity, and discriminant validity, and also, the construct reliability

and goodness of fit through R-square. Considering the exploratory

nature of this study, the reliability of the study in terms of internal

consistency is acceptable in terms of Cronbach’s Alpha (0.7 and

above) (Table - 1) (Nunnally, 1978). Composite reliability values

were all above the suggested value of 0.7 (Dillon-Goldstein’s rho),

indicating acceptable internal consistency. Content validity is

mainly judgmental based on the meta-analysis of literature and

discussion with the experts. In this research for each construct the

relevant literature has been analyzed for its suitability and during

the pilot run the content has been validated by the experts.

Convergent validity is by calculating the item-to-total correlations;

that is, the correlation of each item to the sum of the remaining

items within a variable. Convergent validity measures the extent

to which the items truly represent the intended latent construct.

Convergent validity is assessed by factor loading and composite

reliability measures (Hair et al, 1998). Only factor loading above

0.6 have been considered in this research (Table - 2), which are

adequately high (suggested cut-off value 0.4). The composite

reliability measures the extent to which items in the construct

measures the latent concept. A commonly acceptable threshold

value for composite reliability is 0.7 or more, although values

slightly below 0.7 have been considered acceptable (Haire et al,

1998). The composite reliability in this research is above 0.7,

which indicates reasonably high construct reliability. The average

variance extracted (AVE) values (Table - 1), in the present research

are all above the suggested values of 0.5 and the metric has relatively

high discriminant validity (Fornell & Larcker, 1981). Another

method used for testing the discriminant validity is, the square

root of the AVE of each construct needs to be much larger, although

there are no guidelines about how much larger, than any correlation

between this construct and any other construct (Gefen & Straub,


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2005). In this research this holds good for most of the constructs

as the values are adequately large (Table - 3). Further, the highestcorrelation is between knowledge management potential andorganizational performance, which is later proved by thehypothesis testing. Finally, R-square is the measure of goodnessof fit, is basically one minus the square of unexplained variance.

The larger the R-square value the better is the fitness of the

model. In the present research, R-square values for all the

endogenous variables are above 0.6, which indicate that there is

more than 60% of influence of exogenous variables on the

endogenous variables of study.

Table 1: Reliability and internal consistency of the variables

AVE CronbachsAlpha

CompositeReliability

RSquare

CronbachsAlpha

Redundancy

Human resource management 0.8713 0.9713 - 0.963 0.8713 0

Knowledge Management

Capability 0.9368 0.978 0.6388 0.9662 0.9368 0.5984

Organizational performance 0.9108 0.9839 0.7501 0.9804 0.9108 0.3056

Table 2: Factor Loadings (values below 0.6 excluded)

Human resource management 1 0.8998





Knowledge management capability 1 0.9702



Organizational performance 1 0.9517






Human resourcemanagement

Organizationalperformance

Knowledgemanagement capability

Table 3: Correlations between the variables

Human resourcemanagement

Organizationalperformance

Knowledgemanagement capability

Human resource management 1

Knowledge Management Capability 0.7992 1

Organizational performance 0.7748 0.8518 1


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Alpha Level = 0.05

Structural Model

Results from the structural model, as hypothesized, showed that

human resource management was positively related to knowledge

management potential, with a path coefficient of 0.7992, which

supports the first hypothesis. This means, if human resource

management is increased by say 1 unit, the knowledge management

capability will improve by 0.7992 units. Further, as expected,

human resource management was also positively associated with

organizational performance, with a path coefficient of 0.2602, a

finding that supports the second hypothesis. As anticipated

through theoretical study, knowledge management capability was

positively correlated with organizational performance with a path

coefficient of 0.6438 thus supporting the third hypothesis. R-

square measures the capacity of the manifest variables to describe

the related latent variables and it is expected to be higher than 0.60

for each manifest variable (Zaim et al, 2007). Incidentally, the

two latent variables namely Human Resource Management and

Knowledge Management potential explained nearly 75 percent of

the variance of organizational performance. Human resource

management accounted for about 63 percent of variance of

knowledge management potential (Figure - 2). Hence, the model

adequately explains the interrelationships between the variables

of study.

The path coefficients basically show the strength of association

between the latent variables of study and hypothesis testing

basically performed, based on the t-statistic. The t-values and the

structural model with the t-values are given in table - 4 and figure

- 3. Hence, it is clear that the following hypotheses stand

supported.

H1: Human resource management positively influences knowledge

management potential

H2: Human resource management positively influences

organizational performance.

H3: Knowledge management capability positively influences


Figure 2: Factor loadings after reduction and path coefficients


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Discussions and Implications

This research identifies a clear path from human resource

management to knowledge management potential, knowledge

management potential to organizational performance and human

resource management to organizational performance. The

Hypotheses H1, H2 and H3 are supported. There is a necessity

for organizations to efficiently and effectively administer and

leverage knowledge management activities by means of putting

into practice an effective human resource management system to

Figure 3: Structural Research Model with correlation and t-statistics

Table 4: t-statistic of the variables

Originalsample

(O)

StandardError

(STERR)

SampleMean(M)

StandardDeviation(STDEV)

T Statistics(O/STERR)

Human resource management Knowledge

management capability 0.7992 0.7995 0.0321 0.0321 24.8937

Human resource management

Organizational performance 0.2602 0.2635 0.0603 0.0603 4.3126

Knowledge management capability

Organizational performance 0.6438 0.6411 0.0688 0.0688 9.3583

augment organizational performance, as human resource

management can influence organizational performance positively

through knowledge management. It shows that human resource

management has direct and positive influence on knowledge

management potential which is supported by a number of studies

(Theriou and Chatzoglou, 2007, Bhatnagar, 2007). From the

perspective of knowledge management potential, the study

concluded that it has a positive effect on organizational

performance which is supported by Khandekar and Sharma,

(2005). Past research (Moideenkutty et al, 2010) is in line with


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the finding of the present study that human resource management

and knowledge management potential influences organizational

performance.

From the findings of the study it can be implied that human

resource policies or activities should be constructed to facilitate

the activities of knowledge management, because the positive

effects on organizational performance cannot be achieved with

policies or activities of human resource management alone. In

order to enhance a firm’s knowledge management capabilities, the

top management should focus in formulating effective knowledge

management policies and facilitate their implementation. As Rezgui

(2007) points out, a suitable HRM system is necessary to help

organizations overcome barriers to achieve effective Knowledge

management potential, which consequently adds value to the

firm. It is suggested to the management of Information Technology

organizations that they establish a reward system to motivate

employees to devote their effort in knowledge management in

order to enhance organizational performance. Organizations can

use appropriate information technology as it supports knowledge

management mechanisms. In fact, appropriate investment and

adoption of advanced technology helps knowledge capturing,

storage, and distribution (Tidd and Trewhella, 2002).The top

management may improve existing management systems through

knowledge management practice, which ultimately increases


Conclusion

The findings of this study have been largely unexplored by prior

researchers. The results indicate that human resource management

along with effective knowledge management activities can enhance

the performance of organizations to a great extent. Organizations

should focus on building an effective human resource management

system with appropriate knowledge management policies.

Although the empirical results of the study largely support the

current model, at least two limitations should be carefully

considered. First, as individual respondents make available the

empirical data, probable biases may perhaps exist. Second, given

that the data were collected in India, the characteristics of the

surveyed information technology organizations could be different

from those in other countries. Therefore, the present outcomes do

not necessarily represent the general case. On the other hand, it

possibly will give a basic reference for the organizations sited in

other countries whose environment is comparable to those in

India. The issue of adequate sample size is not a major

consideration in structural equation modeling, as the bootstrapping

technique can address this issue to a considerable extent. The

future scope of this research lies in extending the study for the

other dimensions of competitive advantage, because the ultimate

aim of knowledge management is to make the organization more

innovative so as to ensure sustainability.

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Key words: Students stress, academic factors, non-academic factors, Structural Equation Modelling

Stress Symptoms:Structural Equation Modelling

G.S. David Sam Jayakumar and A. Sulthan

n this modern scenario human beings are living inmidst of various events and they should adapt tothe various environmental factors for the purpose of

life existence. Before several decades, people in the worldwere stress free, because they were not much influenced bythe environmental factors such as technology, politics,economy and other social interactions. But today it is notlike that, every man and woman living in any culture or in anysociety are bounded by the major problem called Stress. Thisstress may be of different types and it is influenced accordingto the nature and position held by a person in the society orin an organization. This should be curtailed when we studythe reason for stress which influences a person in the studentlevel. Several studies have been undertaken to analyze thestress among the college students. Tara Smith and KimberlyRenk (2007) researched on Predictors of Academic-RelatedStress in College Students. Similarly, Bhavin U. Pandya et al

(2007) studied the Impact of Academic Stress on MBA

Abstract

The purpose of this study is to throw light on different types of stress factors, stress symptom and their impactof stress on college students from three different major disciplines namely Arts, Engineering and Management inTiruchirapalli district, Tamil Nadu.Transition of students from school environment to College environment couldcause a psychological, academic and social shock to them, since the educational system has huge differences: thestudent will face new methods of teaching, new academic requirements, new type of relations between studentsand faculties and even new relations among students themselves. Due to these changes, students can potentiallyexperience different types of stress that can affect their mental health, social health and their academic achievements.Stress is one of the main aspects of our modern life, resulted from the rapid changes in human life, so this ageis called the age of stress, students suffer from academic stress resulted from testing, home works and othercollege requirements which may exceed their abilities, sometimes the same person suffers from different types ofstress at a same time.

I

Dr. G.S. David Sam JayakumarAssistant Professor, Jamal Institute of ManagementTiruchirappalli – 620 020South India, India. E-mail:[email protected]

A.Sulthan, Research Scholar ,Jamal Institute of ManagementTiruchirappalli – 620 020, South India, IndiaE-mail:[email protected]


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Students of Gujarat Technological University. On the other

hand. Laura P. Womble (2009) made a study on Impact of

Stress Factors on College Students Academic Performance.

Maureen Johnson (2009) researched on Community College

Students’ Perception of Stress. Moreover, Joseph E. Agolla

et.al (2009) carried a case study of University of Botswana

which is an assessment of academic stress among

undergraduate students. Reem Rachel Abraham et.al (2009)

submitted a report on Stress among First Year Students in an

Indian Medical School andAlicia A. Larkins (2010) evaluated

the Impact of Stress-related and Culturally-specific Factors

on College Alcohol Consumption.Cheng Kai-Wen (2010) has

investigated the sources of stress among college students in

Taiwan. Similarly, Ahmad M. Thawabieh et al (2012) made an

assessment on Stress among University Students.

2. Theoretical Framework of Stress

What is Stress? - The term “Stress” is borrowed from the

discipline of physics. Stress actually means pressure. This

inner pressure is a psychological and physiological response

to events that upset our personal balance. Stress is simply

defined as the body’s non-specific response to any demand

placed upon it. The responses may be physical like head

ache, emotional like fear or sadness and behavioural increased

anxiety. If a person experiences a continuous state of

depression due to stress over a prolonged period of time and

cannot return to a relaxed state, then the stress becomes

negative and risky. Some destructive strategies to reduce these

stresses include using tobacco, drinking alcohol, taking illegal

drugs and overusing prescribed medications. All of these

strategies can only bring a short term relief but at a high cost

of damage to both body and mind. Are all the stresses negative

or bad? Should everyone strive to stamp stress out of their

life completely? The answer is definitely no! Positive stress

serves some useful purposes in our lives. A positive stress

sometimes drives a person towards his success. For example,

stress is essential for learning because a research study says

that learning takes place only under moderate conditions of

stress levels. So our goal must be to keep our stress at a

moderate level, neither too low or stress free that we may feel

bored nor so high that we are overwhelmed.

Stressors among College Students

Adolescence is a stage of human development that occurs

after childhood, and specifically between the ages of 15 to 25

years and viewed as a stage where young people experiences

a rapid growth both physically and mentally. All the college

students fall in this category of Adolescent stage. At this

stage the students will have fast physical changes and mental

development. However, students sometimes may experience

incompatibility of their mental development with their

physical changes or with the social environment and thus

suffer from problems or stress arising from inadequate

adaptation. These stresses may further cause psychological

troubles and even induce deviant behaviours. Adolescence is

thus a dangerous period of time where young people

experience self-organization and role confusion. For them

stress mainly comes from academic tests, interpersonal

relations, relationship problems, life changes, hormonal

changes, career exploration and high expectations. Such stress

may usually cause physical, psychological and behavioural

problems. College students are at a critical period of life,

where they enter adulthood which decides their future life

and career. They are expected to be the elites in the society.

Thus, they should enhance their stress management abilities

so as to live a healthy life after entering the society. For

college freshmen, they need not only to adapt themselves to

the new life and new environment but also be familiar with

new people, events and things. The life stress on them is

considerable and tolerable. Therefore, understanding the

source of stress among them and how they can cope with the

stress is very important.

Causes for college Students Stress

The potential causes of stress are numerous. It may be linked

to the outside factors such as the state of the world;

environment in which one lives or works, or the family. It

may come from one’s own irresponsible behaviour, negative

attitudes, or feelings or unrealistic expectation. The causes of

stress are highly individual. They depends on the personality

general outlook on life, problem solving abilities, and social

support system. Many different things cause stress-physical

to emotional. Identifying what causes stress is the first step

to deal with stress. For College Students, irrespective of their

disciplines the stress is caused mainly due to two set of factors

namely Academic factors and Non-academic factors.

Academic Factors - Academic pressure is a significant source

of stress for many college students. Identified sources of

academic-related stress have included fear of falling behind

with coursework, finding the motivation to study, time

pressures, financial worries, and concern about academic

ability. Additionally, students report stress over struggling


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to meet academic standards, time management worries, andconcerns over grades. Additionally, these sources may existeasily throughout the span of college students’ academiccareers and may result in college students’ experiencing a greatdeal of stress during their college career. The following aresome of the common academic stress factors found in thestudents of all the three major disciplines i.e. Arts, Engineeringand Management students and hence the same are used in thequest ionnaire. They are Improper teaching, Lack ofinformation to be learnt, Competition for scoring marks,frequent examinations, Long hours of academic work, Barriersin communication, Heavy work load, Inadequate resources,Irregular attendance, Dilemma in choosing the Discipline andInsufficient library facilities.

Non-academic Factors - Apart from academic pressure thereare many other reasons which aggravate stress among students.They may be due to their personal inferior complex feelingsdue to lack of confidence, misguidance, undesirable habitsdue to wrong friendship, immaturity, sedentary lifestyle,misunderstanding with their parents, friends and relatives,financial problems, inconvenient environment in the societyand fear about their future. The following are some of thecommon non-academic stress factors found in the students ofall the three major disciplines i.e. Arts, Engineering andManagement students and hence the same are used in thequestionnaire. They are Inconvenient accommodation,Difficulty ofbeing social with same age group, Insufficienttime for recreation, Lack of health, Poor infrastructure, homesick, Financial problems, Uncertainty of job after graduationand High expectations from parents.

Stress Symptoms- Symptoms are some of the reactions andchanges due to stress. Every one reacts to stress differently.But there are common symptoms of stress. People may shakeuncontrollably, breathe faster, deeper than normal or evenvomit. Stress can trigger an asthma attack. Symptoms of stressin students may appear in many forms. Some symptoms willonly have impact on the individual who is direct lyexperiencing the stress, while the other symptoms of stressmay have an impact over their relationship with others.Perhaps some experiences both when their stress levelsare elevated.The three main stress symptoms of collegestudents are Physical symptoms- Headaches, Digestiveproblem, Sleep disturbance, Fatigue, High Blood pressure,Weightgain or loss and Asthma or shortness of breath.Emotional symptoms-Hypersensi t ive, Rest lessness,Depression, Anger, Irritation, Lack of confidence, Apathy

and Urge to laugh or cry at inappropriate times. Behavioralsymptoms-Eating more or less, Sleeplessness, Isolation,Neglecting responsibilities, Increased alcohol and drug use,Nervous habits, Teeth grinding or Jaw clenching, Overdoingactivities such as exercising or shopping, Losing temper andOverreacting to unexpected problem.

3.Methodology and Instrumentation

Sampling framework

The research is a sample survey to elevate the impacts ofacademic and non-academic factors of college students on thestress symptoms. For this the researcher adapted a Purposivesampling method.Moreover under the three disciplines namelyArts, Engineering and Management, the researcher has selectedthree Engineering Colleges namely PABCET, Saranathan andJJ Engineering College respectively for the purpose ofevaluating the College students stress symptoms in engineeringdiscipline. Similarly, for the purpose of analyzing the Collegestudents stress symptoms in arts discipline we selected IndiraGandhi College for women, Bishop Heber College and St.Joseph College respectively. In the same manner, in order tostudy the stress symptoms of the Management students theresearcher selected three famous colleges in Tiruchirapallidistrict they are Bishop Heber College, St. Joseph Collegeand JJ College respectively.

Determination of Sample Size

In order to determine the sample size for this research studythe following formula is used:

where, n is the sample size, z is the standard normal variatevalue (1.645) at 95% confidence level, e is the allowablesampling error at 5% and s is the standard deviation of theraw stress symptom score.

Based on the Pilot study, the standard deviation of the rawstress symptoms score of the college students based on thedisciplines namely Arts (0.04394), Engineering (0.265) andManagement (0.3274) are calculated. Now by substitutingthe above said values in the formula, we get the requiredsample size of the college students and each discipline isderived and it is the lower limit of the sample size used toanalyze the stress symptoms of the college students inTiruchirapalli District and it is given as follows Arts (209),Engineering (76), and Management (116).


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Data Collection and Instrumentation

A well-structured Questionnaire prepared by the researcher

after the completion of pilot study, is with rectifying the

short comings faced in the pilot study. The finalized

questionnaire is divided into three parts, in which Part 1

includes the questions regarding personal demographic profile

of the college students; Part 2 elucidates the conceptual

questions under two dimensions namely academic factors (11)

and non-academic factors (9). Similarly Part 3 exhibits the

questions regarding the stress symptoms of the students

which compressed (7) items. All these items were anchored

at five point likert scale (from 1 to 5). Finally secondary

information regarding the profile of the college students and

related reviews are also collected by the researcher through

the internet source. The researcher also visited all the

aforementioned colleges in Tiruchirapalli District for thepurpose of conducting some formal discussion with thefaculties and the students.

4. Data analysis and results

The data was analyzed with the help of standard statisticalpackage namely SYSTAT 13, IBM SPSS 20 and IBM SPSSAMOS 20. At first the collected data were organized andlogically tabulated. Cross tabulations were prepared accordingto the subject discipline of the students; with this one wayanova is also used to find the mean equivalence of theperception regarding the items under academic and non-academic factors according to the discipline. Secondly,Structural Equation Modelling is applied to propose a multi-dimensional model of evaluating stress symptoms of collegestudents in Tiruchirapalli District.

Table-1 Shapiro-wilk test of univariate normality

ItemsFactorArts Engineering Management Pooled

Test statistics

Academic Improper teaching 0.879 0.851 0.903 0.892Lack of information 0.816 0.803 0.797 0.836Scoring marks 0.885 0.871 0.87 0.892Frequent examinations 0.815 0.774 0.846 0.835More academic work 0.82 0.774 0.837 0.85Communication Barriers 0.868 0.844 0.897 0.859Heavy Workload 0.857 0.846 0.858 0.87Inadequate Resources 0.881 0.87 0.886 0.889Poor attendance 0.881 0.863 0.889 0.89Inappropriate specialisation 0.867 0.779 0.897 0.881Inadequate library facilities 0.866 0.841 0.868 0.875

Non-Academic Inconvenient accomadation 0.912 0.899 0.89 0.901Introversion 0.893 0.895 0.883 0.89Insufficient time for Recreation 0.855 0.862 0.804 0.844Poor health 0.861 0.87 0.813 0.859Inadequate infrastructure 0.853 0.839 0.815 0.868Homesick 0.91 0.878 0.892 0.911Financial problems 0.853 0.826 0.873 0.86Fear about future 0.823 0.777 0.89 0.838High expectation from parents 0.833 0.84 0.767 0.841Nervous Indigestion 0.836 0.826 0.826 0.815

Stress Symptoms Feeling and anxiety 0.855 0.849 0.86 0.845Drinking and smoking 0.871 0.864 0.894 0.848Breathing problem 0.878 0.862 0.902 0.886Continuous thinking 0.88 0.869 0.903 0.874Trouble in concentration 0.897 0.899 0.896 0.883Counter Medications for relax 0.834 0.818 0.859 0.835


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Table-2 Multivariate test of normality

Test nameManagement

(n=116)Arts

(n=209)Engineering

(n=76)Pooled (n=401)

Mardia’s Skewness 16,180.884* 15,269.426* 5,604.495* 5,832.196*

Mardia’s Kurtosis 5.332* 7.565* 1.642 -2.839*

Henze-Zirkler 4.678* 4.861* 1.584* 1.434*

Table-3 . Personal and demographic factors of students based on discipline

CategoryFactorsArts

(n=209)Engineering

(n=76)Management

(n=116)Pooled

(n=401)

Discipline

Gender Male 58(27.75) 43 (56.57) 69(59.48) 170(42.39)

Female 151(72.24) 33(43.42) 47(40.51) 231(57.60)

Age above21 128(61.24) 46(60.520) 71(61.20) 245(61.09)

below21 81(38.75) 30(39.47) 45(38.79) 156(38.90)

Members below5 143(68.42) 42(55.26) 71(61.20) 256(63.84)

above5 66(31.57) 34(44.73) 45(38.79) 145(36.16)

Degree UG 135(64.59) 47(61.84) 69(59.48) 251(62.59)

PG 74(35.40) 29(38.15) 47(40.51) 150(37.40)

Problems Headache 121(57.89) 33(43.42) 55(47.41) 209(52.12)

Muscular tension 46(22.01) 22(28.94) 26(22.41) 94(23.44)

Chest pain 1(0.47) 4(5.26) 4(3.44) 9(2.24)

Fatique 32(15.31) 16(21.05) 28(24.13) 76(18.95)

Not applicable 9(4.30) 1(1.31) 3(2.58) 13(3.24)


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Fig.1 Structural model of Arts student’s Stress symptoms


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Table-4: Multi-dimensional effect of Academic and Non Academic factors on Stress symptoms of Arts students

DependentIndependent

Indicators Improper teaching Academic 1.623 0.224 0.678 7.235 0

Lack of information 1.499 0.198 0.73 7.563 0

Scoring marks 0.814 0.139 0.5 5.867 0

Frequent examinations 1.17 0.192 0.526 6.091 0

More academic work 0.731 0.152 0.389 4.805 0

Communication Barriers 1.683 0.223 0.725 7.532 0

Heavy Workload 1.058 0.186 0.481 5.695 0

Inadequate Resources 1.276 0.169 0.731 7.567 0

Poor attendance 0.946 0.15 0.55 6.298 0

Inappropriate specialisation 1.07 0.185 0.491 5.786 0

Inadequate library facilities 1 - 0.556 - -

Inconvenient accommodation Non 1 - 0.586 - -Academic

Introversion 0.199 0.164 0.094 1.211 0.226

Insufficient time for Recreation 0.647 0.13 0.42 4.994 0

Poor health 0.451 0.127 0.285 3.551 0

Inadequate infrastructure 1.104 0.168 0.602 6.59 0

Home sick 0.465 0.149 0.247 3.116 0.002

Financial problems 1.858 0.248 0.744 7.499 0

Job 1.427 0.198 0.689 7.196 0

High expectation from parents 0.8 0.204 0.318 3.921 0

Constructs Physical stress Academic 0.883 0.261 0.619 3.384 0

Non Academic -0.662 0.252 -0.481 -2.632 0.008

Emotional stress Academic -0.05 0.101 -0.08 -0.498 0.619

Non Academic 0.096 0.104 0.16 0.928 0.353

Behavioural stress Academic -0.29 0.179 -0.499 -1.621 0.105

Non Academic 0.111 0.144 0.199 0.773 0.44

Indicators Nervous Indigestion Physical stress 1 0.628

Breathing problem 0.103 0.153 0.069 0.672 0.501

Feeling and anxiety Emotional stress 1 - 0.335 - -

Continuous thinking 0.591 0.438 0.151 1.35 0.177

Trouble in concentration 2.331 0.732 0.638 3.186 0.001

Drinking and smoking Behavioural stress 1 0.312

Constructsname

Un-standardisedco-efficient

Standarderror

Standardisedcoefficient

Criticalratio

P-value

RMR=.213 GFI=.530 AGFI=.447 PGFI=.450 RMSEA=.207LL (RMSEA) =.201 UL(RMSEA) 90=.214 PCLOSE=.000


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Fig.2 Structural model of Engineering student’s Stress symptoms


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Table-5: Multi-dimensional effect of Academic and Non Academic factors on Stress symptoms of Engineering students


Indicators Improper teaching Academic 5.93 9.458 0.406 0.627 0.531

Lack of information 4.473 7.218 0.322 0.62 0.535

Scoring marks -1.047 2.204 -0.092 -0.475 0.635

Frequent examinations 1.705 3.163 0.13 0.539 0.59

More academic work 7.123 11.294 0.481 0.631 0.528

Communication Barriers 5.412 8.63 0.407 0.627 0.531

Heavy Workload 7.955 12.613 0.482 0.631 0.528

Inadequate Resources 11.462 18.023 0.783 0.636 0.525

Poor attendance 8.045 12.686 0.611 0.634 0.526

Inappropriate specialisation 4.698 7.595 0.313 0.619 0.536

Inadequate library facilities 1 - 0.083 - -

Inconvenient accommodation Non Academic 1 - 0.538 - -

Introversion 7.794 0.327 0.342 2.43 0.015

Insufficient time for Recreation 0.23 0.263 0.113 0.873 0.383

Poor health 0.775 0.278 0.405 2.792 0.005

Inadequate infrastructure 0.716 0.299 0.336 2.394 0.017

Home sick 2.05 0.518 0.853 3.956 0

Financial problems 0.923 0.374 0.348 2.466 0.014

Job 0.309 0.359 0.112 0.862 0.389

High expectation from parents -0.831 0.347 -0.335 -2.393 0.017

Constructs Physical stress Academic -1.042 3.089 -0.076 -0.337 0.736

Non Academic -0.385 0.415 -0.177 -0.928 0.353

Emotional stress Academic -3.567 6.021 -0.331 -0.592 0.554

Non Academic -0.664 0.375 -0.391 -1.772 0.076

Behavioural stress Academic 0.308 1.039 0.077 0.297 0.767

Non Academic -0.333 0.306 -0.528 -1.09 0.276

Indicators Nervous Indigestion Physical stress 1 - 0.748 - -

Breathing problem 0.063 0.169 0.057 0.373 0.709

Feeling and anxiety Emotional stress 1 - 0.624 - -

Continuous thinking -0.131 0.246 -0.084 -0.531 0.597

Trouble in concentration 0.445 0.261 0.286 1.707 0.088

Drinking and smoking Behavioural stress 1 - 0.288 - -

Counter Medications for relax -2.652 2.449 -0.599 -1.083 0.279

Constructsname


Standarderror


Criticalratio

P-value

RMR=.190 GFI=.565 AGFI=.484 PGFI=.476 RMSEA=.168 LL(RMSEA)=.=.156 UL(RMSEA)=.=.180 PCLOSE=.000


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Fig.3 Structural model of Management student’s Stress symptoms


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Table-6: Multi-dimensional effect of Academic and Non Academic factors on Stress symptoms of Management students


Indicators Improper teaching Academic 7.099 6.822 .658 1.041 .298

Lack of information 6.067 5.837 .628 1.039 .299

Scoring marks 2.330 2.382 .271 .978 .328

Frequent examinations 3.824 3.763 .391 1.016 .310

More academic work 4.717 4.593 .466 1.027 .304

Communication Barriers 5.828 5.628 .560 1.035 .300

Heavy Workload 6.794 6.548 .595 1.038 .299

Inadequate Resources 6.086 5.853 .637 1.040 .298

Poor attendance 4.776 4.648 .470 1.028 .304

Inappropriate specialisation 1.780 2.023 .166 .880 .379

Inadequate library facilities 1.000 - .108 - -

Inconvenient accommodation Non Academic 1.000 - .114 - -

Introversion 2.326 2.468 .225 .943 .346

Insufficient time for Recreation 2.438 2.463 .303 .990 .322

Poor health 1.824 1.908 .241 .956 .339

Inadequate infrastructure 3.540 3.546 .325 .998 .318

Home sick 3.859 3.826 .361 1.009 .313

Financial problems 8.551 8.197 .743 1.043 .297

Job 7.502 7.207 .639 1.041 .298

High expectation from parents 1.585 2.006 .129 .790 .429

Constructs Physical stress Academic 1.313 1.918 .175 .684 .494

Non Academic -3.675 3.800 -.492 -.967 .333

Emotional stress Academic .913 1.826 .095 .500 .617

Non Academic -3.875 4.033 -.407 -.961 .337

Behavioural stress Academic -.030 1.467 -.003 -.020 .984

Non Academic -.022 1.520 -.002 -.014 .989

Indicators Nervous Indigestion Physical stress 1.000 - .642 - -

Breathing problem .156 .197 .109 .790 .430

Feeling and anxiety Emotional stress 1.000 - .733 - -

Continuous thinking -.037 .159 -.029 -.236 .814

Trouble in concentration .365 .154 .290 2.366 .018

Drinking and smoking Behavioural stress 1.000 - .707 - -

Counter Medications for relax -.871 .187 -.563 -4.654 -

Constructsname


Standarderror


Criticalratio

P-value

RMR=.208 GFI=8.609 AGFI=.541 PGFI=.518 RMSEA=.144 LL(RMSEA)=.135 UL(RMSEA)=.153 PCLOSE=.000


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Fig.4 Structural model of pooled student’s Stress symptoms


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Table-7: Pooled analysis of Multi-dimensional effect of Academic and Non Academic factors on Stress symptoms among


Indicators Improper teaching Academic 2.405 .363 .710 6.621 0.00

Lack of information 2.087 .316 .701 6.601 0.00

Scoring marks .827 .171 .333 4.844 0.00

Frequent examinations 1.398 .247 .447 5.654 0.00

More academic work 1.073 .211 .363 5.096 0.00

Communication Barriers 2.162 .331 .671 6.530 0.00

Heavy Workload 1.473 .261 .446 5.651 0.00

Inadequate Resources 1.623 .261 .571 6.226 0.00

Poor attendance 1.773 .215 .414 5.458 0.00

Inappropriate specialisation 1.392 .264 .386 5.267 0.00

Inadequate library facilities 1.000 - .356 - -

Inconvenient accommodation Non Academic 1.000 - .367 - -

Introversion .627 .194 .203 3.239 .001

Insufficient time for Recreation .532 .154 .221 3.467 0.00

Poor health .609 .156 .259 3.899 0.00

Inadequate infrastructure 1.548 .265 .543 5.833 0.00

Home sick 1.036 .223 .336 4.638 0.00

Financial problems 2.295 .374 .639 6.128 0.00

Job 2.220 .359 .669 6.191 0.00

High expectation from parents .859 .240 .230 3.573 0.00

Constructs Physical stress Academic .924 - .326 - -

Non Academic -.855 - -.317 - -

Emotional stress Academic 1.109 - .761 - -

Non Academic .495 - .565 - -

Behavioural stress Academic -.097 - -.532 - -

Non Academic 1.000 - 1.151 - -

Indicators Nervous Indigestion Physical stress .026 .031 .034 .822 .411

Breathing problem 1.000 - .860 - -

Feeling and anxiety Emotional stress .104 .086 .071 1.203 .229

Continuous thinking .377 .130 .269 2.905 .004

Trouble in concentration 1.000 - .200 - -

Drinking and smoking Behavioural stress -6.332 3.218 -.827 -1.968 .049

Counter Medications for relax

Constructsname


Standarderror


Criticalratio

P-value

RMR=.174 GFI=.665 AGFI=.603 PGFI=.561 RMSEA=.141 LL(RMSEA)=.136 UL(RMSEA)=.145 PCLOSE=.000


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Table no.1 visualizes the result of the Shapiro-Wilk test for

checking the univariate normality of the items under three

different dimensions such as Academic factors (11), non-

academic factors (9) and stress symptoms of students (7)

respectively. From the table, Shapiro-Wilk Test confirmed

that the items under dimensions based on different discipline

are purely departed from univariate normality at 1%

significance level. This shows the perception score of the

students about their stress symptoms are not normally

distributed and it followed an abnormal distribution. Hence

the researcher assumed all the items followed the univariate

normal distribution. Table no.2 exhibits the result of

multivariate test of normality such as Mardia’s multivariate

Skewness, Mardia’s multivariate kurtosis and Henze-Zirkler

test respectively. These tests are valid under the assumption

all the items are inter correlated. The result of the test

confirmed that the items are deviated from normality and it

followed a multivariate non normal distribution. Hence, the

researcher assumed all the items followed a multivariate

normal distribution and this assumption was carried out to

do further analysis about the stress of the students. Table

no.3 visualizes the personal and Demographic Factors of

students based on Discipline. As far as Arts students are

concerned a majority of the respondents are female. About

61.24% of students are of the age group of above 21, and

68.42% of students having below 5 members in their family.

The majority of 64.59% of respondents are UG students. In

this case a majority of Arts students are affected by headaches,

which is fol lowed by muscular tension and fat igue

respectively. As for engineering students 56.5% of students

are male respondents and 43.5% of students are female

respondents. Majority of the students are of the age group of

above 21 and 55% of students have family member s below 5.

The majority of 61.81% of respondents are UG students. As

far as problem concern engineering students are highly affected

by headaches which are followed by muscular tension and

fatigue. As far as management students concern 59.4% of

students are male and 40.6% of students are female. Most of

the students are at the age group of above 21 and 61.2% of

students have family members below 5.The majority of the

respondents of management students are UG students. In

case of problems concern, majority of the students are affected

by headaches which is followed by fatigue (24.13%) and

muscular tension(22.4%).The pooled results show, the

majority of respondents are female(57.6%)and 42.4% of male.

Most of the respondents are at the age group of above 21.The

majority of the students have family member below 5 and

36.16% of students have more than 5 members in their family.The majority of the respondents are UG students. In case ofproblems concern, headache is the major problem among thestudents (52.12%) which is followed by muscular tension(23.44%) and fatigue (18.95%). Table no.4 describes themultidimensional influence of Academic and Non Academicfactors for Arts students. The result of the confirmatory factoranalysis and measurement model of analysing the studentsstress symptoms reveals that the academic factors influencedthe physical stress of Arts students with the un-standardizedcoefficient of 0.883 followed by the non-academic factorswith the positive co-efficient of 0.096 and 0.11 which alsopositively increase the emotional stress and behavioural stressof the students. Moreover, if the physical stress increasesthe Arts students suffer from breathing problem followed bythe emotional stress which leads and disturbs the students’concentration. Similarly, the above said factors and theirinfluence are also statistically significant at 1% level basedon the critical ratio test. As far as model fitness is concerned,the Root Mean residual (RMR) (0.213), Goodness of fitIndex (GFI) is more than fifty percent, Root Mean squareerror of approximation (RMSEA) is also close to 0 andProbability (p-close) of the estimated RMSEA is alsosignificant at 1% level which are the additional evidence whichleads the researcher to finalize the proposed multidimensionaland structural model of students stress symptoms as a validmodel for evaluating and measuring the students, stress forArts students in Tiruchirapalli. Similarly,Table no.5 describesthe multidimensional influence of Academic and Non Academicfactors for engineering students. The result of the confirmatoryfactor analysis and measurement model of analysing thestudents’ stress symptoms reveals that the academic factorsinfluenced the physical stress of engineering students withthe un-standardized coefficient of 0.308 increasing thebehavioural stress of the students. Similarly the above saidfactors and its influence are also statistically significant at1% level based on the critical ratio test. As far as model fitnessis concerned, the RMR (0.190), GFI is more than fifty percent,RMSEA is also close to 0 and p-close of the estimated RMSEAis also significant at 1% level which are the additional evidencewhich leads the researcher to f inal ize the proposedmultidimensional and structural model of students stresssymptoms as a valid model for evaluating and measuring thestudents’ stress for engineering students in Tiruchirapalli. Asfar as Table no.6 is concerned its describes the multidimensionalinfluence of Academic and Non Academic factors forManagement students. The result of the confirmatory factoranalysis and measurement model of analysis the students


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stress symptoms reveals that the Non Academic factorsinfluenced the physical stress of management students withthe un-standardized coefficient of 1.313 followed by whichincreasing the emotional stress of the academic factor withthe positive co efficient 0.913.Moreover the emotional stressincreases for management students and are suffered by lackof concentration. Similarly the above said factors and itsinfluence are also statistically significant at 5% level basedon the critical ratio level. As far as model fitness is concerned,the RMR (0.208), GFI is more than fifty percent, RMSEA isalso close to 0 and p-close of the estimated RMSEA is alsosignificant at 1% level which are the additional evidence whichleads the researcher to finalize the proposed multidimensionaland structural model of students’ stress symptoms as a validmodel for evaluating and measuring the students’ stress formanagement students in Tiruchirapalli.In Table no.7 thepooled analysis of multidimensional influence of Academicand Non Academic factors for students are shown. The resultof the confirmatory factors analysis and measurement modelof analysing the students stress symptoms reveals that theacademic factors influenced the physical stress of pooledstudents with the un-standardized co-efficient of 0.924 andemotional stress is 0.435 co-efficient of the students.Moreover, if the emotional stress is more than the physicalstress of the pooled students, the students are led to sufferand disturbed from concentration and continuous thinkingfollowed by the Behavioural stress due to which they takecounter medication to relax. Similarly, the above said factorsand the influence are also statistically significant at 1% levelbased on the critical ratio test. As far as model fitness isconcerned, the RMR (0.174), GFI is more than fifty percent,RMSEA is also close to 0 and p-close of the estimated RMSEAis also significant at 1% level which are the additional evidencewhich leads the researcher to f inal ize the proposedmultidimensional and structural model of students’ stresssymptoms is a valid model for evaluating and measuring thestudents stress, for students in Tiruchirapalli.

5. Conclusion

This study is an evidence that irrespective of their disciplineseither arts or engineering or management, all the collegestudents are experiencing stress but their levels may differ.To get rid of this stress, not only the students but also theparents, faculties and the College Management do have their

part to play. Parents must be aware of their child’s problemsand should not force their high hopes on the students. TheFaculties may pay attention to students’ problems withlearning and apply appropriate strategies to enhance theirlearning effectiveness to relieve from their academic stresses.In addition, Management of the College Institutions/Universities shall also provide courses on life stress copingon a regular basis to consolidate students’ psychology andteach them how to relax themselves along with stressmanagement skills to deprive then from their non-academicstresses. The main strength of this comparative study is thepoint-of-view of the researcher. We feel glad that if this studycontributes to students’ academic performance and their lifeafter graduation to an appreciable extent.

References

Ahmad. et.al (2012) “Assessing Stress among UniversityStudents.” American International Journal of

Contemporary Research, Vol. 2 No. 2, 110-116.

Alicia A. Larkins (2010), Impact of Stress-related andCulturally-specific Factors on College AlcoholConsumption

Bhavin U.Pandya (2007), Impact of Academic Stress on MBAStudents of Gujarat Technological University.

Cheng Kai-Wen (2010), “The sources of stress among collegestudents in Taiwan.

Joseph E. Agolla et.al : The case of University of Botswana,Educational Research and Review, Vol. 4 (2), 063-070,

Laura P. Womble (2009), Impact of Stress Factors on CollegeStudents Academic Performance.

Maureen Johnson (2009), Community College Students’Perception of Stress.

Reem Rachel Abraham, et.al (2009) “ A report on stress amongfirst year students in an Indian medical school” South

East Asian Journal of Medical Education, Vol. 3 no. 2,78-81.

Tara Smith et.al (2007) “Predictors of Academic-Related Stressin College Students: An Examination of Coping, SocialSupport, Parenting, and Anxiety” NASPA Journal, Vol.44, no. 3, 405-431.


A Quarterly Journal

Reviewed by Devi Pisharady

Asst. Professor, SSTM

Prathap Nagar, Muttom, Aluva-683106

Ernakulam, Kerala,

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Book Title : Management of Technology –The Key toCompetitiveness and Wealth Creation

Authors : Tarek Khalil and Ravi Shankar

Edition : Second

ISBN 13 : 978-1-25-900181-9

ISBN 10 : 1-25-900181-4

Publisher : Tata Mc Graw Hill Education Pvt. Ltd., New Delhi

echnology is inevitable in the progress of

human life all through these ages and today,

technology is seen as a crucial element of the global

strategy for economic growth. It plays a major role in bringing

in operational excellence to businesses as well as providing a

competitive edge over its competitors. For any technology to

be viable and sustainable it should be

commercialized. Thus it is imperative

to manage this technology effectively

to utilize its full potential in a fruitful

way.

Professor Khalil. T.M, University of

Miami and Professor Shankar R. IIT

Delhi have endeavoured to make

engineering students as well as

management professionals recognize

the importance of managing technology

and i ts role in competi t iveness.

Management of Technology in its

second edition is comprehensive and

it has a business enterprise perspective

focusing Technology as the driver for

wealth creation.

The introductory chapter depicts the interdisciplinaryrelationship of technology in an easily digestible format tothe readers. It also gives an insight into the explosion ofknowledge as a result of the revolution in IT towards the endof the 20th century. Managing technology optimally andappropriately can bring in wealth creation. Author also

suggestes that the know-how oftechnology alone cannot bring inwealth but the success lies in theability to manage the technologyappropriately. Excerpt from the bio-sketch of technology guru Steve Jobsis also an inspiration for the reader.

Case Studies illustrated focus on therecent changes and trends intechnology and they are an addedflavour to this textbook which servesthe reader an insight into the latesthappenings in the business world. Thechapters begin with an openingcase especially in Indian context andthen further discusses the relevanthypothesis which seems to be a goodapproach for the students to get a clear

T


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idea. It would have been beneficial if chapter objectives as

well as chapter summary too are included in each of the

chapters.

The second part of the book emphasis on MOT’s

interdisciplinary nature, risks associated and various ways

to mitigate risks as well as the significance of diffusing the

technology in the market at an appropriate time to build a

competitive advantage and to avoid strategic drift.

The third part of the book offers a comprehensive view by

providing MOT guidelines for improving and sustaining a

nation’s as well as a firm’s competitiveness and the importance

of economic and financial policies of a system to go hand inhand with the technology for progressing in the path of wealthcreation. It also examines the issues associated with the processof technology acquisition and technology transfer.

The final section of the book provides examples from firmsacross the globe illustrating on how the technology should bemanaged and how organizations are managing and also howsome others are struggling to survive in this era of technologyrevolution.

This is an excellent course book for management students tolearn the significance of technology management in business.


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Reviewed by Dr.C.Sengottuvelu, CPM (USA)Professor and Head-ConsultancySCMS Cochin School of Business

Prathap Nagar, Muttom, Aluva-683 106,Ernakulam, Kerala, India.

Email Id; [email protected].

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Book Title : Cases in Strategic Management: Volume IIAuthor : Amita MitalEdition : Edn-2013ISBN 13 : 978-1-25-900511-4ISBN 10 : 1-25-900511-9Pages : 237Publisher : Tata Mc Graw Hill Education Pvt. Ltd., New Delhi

he book under review titled Cases in Strategic

Management (Volume II) is written by Amita Mital,

a Professor in Strategic Management Area, IIM

Lucknow, who also had worked in the industry for a numberof years before moving to academics.

This book consists of 12 cases drawnfrom various industries ranging fromglass, paper, IT services/mediabusiness, auto components, bio-technology, musical products ,consumer products, sports ,horticulture/floriculture, bankingservices, gold jewellery and coffee,besides a brief introduction to casestudy approach in managementeducation teaching, need and types ofcases, strategic management cases etc.This case book volume II is certainlybringing more content from Indianindustries to class.

Case -1: The case is introduced with

a brief history of Piramal Glass

Company, one of the top three global

glass companies. This also deals with the dynamics of glass

industry, business segments, manufacturing capacity, and

financial performances of Piramal Glass.

The case is suitable for explaining how to enhance

firm’s profi t pools by diversifying into product and

technology and designed for learning Strategic Choice and

Analysis module of Strategic

Management Course.

Case-2: The case describes

the growth of Ballarpur Industries

Limited (BILT); a Thaper group of

Companies, started business for the

manufacture of paper in 1945 and

diversified into many businesses

including vanaspati, chemicals, tin

containers , soaps, and glass

containers.

The case brings out the importance

of analyzing and understanding the

firm’s external environment, Porter’s

five competitive forces and how they

determine the profi t potential ,

turnaround strategies etc.

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The case portraits lot of details with regard to classification

of paper products, BILT’s plant capacity, and comparison on

sales, assets & profits of BILT vs Industry, impact of import

duties on procurement of materials etc.

The case is designed to understand key aspects of Strategic

Intent, Strategic Alliances & Acquisitions, restructuring,

turnaround strategies etc.

Case-3: The case outlines the growth of Cyber Media, an

entrepreneurial firm in the specialty media business. The

group’s Media business included the print titles Dataquest,

PC quest, Voice & Data, Bio-Spectrum, Living Digital, DC

Channels, and DQ Week.

The case deals with products and services, marketing &

distribution, dynamics of the Indian media industry, Divisions

of global services media, restructuring of Cyber media,

financials of Cyber media etc.

The case brings out the business level strategies, corporate

level strategies, and forms of diversification, strategies

alliances and adjacency strategy and can be used for

discussion of Strategic Control, Entrepreneurship, Innovation

etc related sessions in Strategic Management Course.

Case-4: The case describes the growth of Bharat Forge Ltd.

a flagship company of the Kalyani Group. A leading global

‘Full Service Supplier’ of forged and machined engine and

chassis components for the automotive and non-automotive

sectors.

The case deals with technology backbone, global expansion,

growth, integration, leadership etc. The case also contains

summarized balance sheet and income statement for 10 years

(1997-2007). These data can be used for analyzing various

ratios and related strategies adopted by the company for

achieving superior performance.

The case enumerates International Strategy, Acquisitions,

Culture, strategic leadership, and business expansion. The

case is being discussed in the class for analyzing the

international strategy and global business expansion and ties

components of Strategic Management Course.

Case-5: The case deals with a fully integrated health care

Indian Company- Biocon, the first Indian Biotech company

that delivered innovative biopharmaceutical solutions. The

case highlights human capital, inorganic growth, and dynamics

of biotechnology industry in India, Mission, and Values of

Biocon, product mix, summarized balance sheet and income

statement. These data can be used for analyzing various ratios

and related strategies adopted by the company for achieving

superior performance.

The case enumerates International expansion, product

diversification, organizational culture, and leadership

strategies. The case is being discussed in the class for

analyzing the international expansion and competition with

global leaders in international emerging markets.

Case-6: The case outlines the ups and downs of a century

old Indian music industry and its current scenario of shrinking

rapidly due to technology advancement, Piracy, fall in sale,

fall in price etc. This case has been designed in a different

perspective to deal with building core competencies,

competitive advantage, alternative strategies etc in a

fragmented market.

The case gives ample opportunity to learn the growth of

India’s Music Industry, musical products, digital era,

financials etc. This is a good case to learn key aspects of

Strategy Formulation, Competitive advantage, alternative

strategies etc. in a fragmented industry.

Case-7: The case describes the growth of a small beginning

company in pigment and adhesive products segments. The

Company Pidilite has a long history of family owned business

and with its innovation strategy where majority of sales came

from products in-house in India, strong brand equity with an

image of durability etc.

The case brings out the dynamics of branded consumer and

bazaar products segment, industrial specialty segment,

manufacturing, technology, Marketing, Human Resource,

International presence, competition etc. This case carries lot

of information on income statement, balance sheet of Pidilite

and also its competitors like Nikhil Adhesives, Camlin etc.

The case is designed for learning incremental Innovations in

gaining first mover advantage. This case also enables to create


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a concept of corporate advantage as proposed by

contemporary authors on Strategic Management.

Case-8: The case star ts with a brief history of

Commonwealth Games, Commonwealth Games Federation

(CGF), part icipat ion of various organizat ions, CGF

organization structure, various committees, creation of

infrastructure, promotional act ivi t ies , entering into

partnerships, coordination, resources and controls, event

management, security, hospitality etc. In a way, conducting

this mega game was considered as important event from

Country’s point of view. It was estimated that the 19th

Commonwealth Games would result in an economic impact

of approximately USD 5 Billion (Rs. 29,000 Cr & later on

enhanced).

The case is designed to identify the key processes, and

activities critical to organizing the games successfully and

roadmap with timelines to exercise control over time and cost.

Case-9: The case outlines the growth of a Company in a

global floriculture industry with drastic changes in demand

and supply. The interesting part of case is floriculture retail,

cut roses production cycle, supply chain, business model of

Karuturi Global, summarized balance sheet and income

statement (for 10 yrs- 2001 to 2010) etc.

The case is designed for understanding key aspects of

diversification strategies, business level strategy, operational

strategy, international strategy in agriculture business, and

implementation issues.

Case-10: The case is introduced with a brief history of Bank

of Baroda (BoB); a top nationalized Bank which enhanced its

presence across the country with many good initiatives and

practices. They also give a broad picture about the bank’s

growth over a period of time. This case introduces Gartner’s

envisioned business strategy, transformation with passion-

Parivartan, Employees with high potential- Khoj, initiatives

on sustainable performance, risk management etc. The data

on income statement, balance sheet, operating income,

administrative expenses etc for 10 years are very useful for

analysis.

The case are enumerates challenges and issues related to

organizational growth, life cycle approach, products and

services with regard to banking industries.

Case-11: The case deals with the largest gold product

exporting company in India and largest manufacturer of gold

jewellery in the world- Rajesh Exports Limited (REL). This

is a partnership company formed in 1990 with an objective

to manufacture and export gold jewellery. The case also

describes the integrated manufacturing, R&D, Marketing,

Distribution, HR, Financial Management, Competition etc.

The interesting part of case is Panch Mantra proposition for

Shubh Retail, which deals with 5 pillars.

The case is designed for understanding internal analysis,

Porter’s generic value chain, competitive strategies, integration

strategies, etc.

Case-12: The case deals with Strategic Alliance between

Starbucks and Tata Global Beverages Limited. The two

companies had been in a relationship since 2004, when

Starbucks signed a pact with Tata Coffee for supply of coffee

beans. Tata Starbucks Limited was formed with an equal stake

Joint Venture (JV) to launch 30-50 outlets in India with an

initial investment of Rs.4 Billion to be split equally. The case

highlights the operations of companies, strategies, product

portfolio, and financial performance during 2006-11 (5 years).

The case enumerates Strategic Alliances, Joint Venture, value

creation for partners in an alliance etc. The case is being

discussed in the class for analyzing the strategic alliance

related issues, and competition with global leaders in

international emerging markets.

These 12 case studies will certainly meet the changing needs

to their readers considering the global scenario on Strategic

Management. Each case is loaded with full of data and useful

for conducting quantitative analysis in Strategic Management.


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The SCMS Journal of Indian Management is a blind peer-reviewed Journal. The Journal deems it its mission tosubmit to the readers fresh fruit of management thoughts and rich cream of current innovative research. The format ofthe Journal is designed reader-friendly. The academia and the corporates have an easy access to the Journal.

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Post Submission : The EditorSCMS Journal of Indian Management,SCMS New Campus, Prathap Nagar, Muttom,Aluva – 683106, Kochi, Kerala, IndiaPh : +91 484 2623803, 2623804, 2623885, 2623887Fax : +91 484 2623855

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♦ Academic tie-ups with Foreign Universities to givethe programme global focus and innovation. Ninefaculty members from the universities of USA,Australia & Switzerland teach full course at SCMS.

♦ Dewang Mehta National Award for excellence inleadership training systems.

♦ Impact Marketing National Award forintegration of exceptional communication skilldevelopment system.

♦ The only recipient of a grant for track record inperformance from AICTE.

♦ Ranking within the first 25 B.Schools in theA++ category.

♦ Only B.School which has a Universityapproved Research Centre for PhD inManagement.

♦ Only B.School in India to establish a Chair forClimate Change.

♦ SCMS-COCHIN is, now, one of the sevenACBSP (US) accredited B-Schools in India.

PGDM of SCMS

ISSN-0973-3167

CEO’s Reputation : Corporate PerformanceFarzaneh Nassirzadeh, Mohammad Javad Saei ,

Mahdi Salehi and Farhad Rana Varnosfaderani

Family Conflict Resolution : Purchase role of Urban WomenAnilkumar and Jelsey Josph

Non - performing Assests : PSBDr. R. Velmurugan

Vegetable Price Rise : Rythu Model Solution Prof. Subhendu Dey and Dr. Salma Ahmed

Organizational Flexibility Real Option ApproachProf. Pankaj M. Madhani

Random Walk Behaviour : Indian Equity MarketP.K. Mishra

Management Accounting Benefits : ERP EnvironmentMahesha V. and Akash S.B.

Household Incom : Potential EntrepreneurPurna Prabhakar Nandamuri and C.H.Gowthami

Enhancing Organizational Perfromance : Indian IT Sector Iliyas Mohammed

Stress Symptoms : Structural Equation ModellingG.S. David Sam Jayakumar and A. Sulthan

SCMS-COCHIN [Night View]

INDIA Inc. emerges from here at SCMS-COCHIN

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SCMS COCHIN SCHOOL OF BUSINESS, INDIA

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