financial analysis of state bank of india

NICE Journal of Business • Vol. 9, No. 1&2 • January-December, 2014 1

Financial Analysis of State Bank of IndiaUsing Various Ratios

Asma Khan*

Abstract

This paper focuses on financial performance of State Bank of India by using variousratios. The ratios used are Cash Deposit Ratio, Return on Equity, Net Profit Ratio andOperating ratio. The author found that Cash Deposit Ratio is satisfactory, Return onEquity and Net Profit ratio was acceptable till 2012-13 but showed pitiable performanceafter that. Operating ratio showed improvement till 2011-12 but started desecrating afterthat.

Keywords: Financial Analysis, SBI,CDR, Return on equity, Net profit ratio,Operating ratio

INTRODUCTION

Banking plays a silent, yet crucial role in ourday-to-day lives. The banks work asfinancial intermediaries, pooling savings

and channelizing them into investment, helps ineconomic development of a country. A bankingsystem also referred as a system provided by thebank which offers cash management services forcustomers, reporting the transactions of theiraccounts and portfolios, throughout the day. Thebanking system in India should not only behassle free but it should be able to meet the newchallenges posed by the technology and anyother external factors. For the past three decades,India’s banking system has several outstandingachievements to its credit. The banks are themain participants of the financial system in India.The banking sector offers several facilities and

opportunities to their customers. All the bankssafeguard the money and valuables and provideloans, credit, and payments services, such aschecking accounts, money orders, and cashier’scheques. The banks also offer investment andinsurance products. As a variety of models forcooperation and integration among financeindustries have emerged, some of the traditionaldistinctions between banks, insurancecompanies, and securities firms have diminished.In spite of these changes, banks continue tomaintain and perform their primary role-accepting deposits and lending funds from thesedeposits. The efficient working of bankingsystem leads to survival of any country. Thebanking system of India is featured by a largenetwork of bank branches, serving many kindsof financial needs of the people.

* Shobhit University, Meerut, U.P., India

2 NICE Journal of Business •Vol. 9, No. 1&2 • January-December, 2014

Table 1. Cash Deposit Ratio

Year Cash Deposit Ratio (%)

2009-10 78.582010-11 81.022011-12 83.122012-13 86.93

Fig. 1. Cash deposit ratio

OBJECTIVE OF THE STUDY

The present study has been conducted toexamine and evaluate all the aspects of thefinancial performance of State Bank of India oncertain parameters through ratio analysis and tosummarize the findings.

RESEARCH METHODOLOGY

Financial analysis is mainly done to compare thegrowth, profitability and financial soundness ofthe respective bank by diagnosing the informationcontained in the financial statements. It helps inbetter understanding of banks financial position,growth and performance by analyzing thefinancial statements with various tools andevaluating the relationship between variouselements of financial statements.

Data collection

The study is based on secondary data that hasbeen collected from annual report of SBI ofvarious years, research papers, text books, newspapers etc. The study covers the period of 5 yearsi.e. from year 2009-10 to 2012-14.

Data analysis

In order to analyses the financial performance ofSBI Ratio Analysis has been used.

LIMITATIONS OF THE STUDY

1) This study is based on secondary data andas such its findings depends entirely onthe accuracy of such data.

2) The study is limited to five years whichis very short duration to analyse anyorganisation.

3) The study is confined to financial aspectof SBI only.

4) The study is largely based on ratioanalysis; such analysis has its ownlimitations, which also applies to thepresent study.

FINANCIAL ANALYSIS OF SBI

Credit Deposit Ratio

Credit-Deposit Ratio is the proportion of loan-assets created by a bank from the depositsreceived. Credits are the loans and advancesgranted by the bank. It indicates how much of abank’s core funds are being used for lending, themain banking activity In other words it is theamount lent by the bank to a person or anorganization which is recovered later on. Interestis charged from the borrower. Deposit is theamount accepted by bank from the savers andinterest if paid to them. A higher ratio indicatesmore reliance on deposits for lending and vice-versa The regulator does not stipulate aminimum or maximum level for the ratio. But, avery low ratio indicates banks are not makingfull use of their resources. And if the ratio isabove a certain level, it indicates a pressure onresources.

The Table 1 and graph shown in Fig. 1 revealthat Cash Deposit Ratio is increasing throughoutthe study except in 2013-14.It started from 78.58%in 2009-10 and reached to 86.93% in 2012-13. Butin 2013-14 it slightly dropped down to86.16%.This shows that bank has created moreloan assets from its deposits.

Asma Khan


Return on Equity

This ratio measures the profitability of the capitalinvested in the business by equity shareholders.As the business is conducted with a view to earnprofit, return on equity capital measures thebusiness success and managerial efficiency.

Table 2 shows that return on equity was14.04% in 2009-10 but it comes down by 1.2% in2010-11. Than it again showed an per increaseand reached to 15.94% in 2012-13 but again in thevery next year it dropped down to 10.49%.

Net Profit Ratio

The relationship of net profit to net sales isestablished by this ratio and is expressed aspercentage. This ratio shows the balance of profitleft to proprietors, after all expenses are met.Higher the ratio higher will be the profit left toshareholders. This ratio assists the managementin controlling costs and in increasing theturnover.

Table 3 reveals that net profit ratio iscontinuously increasing throughout the studyexcept in 2013-14. It started from 2009-10 andreached to10.39% in 2012-13. However it sharplysunk down to 7.03% in the very next year. It isclear from the following graph, how the netprofit ratio shows ups and downs in variousyears.

Table 2. Return on Equity

Year Return on equity (%)

2009-10 14.042010-11 12.842011-12 14.362012-13 15.942013-14 10.49

Fig. 2. Return on equity

Table 3. Net Profit Ratio

Year Net Profit Ratio (%)

2009-10 6.302010-11 7.532011-12 9.682012-13 10.392013-14 7.03

Fig. 3. Net profit ratio

Operating Ratio

Operating ratio matches cost of goods sold plusother operating expenses on one hand with netsales on the other. The ratio is closely related tothe ratio of operating profit to net sales whichcan be obtained by subtracting the operatingratio from 100. The higher the operating ratio, theless favourable it is.

The Table 4 and the graph positioned aboveshows that operating ratio was 52.59 % in 2009-10. Than it showed improvement for two yearsand came down to 45.23% in 2011-12. But againit showed a pitiable performance reached to52.67% in 2013-14.

Table 4. Operating Ratio

Year Operating Ratio (%)

2009-10 52.592010-11 47.602011-12 45.232012-13 48.512013-14 52.67

Financial Analysis of State Bank of India Using Various Ratios


CONCLUSION

From the above analysis it is concluded that CashDeposit Ratio is satisfactory, Return on Equitywas satisfactory till 2012-13 but disappointing in2013-14. Similarly Net Profit ratio was good till2012-13 but it showed pitiable performance in2013-14.Operating ratio showed improvement till2011-12 but started desecrating after that.

REFERENCE

Ranco Jelic, Richard Briston & WolfgangAussenegg, “The Financial Performanceof Privatised Bank: Evidence From ThreeTransition Economies”, http://ssrn.com/abstract=273875 or doi:10.2139/ssrn.273875, 2001.

Pradeep Kumar Singh, “Financial Appraisal ofIDBI Bank Ltd Through Financial Indi-cators”, The Management Accountant, 2003.

“A Study on the Financial Performance of theState Bank of India with Reference to CamelModel” http://en.oboulo.com/a-study-on-the-financial-performance-of-the-state-bank-63966.html, 2009.

Ramesh Chander and Jai Kishan Chandel,“Financial Viability of an Apex CooperativeCredit Institution—A Case Study of theHARCO Bank”, Asia-Pacific Business ReviewVol. VI, 2010.

Rajiv Kumar and Jasmindeep Kaur, “FinancialAppraisal of Haryana State Cooperative ApexBank”, Advance in Management, Vol. 3, 2010.

D. Padma, V. Arulmathi, “Financial Perfor-manceof State Bank of India and ICICI Bank—AComparative Study”, International Journal onCustomer Relations, Vol. 1, Issue 1, 2013.

Pooja Sharma and Hemlata, “Financial Analysisof ICICI Bank and SBI Bank: A comparativeanalysis” International Journal of ResearchAspects of Engineering and Management, Vol.1, Issue 1, 2014.

Fig. 4. Operating Ratio

Asma Khan


Multivariate Analysis for Indian RupeeFluctuation Against US Dollar

Gurmeet Singh*

Abstract

This paper is an attempt to study and understand the dynamics of Indian Rupeefluctuations against US Dollar using yearly observations over the period of 12 yearsfrom 2001 to 2012. In this paper, evolution of exchange rate mechanism from fixed tohybrid exchange rate system in context of India along with the journey sinceindependence has been explored. Further, an attempt has been made to identify the keyvariables that influence the Indian rupee fluctuations against US Dollar. Finally,Multivariate Regression Analysis is done to know the determinants of the rupeefluctuations against dollar.

Keywords: Exchange Rate, Forex Reserve, Rupee Fluctuations, MultivariateRegression Analysis

INTRODUCTION

Depreciation in rupee has become a bigworry for the Indian Government becauseit has depreciated to an all time low with

respect to the US dollar. On 28th August 2013, theIndian rupee had gone down to 68.825 againstthe dollar. Similarly rupee appreciation alsocauses concerns to imports of India. Exchangerates play a vital role in a country’s level of trade,which is critical to almost every free marketeconomy in the world.

The conversion rate fluctuates on timely basisbased on various factors such as demand andsupply of each currency, inflation rate in country,interest rate prevailing in the country etc. Alleconomies that interact with inter-nationaleconomy can be broadly classified into five

categories on the basis of exchange rate policy ofthe country.

Fixed Exchange Rate: These economies peg thevalue of their currency with some other prominentcurrency like US dollar. This system is simple andprovides stability to the economy. This type ofexchange rate regime is maintained by generallysmaller economies like Nepal and Bhutan (peggedto Indian Rupee) or several African nations.Rational behind such regime is that in case ofsmall economy, if the exchange rate is marketdetermined the sudden influx or outflow of evenrelatively small amount of foreign capital willhave large impact on exchange rate and causeinstability to its economy. Notable exception isChina which despite being large economy has itscurrency pegged to US dollar.

* United World School of Business, Uvarsad, Gandhinagar, Gujarat, India


Floating (or free) Exchange Rate: Bigger anddeveloped economies like US, UK, Japan etc.generally let market determine their exchangerate. In such economy exchange rate isdetermined by demand and supply of thecurrency in international foreign exchangemarket.

Hybrid system: Most midsized economy likeIndia practices a mix of both these regimes. Itallows for the exchange rate to float in a rangewhich it deems comfortable. Once the marketdetermined rate tries to breach this range, centralbank (government) intervenes in the currencymarket and controls the exchange rate.

Since 1950, India continuously faced tradedeficits. In 1951, despite government attempts toobtain a positive trade balance, India experienceda severe balance of payments deficits. Inflationcaused Indian prices to go sky high. When theexchange rate is fixed and a country experienceshigh inflation relative to other countries, thatcountry’s goods become more expensive andforeign goods become cheaper.

Factors Affecting Fluctuations

The currency value of an economy influences thegrowth rate of GDP in an economy. Several otherfactors that have a direct influence on the overor the undervaluation of a currency are asfollows:

Basic Laws of Economics: As per the basic lawsof economics if the demand for $ in India exceedsits supply then its worth will go up. If thedemand for the Indian rupee is more (to settleinternational payments) than its supply in theforeign exchange market, its value willappreciate and vice-versa. It may be thatimporters are the major entities who are in needof the dollar for making their payments. Anotherpossibility here could be that the ForeignInstitutional Investors are withdrawing theirinvestments in the country and taking themelsewhere.

Price of Crude Oil: India is a major importerof oil and the valuation of Indian money getseasily affected by the increase in the prices of thecrude oil. It can further result in spreadinginflation in an economy due to the over valuationof the Indian currency. The worth of crude oil has

been a major nuisance for India since it has tobring in the majority of its requirement fromoutside the country. The demand for oil in Indiahas been going up every year and this has led tothe present situation.

Forex Reserve: India’s foreign exchangereserves is made up of Foreign currency assets (USdollar, euro, pound sterling, Canadian dollar,Australian dollar and Japanese yen etc.), gold,special drawing rights (SDRs) of IMF and Reservetranche position (RTP) in the InternationalMonetary Fund (IMF). The level of forex reserveis expressed in US dollars. Hence India’s forexreserve declines when US dollar appreciatesagainst major international currencies and viceversa. RBI gains Foreign exchange reserves bybuying foreign currency (via intervention in theforeign exchange market, Funding from theInternational Bank for Reconstruction andDevelopment (IBRD), Asian Development Bank(ADB), International Development Association(IDA) etc., aid receipts and interest receipts.

Relative Inflation Rates: It is necessary to notethat exchange rate is a relative price and hencethe market weighs all the relevant factors in arelative term, (in relation to the counterpartcountries). The underlying reasoning behind thisconviction was that a relatively high rate ofinflation reduces a country’s competitiveness ininternational markets and weakens its ability tosell in foreign markets. This will weaken theexpected demand for foreign currency (increasein supply of domestic currency and decrease insupply of foreign currency).

Interest Rates: An important factor formovements in exchange rates in recent years hasbeen difference in interest rates; i.e. interestdifferential between major countries. In thisrespect the growing integration of the financialmarkets of major currencies, the revolution intelecommunication facilities, the growth ofspecialized asset managing agencies, thederegulation of financial markets by majorcountries, the emergence of foreign exchangetrading etc. having accelerated the potential forexchange rates volatility.

Trade Balance: If a country is exporting morethan its imports from other countries, then thiswould result in higher demand for that exchange,

Gurmeet Singh


resulting appreciation of that currency againstothers. One of the main reasons behind the Indiangovernment’s inability to arrest the fall of thenational currency is imbalance between exportand import. A negative trade balance occurs whenimports are more than the exports of the countryand vice-versa. The trade balance is generallymeasured by the current account. In the fiscal year2012-13, India’s current account deficit (CAD) wasmeasured at 4.8% of the GDP.

Foreign Institutional Investment: RecentlyArcelor Mittal and Posco decided to pull outfrom their projects in India. Posco did not goahead with a steel plant worth 30,000 crore thatwas supposed to be built in Karnataka andArcelor Mittal withdrew from setting up a steelplant in Odisha that was supposed to costaround 52,000 crore. There were lot of delays insolving problems related to acquiring land forthe project therefore in 2012-13 many Indiancompanies have spent more outside Indiacompared to FIIs in India.

Capital flows and the stock market of India:It is important to note that in spite of sufferingrecession, an economy can grow if the capitalinflow is constant or continuously rising. In Indiaeven if the GDP rate is less, the currency can stillget overvalued due to excessive capital inflowsmade by the FII’s in the Indian economy.

Global Currency Trends: Like many othercurrencies Indian rupee have also tied its knotwith some of the big economies of the worldincluding the names of UK, US, Japan andCanada. The depreciation or appreciation in thecurrency any of these, especially in the US dollar,influences the valuation of the Indian currencyin one way or the other.

RBI Intervention: The valuation of the Indiancurrency highly depends on RBI that managesthe balance of payments, slight modification inwhich can define the over or the under valuationof the Indian currency.

Political Factors: Several other factors thataffect the currency stability are some politicalfactors like change in the government set up,introduction of new export and import policies,tax rates and many more.

Research Methodology

Objective of the Study

There are several factors affecting the exchangerate like the inflation, interest rates, tradebalance, FII, money supply (M3) in economy,Foreign Exchange Reserve and political factorsetc. From these factors we have identified sixindependent variables and exchange rate (ER) asdependent variable.

• Forex Reserve (Rs. Billion) (FR)• Foreign Institutional Investment (Rs.

Billion) (FII)• Money supply (Rs. Billion) (MS)• Trade Balance (Rs. Billion) (TB)• Inflation (%) (INF)• Interest Rate (%) (INT)

Yearly data for the six Independent variablesmentioned in previous section was considered forthe period 2001-2012. Also data for the dependantvariable Rupee Exchange Rate against Dollar (ER)was considered for the same period. The data wasobtained from RBI database on Indian economy.Further the data for the study period was processedthrough excel by taking natural logarithm of thevariable for converting the data in normaldistribution at primary level and regressionanalysis is done. Contribution of each independentvariable individually and their collective impact onthe dependant variable was observed.

Findings & Analysis

Table 1 presents the summary of model applica-tion stating that there is 93.7% correlation betweenthe dependent and independent variables. Tablealso reveals that 87.9% of dependent variable isexplained by the six identified independentvariables. Only 12.1% of currency rate is becauseof the other factors influencing the dependent

Table 1. Model Summary

Regression Statistics

Multiple R 0.937759528R Square 0.879392932Adjusted R Square 0.73466445Standard Error 1.561454837Observations 12

Multivariate Analysis for Indian Rupee Fluctuation Against US Dollar


variable. Thus, the model seems to be a good fitfor the currency rate.

Table 2 depicts the analysis of variance ofpredicting variables where the F-Significance is0.033 which is significant at 5% level ofsignificance. In Table 3 the coefficients of the

independent variables in Regression model.Thus, the predictor equation becomes as follows:

ER=35.29 + (-0.000086) FR + 0.000082 FII +0.000805 MS + 0.0002640 TB + (-0.839779) INF

+ 0.828713 INT + et

Table 2. ANOVA

df SS MS F Significance F

Regression 6 88.88716807 14.81452801 6.076156692 0.033248894Residual 5 12.19070604 2.438141207Total 11 101.0778741

Table 3. Coefficients

Coefficients Standard t-Stat P-value Lower Upper Error 95% 95%

Intercept 35.290111 9.6685 3.6500 0.0147 10.4363 60.1439Forex Reserve (US Million $) -0.000086 0.0000 -3.8278 0.0123 -0.0001 0.0000FII Investment (US Million $) 0.000082 0.0001 1.3742 0.2278 -0.0001 0.0002Money Supply (Billion Rs.) 0.000805 0.0006 1.2617 0.2627 -0.0008 0.0024Trade Balance (Billion Rs.) 0.002640 0.0032 0.8342 0.4422 -0.0055 0.0108Inflation -0.839779 1.0792 -0.7781 0.4717 -3.6140 1.9344Interest Rate 0.828713 0.5612 1.4767 0.1998 -0.6138 2.2713

CONCLUSION

Depreciation and appreciation in rupee is not apermanent phenomenon but it is due to variousreasons. Here six factors have been identified tobe specific to rupee fluctuation and are modeledwith multivariate regression analysis. The resultof analysis shows that these variables can explainthe exchange rate dynamics to the extent of87.9%. Since there are various internal as well asexternal reasons behind rupee appreciation anddepreciation to a large extent, it takes time tobring back the situation to the normal state. TheRBI and other Government agencies have to playtheir role to tackle this situation.

REFERENCES

P. Dua and R. Ranjan. “Modelling and Fore-casting the Indian Re/US dollar ExchangeRate”. Centre for Development Economics,Working Paper No. 197, 2011.

J. Dukich, K. Kim and H. Lin. “Modelingexchange rates using the GARCH Model”.Working Paper Series, 2010.

A. Goyal. “Evolution of India’s Exchange RateRegime. Indira Gandhi Institute of Develop-ment Research”, WP 2010-024, 2010.

S. Jakaria and S. Abdalla. “Modelling exchangerate volatility using GARCH Models:Empirical Evidence from Arab Countries”.International Journal of Economics and Finance,4(3), pp. 216-229, 2012.

Gurmeet Singh


A Study of Mobile Banking Services ofCommercial Banks in Sattur

M. Selvakumar, V. Sathyalakshmi, K. Siva Murugan and K. Muthu Selvi*

Abstract

In recent years, with growth and development of information technology, all aspects ofhuman life have been radically transformed. In recent years, mobile banking servicesalong with internet banking services have fundamentally changed the ways and methodsof doing daily activities by bank customers, and bank have also used it not only as anew way to increase customer satisfaction, but also as a model strategy to reduce costsand increase profitability. Mobile banking is a payment method that in an appropriatemanner can greatly reduce the banking cost.

Keywords: Customer Satisfaction, Mobile Banking Services, Commercial Banks

INTRODUCTION

In India, banking is an important segment oftertiary sector. It acts as a back bone of oureconomic progress and prosperity. It plays an

important role in mobilizing the nation’s savingsand in channelizing them into high investmentpriorities and better utilization of availableresources. Hence, banking can better be des-cribedas the kingpin of the chariot of economic progress,banking is equated with money, is perhaps as oldas the civilization itself. However, modern bankingis something really different from more lending. Itis far more sophisticated and complicated. In adeveloping economy the role of bank is morecreating and purposeful than in the developed one.

Banking in India originated in the lastdecades of the 18th century. The oldest bank inexistence in India is the state bank of India; agovernment owned bank that traces its origins

back to June 1806 and that is the largestcommercial bank in the country.

STATEMENT OF THE PROBLEM

The technology had a major impact in helpingbanks to service their customers with theintroduction of the Internet banking. InternetBanking gives the customer’s anytime access totheir banks. Customers could check out theiraccount details, get their bank statements, performtransactions like transferring money to otheraccounts and pay their bills sitting in the comfortof their homes and offices. However the biggestlimitation of Internet banking is the requirement ofa PC with an Internet connection. Mobile bankingaddresses the fundamental limitation of InternetBanking, as it reduces the customer requirement tojust a mobile phone. Mobile usage has seen anexplosive growth in most of the Asian economies

* Research Department of Commerce, Ayya Nadar Janaki Ammal College, Sivakasi, Tamil Nadu, India


like India, China and Korea. In fact Korea boastsabout a 70% mobile penetration rate and with itstech-savvy populace has seen one of the mostaggressive rollouts of mobile banking services.

Still, the main reason that Mobile Bankingscores over Internet Banking is that it enables‘Anywhere Banking’. Customers now don’t needaccess to a computer terminal to access theirbanks, they can now do so on the go—when theyare waiting for their bus to work, when they aretraveling or when they are waiting for theirorders to come through in a restaurant.

The scale at which Mobile banking has thepotential to grow can be gauged by looking at thepace users are getting mobile in these big Asianeconomies. According to the Cellular Operators’Association of India (COAI) the mobilesubscriber base in India hit 40.6 million in theAugust 2004. In September 2004 it added about1.85 million more. The explosion as most analystssay, is yet to come as India has about one of thebiggest untapped markets. China, which alreadywitnessed the mobile boom, is expected to haveabout 300 million mobile users by the end of2004. South Korea is targeted to reach about 42million mobile users by the end of 2005. All threeof these countries have seen gradual roll-out ofmobile banking services, the most aggressivebeing Korea which is now witnessing the roll-outof some of the most advanced services like usingmobile phones to pay bills in shops andrestaurants. Therefore this study concentratemobile banking services of commercial banks.

OBJECTIVES OF THE STUDY

The objectives of the study are

• To study the evolution of mobile bankingtechnology in Indian banking sector.

• To study the socio economic profile of therespondents.

• To analysis the mobile banking services ofbanks in sattur.

• The researcher has used sample study. Asample of 125 customers has been selectedusing judgment sampling method.

• The study covers a period of 6 monthsfrom October 2013 to March 2014.

TOOLS AND TECHNIQUES

The following tools and technique have beenused to analyze and interpret the data.

• Percentage analysis• Chi-square Test• Linkert 5 point scale

RESULTS AND DISCUSSION

Analysis of Socio Economic Profile of theRespondents

The researcher has examined the socio economicprofile of the respondents in the study area.Table 1 shows the data of 125 respondents.

KNOWLEDGE ABOUT BANK

The researcher has examined the respondent’sknowledge about bank in the study area. Theparticulars are presented in Table 2.

KNOWLEDGE ABOUT MOBILE BANKING

The researcher has also examined the knowledgeof respondents about mobile banking in the studyarea. The particulars are presented in Table 3.

OVER ALL OPINION ABOUT MOBILEBANKING SERVICES

In order to know the opinion of respondents aboutmobile banking services, the researchers collectthe information for eight statements regard withthe mobile banking services of banks.

Table 5 discloses that majority of therespondents strongly agree with all the factorsinfluencing the satisfaction of respondentstowards the mobile banking services.

IDENTIFICATION OF LEVEL OFSATISFACTION WITH MOBILEBANKING SERVICES OF COMMERCIALBANKS

The scores are assigned in the order of 5 for‘Strong Agree’, 4 for ‘Agree’, 3 for ‘No opinion’,2 for ‘Disagree’ and one for ‘Strong Disagree’.The score value for every sample respondents isobtained. The level of satisfaction has beenclassified into three categories, namely, low level,

M. Selvakumar, V. Sathyalakshmi, K. Siva Murugan and K. Muthu Selvi


Table 2. Knowledge About BankS. Particulars No. of PercentNo. Respondents to totalBank Group Wise Classification of Respondents1. Public sector bank 67 53.62. Private sector bank 58 46.4

Total 125 100Period being the Customer of the Bank1. Less than 5 years 53 42.42. 5 to 10 years 47 37.63. 10 to 15 years 14 11.24. More than 15 years 11 8.8

Total 125 100Types of Bank Account of the Respondents1. Savings account 62 49.62. Current account 22 17.63. Recurring Deposit A/c 23 18.44. Fixed deposit account 18 14.45. Any other 0 0

Total 125 100Visit to Bank per Week1. Less than 2 times 66 52.82. 2 to 5 times 36 28.83. 5 to 8 times 15 124. Above 8 times 8 6.4

Total 125 100Reasons for Selection of the Bank1. Better service 51 40.82. Proximity 23 18.43. Helpful staff 31 24.84. Convenient Business 20 16

HoursTotal 125 100

Source: Primary Data

medium level and high level for analyticalpurpose. While the score value of the respondent>(X+SD) and the score value of the respondent<(X–SD) have been classified as high level andlow-level satisfaction respectively and the scorevalues between (X+SD) and (X–SD) have beenclassified as medium level satisfaction, X and SDare the arithmetic mean and standard deviationwhich are calculated from the score values of 125respondents. The arithmetic mean and standarddeviation are 19.66 and 4.47 respectively.

(X+SD)=24.13: High(X–SD)=15.19: Low(X+SD)+(X–SD)=15.19 to 24.13: Medium

SOCIO-ECONOMIC VARIABLES ANDLEVEL OF SATISFACTION TOWARDSTHE MOBILE BANKING SERVICES

In order to test the relationship between socio-economic variables namely gender, age, maritalstatus, occupation, monthly income, Type of Bank,type of Account, employment level, educationallevel of the customers and its influence on levelof satisfaction towards the services of Banking.The following hypothesis is formulated.

There is no significant relationship betweensocio economic variables, such as Gender, MaritalStatus, Age, Educational Level, EmploymentLevel, Monthly income, Type of Bank, Type ofAccount of the customer and their level ofsatisfaction towards the mobile banking services.Chi-square test is used to test the hypothesis. TheChi-square test is one of the simplest and mostwidely used non-parametric tests in statisticalwork. The chi-square test was first used by KarlPearson in the year 1990. The quantity chi-squaretest describes the magnitude of the discrepancybetween theory and observation. For computingChi-square test, the following formula has beenused.

Chi-square= (O–E) 2Σ ————

EWith (r-1) (c-1) degrees of freedomWhere,O= Observed frequencyE= Expected frequencyc= Number of columns in a contingency table

andr= Number of rows in a contingency table

Table 1. Primary data of 125 respondentsS. Particulars No. of PercentNo. Respondents to totalCategory of Unemployment1. Student 16 42.112. Housewife 12 31.583. Jobseeker 6 15.794. Any other 4 10.53

Total 38 100Income Wise Classification1. Below Rs.10,000 37 29.62. Rs.10,001 to Rs.20,000 37 29.63. Rs.20,001 to Rs.30,000 35 284. Rs.30,001 to Rs.40,000 16 12.8

Total 125 100Source: Primary Data

A Study of Mobile Banking Services of Commercial Banks in Sattur


Table 3. Knowledge about Mobile Banking

S. Particulars No. of PercentNo. Respondents to total

Knowledge about Mobile Banking1. Have 97 77.62. Not Have 28 22.4

Total 125 100

Involvement of Banks in Mobile Banking1. Certainly 30 242. Probably 32 25.63. Never 26 20.84. Always 37 29.6

Total 125 100

Knowing Mobile Banking in Banks1. Before one year 40 322. 1 to 2 years 45 363. 2 to 3 years 20 164. Before 4 years 20 16

Total 125 100

Sources to know about Mobile Banking1. Media Advertising 23 18.42. Friend/Relatives 55 443. Bank Staff 30 244. Co-workers 17 13.6

Total 125 100

Use of Mobile Banking Services1. Less than 1 year 49 39.22. 1 to 2 years 37 29.63. 2 to 3 years 22 17.64. Above 3 years 17 13.6

Total 125 100

Preferred Mobile Services1. SMS News 19 15.22. Account balance 18 14.4

enquiry3. Cheque status enquiry 9 7.24. Account statement 19 15.2

enquires5. Mobile bank transfer 19 15.26. Minimum balance alerts 8 6.47. Bill payment alerts 13 10.48. Credit/debit alerts 11 8.89. Financial services like 5 4

share trading10. Cheque book requests 4 3.2

Total 125 100


Advantages of Mobile Banking1. Anywhere, Anytime 44 35.2

conducting of bank business2. Fast reaction to market 40 32

developments (e.g. incase of turbulence instock market)

3. Overview over bank 30 24account(s) (e.g. SMSalerts for large transaction)

4. Nothing 11 8.8Total 125 100

Drawback of Mobile Banking1. Security concerns/Risks 39 31.22. Too expensive 28 22.43. Complicated/uncom- 34 27.2

fortable usage ofmobile devices

4. Nothing 24 19.2Total 125 100

Use of Mobile Phone for Bill Settlement1. Used 89 71.22. Not used 36 28.8

Total 125 100

Security Problems With Mobile Banking Services1. Exist 66 52.82. Not Exist 59 47.2

Total 125 100

Satisfaction of Respondents on Mobile Banking Services1. Yes 109 87.22. No 16 12.8

Total 125 100

Benefits of Mobile Banking1. Time saving 30 26.82. Easy accessibility 31 27.73. Error Free 21 18.84. Convenience 30 26.8

Total 112 100

Reasons for not Satisfaction in the Mobile Banking1. Lack of service 6 26.12. Lack of staff 9 39.13. Lack of information 3 13.04. Service chance is 5 21.7

expensiveTotal 23 100



Table 5. Overall Opinion about Mobile Banking Service

S. Particulars Strong Agree No Disagree Strong TotalNo. Agree (%) (%) Opinion (%) (%) Disagree (%) Score (%)

1 Mobile banking would be easy 54(43.2) 38(30.4) 13(10.4) 4(3.2%) 16(12.8) 125(100)to use

2 Mobile banking would require 18(14.4) 49(39.2) 37(29.6) 10(8) 11(8.8) 125(100)less mental effort

3 Mobile banking is a less risky 26(20.8) 35(28.0) 31(24.8) 25(20) 8(6.4) 125(100)mode of banking to use

4 I am concerned about the security 28(22.4) 35(28.0) 41(32.8) 15(12) 6(4.8) 125(100)aspects of mobile phone banking

5 Information concerning my mobile 32(25.6) 29(23.2) 40(32.0) 14(11.2) 10(8) 125(100)banking transaction cannot betempered with by others

6 Mobile banking is quicker to use 36(28.8) 48(38.4) 25(20.0) 9(7.2) 7(5.6) 125(100)than traditional forms of banking

7 Mobile banking would allow me 37(29.6) 48(38.4) 31(24.8) 9(7.2) 10(8) 125(100)to manage my finances moreeffectively

8 No charges for mobile banking 25(20.0) 37(29.6) 31(24.8) 18(14.4) 14(11.2) 125(100)

Table 4. Socio Economic Profile of the Respondents


Gender Wise Classification1. Male 71 56.82. Female 54 43.2

Total 125 100Marital Status1. Married 75 60.02. Unmarried 50 40.0

Total 125 100Age Wise Classification1. Below 30 40 322. 30—40 21 16.83. 40– 50 44 35.24. 50– 60 15 125. Above 60 5 4

Total 125 100Educational Qualification1. Primary 20 162. Secondary 29 23.2Source: Primary Data

Table 4. Socio Economic Profile of the Respondents


3. Under graduate 26 20.84. Post graduate 40 325. Diploma 7 5.66. any other 3 2.4

Total 125 100Employment Status of Respondents1. Yes 87 69.62. No 38 30.4

Total 125 100Types of Employment of Respondent1. Profession 11 12.642. Business men 10 11.493. Govt. employee 20 22.994. Private employee 34 39.085. Agriculture 12 13.796. Pensioner 0 0

Total 87 100

The calculated value of Chi-square ismeasured with the table value of Chi-square forgiven level of significance usually at 5% level. Ifthe calculated value (C.V.) is less than the tablevalue (T.V.), the null hypothesis is accepted andotherwise it is rejected. Table 6 presents the chi-square result.

CONCLUSION

In order to survive in the competitive world ofmodern banking, all the banks need to introducemobile banking that greatly reduces the bankingcosts and it increasingly provides customersatisfaction through easy access to financial

A Study of Mobile Banking Services of Commercial Banks in Sattur


transactions at any time and place with thelowest possible tool i.e. mobile banking isdefined as doing bank transactions via mobilephone. If the mobile banking services willcontinue to grow reduce their operating costs. Inaddition, mobile banking can strengthenconsumer retention and increase the consumerbase for financial institutions by reachingunbanked rural populations. End consumers willbenefit from a unified, mobile system that isconvenient and seamlessly converts value incards, cash, and retail points into each other andto create awareness program for lack of mobilebanking knowledge person.

REFERENCES

Indrani Medhi, AishwaryaTatan and KentaroToyama, “Mobile-banking Adoption and

Usage by Low Literate, Low-income Users inthe Developing World”, Journal of InternetCommerce, 2009.

C.R. Kothari, “Research Methodology—Methodsand Techniques”, New Age Internal Publishers,New Delhi, p. 196, 2010.

Z. Liao and M.T. Cheung, “Internet-based e-banking and Consumer Attitude: AnEmpirical Study”, International Journal ofInformation and Management, Vol. 39, No. 4,pp. 283-295, 2002.

P.A. Pavlou, “Consumer Acceptance of ElectronicCommerce: Integrating Trust and Risk withthe Technology Acceptance Model”,International Journal of Electronic Commerce,Vol. 7, No. 3, pp. 101-134, 2003.

Table 6. Level of Satisfaction with MobileBanking Services of Commercial Banks

S. Level of No. of PercentNo. Satisfaction Respondents to total

1 High 15 12.0%2 Medium 93 74.4%3 Low 17 13.6%

Total 125 100.0%

Source: primary data

Table 7. Chi-Square Result

Variable Type Person chi—square Result

Gender Level of Satisfaction 0.135 Not SignificantMarital Status Level of Satisfaction 0.078 Not SignificantAge Level of Satisfaction 0.297 Not SignificantEducational Level Level of Satisfaction 0.717 Not SignificantEmployment Level Level of Satisfaction 0.935 Not SignificantMonthly Income Level of Satisfaction 0.453 Not SignificantType of Bank Level of Satisfaction 0.534 Not SignificantType of Account Level of Satisfaction 0.030 Significant



Risk Management Practices:A Comparison of Public and Private

Insurance Companies of Pakistan

Asad Irshad, Aneela Majeed and Sadaf Afreen*

Abstract

The intention of the research paper is to observe and degree to which Pakistan insurancecompanies use risk management practices and secondary purpose is to compare the riskmanagement practices of public and private insurance companies in Pakistan. A tailoredquestionnaire on five aspects understanding risk and risk management, riskidentification, risk assessment and analysis, risk monitoring and risk managementpractices, has been used containing 36 questions of Likert scale. A total of 240questionnaires have been circulated to collect the data on public and private insurancecompanies of Pakistan.

Keywords: Risk management practices, Understanding risk and risk management, Riskidentification, Risk assessment and analysis, Risk monitoring, Credit risk analysis

INTRODUCTION

Risk management is fundamental part of anorganization. Without risk management anorganization can never succeed in getting

long term consistent benefit. In this modernworld of dynamic environment where life is fullof enthusiasm and risk with multiple shades anddimensions of the world changes day by day.Presently people merely not only taking the riskbut want to catch the optimum utility byrejecting the opportunity cost and being morecritical than the associates. In this regard, riskmanagement is prevalent part of a business.Nowadays efficient risk management practicesare need of the time. But organizations by usingdifferent risk management practices not only

* Army Public College of Management and Sciences, Rawalpindi, Pakistan

increasing the returns also create competitivenessin market. Risk management is critical for successor failure of any firm. Less efficient managementpractices make situation for businesses is worse.Especially for insurance company risk manage-ment is most important, where probability of riskis much higher than other businesses. Theinsurance industry in Pakistan having 57 generalinsurer, five life insurers, the state ownedPakistan Insurance Corporation (PIC) andNational Insurance Corporation (NIC). At thetime of independence of Pakistan 60 years ago,there were five indigenous insurance companiesand 77 foreign companies which enjoyed a bulkof business, a situation which is being invertedat present.


Understanding Riskand Risk Management

Risk IdentificationRisk Management

Risk assessment and analysisPractices

Risk Monitoring

Risk Management

Risk management is including identification,assessment and prioritization of risks. Riskmanagement Practices are performing a vital rolein improving firm performance. Nazir, Daniel andNawaz (2012) described two types of risk for anybusiness one is systematic risk and other isunsystematic risk. Systematic risk is positivelycorrelated to market and which can be minimizingby using different risk management practices. Onthe other hand unsystematic risk is associatedwith value of firm’s assets. Unsystematic risk isnot explained by general market movements. It isavoidable risk and this type risk can beminimizing by taking diversification strategies.Oldfield and Santomero (1997) explain three riskmitigation strategies eliminating or avoiding riskby simple business practices, transfer risk to otherparticipant and acceptance of risk. For a properrisk management firm’s goal should be clear.Schieg (2010) linked objectives of a firm with therisk management practices. If managers properlyunderstand the goals, duties and contents of riskthen they can easily manage risk. Through riskmanagement managers easily overcome futurepossible unforeseen events and risks. Hermansson(2010) identifying three steps of a riskmanagement procedure, One is equal inclusion ofall affected, second is a reasonable discussion andthird one is publicity in collective issues. Scott andPerry (2009) focusing on understanding the roleof information systems in the re-organization ofrisk management practices. Because informationis more critical during the policy making of riskmanagement. Arora and Jain (2012) found thatrisk monitoring is used to ensure that riskmanagement practices of firm align withobjectives of the firm. Proper risk monitoringhelps management to discover problem at earlystage. Once risk is identifying at early stage futureplanning will be easily adopting according tosituation. Pausenberger and Nassauer (2005)analyzed risk monitoring is last step of riskmanagement process. But it is most important partthen other parts of risk monitoring.

Insurance sector in Pakistan is facing lossesdue to high probability of events like terrorism.Keeping in view the situation this research isundertaken to analyze “Are Private InsuranceCompanies more observant than PublicInsurance?

This study consists of major Pakistani Publicand Private Insurance firms. The study includesthe comparison of two big companies ofPakistan. State Life Insurance Corporation ofPakistan and Eastern Federal Union InsuranceCompany (EFU) is including in study andanalysis. Because the both firms are big firms inPakistan as well as other insurance companies.There are five independent variables used byprevious authors as component effecting on riskmanagement practices. Many insurance firmsusing old methods to manage risk. This studygives new techniques to manage the risks of suchtype of firm. This research can be applicableacross the contextual boundaries of Pakistan.

In order to the check the difference oftechniques adopted by the both InsuranceCompanies (Public and Private) the study isconduct in Pakistan in the area of managing riskto evaluate the difference. The growing marketdemand and attention given to the Public andcommercial Insurance industry has escalated theresearch interest in this area as well the study hasthe following research objectives.

• To examine the degree to which the PakistaniInsurance Companies use risk managementpractices and techniques dealing withdifferent types of risks.

• To compare risk management practicesbetween Public and Private InsuranceCompanies of Pakistan.

Based on study findings efficient suggestions andrecommendations to improve the weakerInsurance sector in Pakistan.

Theoretical Framework/Research Model:

Asad Irshad, Aneela Majeed and Sadaf Afreen



Data has been collected from the insurance sectorof Pakistan. Target population of the study ispublic and private insurance companies ofPakistan. Only the listed insurance companiesare consider for generalizing the facts of thestudy with respect to the risk management. Thenext step is to choose the sample from thetargeted population. Data has been collectedfrom the major cities of Pakistan where publicand private system is flourished. A total of 240questionnaires have been distributed among allthe cities of Pakistan out of 20 questionnaireswere return with blank responses and 10questionnaires were excluded because therespondents showed lack of interest to fill.

The questionnaire used in the study was thesame questionnaire that has been used in thestudy conducted in UAE banking sector by Al-Tamimi and Al-Mazrooei in (2007). It wasmentioned in the in methodology that there is45 questions has been asked from the respondedon 5 likert scale. There are six different variableshas been used in the study to generalize thefinding.

RESULTS AND DISCUSSION

Reliability Analysis

Reliability analysis has been conducted to assessthe chances of random error entered. Analysis

will purely support the study how muchvariation in scores of six different variables.Cronbach’s alpha has been used for the reliabilityanalysis and suggests that the value of coefficientgreater than 0.7 would be reliable data and canbe used for further statistical analysis. Theoverall Cronbach’s alpha of 6 variables is 0.915and considered a very strong indication for thereliability of data.

Descriptive Analysis

Descriptive analysis will provide the summary ofall the five variables with respect to therespondent such as mean, median, standarddeviation and sum of the scores. The Table 2clearly suggests the mean and median responseson the eight-research question under the variableof Understand risk and risk management. Theresponses of eight questions indicate thePakistani insurance sector understand the riskand risk management. The median 4 clearlysuggest that different insurance companies ofPakistan are ensuring that insurance companiesare much better in understanding risk. Most ofthe respondents are agree that staff of Pakistaniinsurance sector is understand the risk in theirorganization. The insurance industry of thePakistan will give the indication that riskmanagement practices are efficiently managed inPakistan. All the respondent are strongly agreethat success of the insurance company isexclusively depend upon the understanding of

Table 2. Descriptive Statistics

Variables Mean Median Standard Deviation Sum

Understanding risk and risk management 3.98 4.0 0.50 1000.93Risk identification 3.73 3.83 0.50 936Risk assessment and analysis 3.81 3.87 0.50 958.5Risk monitoring 3.95 4.0 0.53 991.5Risk management practices 3.91 4.0 0.53 983.38

Table 1. Cronbach’s alpha

Questions Cronbach’s alpha No. of Questions

Understanding risk and risk management 0.695 8Risk identification 0.567 6Risk assessment and analysis 0.738 8Risk monitoring 0.744 6Risk management practices 0.778 10

Risk Management Practices


the staff towards risk. Among all most of therespondent believe that understanding andmanaging the risk is most important for theinsurance companies to increase the success byhitting maximum.

Risk Identification is important predicator ofrisk management. Risk identification comprisesof six research questions on 5 point likert scale(1 SDA, 2 DA, 3 N, 4 A, 5 SA). The descriptiveanalysis clearly defines that the Pakistaniinsurance sector are well aware of identify therisk with the given objectives and aims of theinsurance company. The mean of 3.73 suggestthat the Pakistani insurance sector has awareabout the potential risk which is affected theinsurance companies. Some of the respondentbelieves that the insurance companies of Pakistandon’t have any confusion to prioritize theinsurance company which gives the identifica-tion that Pakistani insurance companies areefficient in identification the risk.

Eight Research Questions has been askedfrom the respondent under the aspect of RiskAssessment and analysis. The Table 2 shows themean, median and standard deviation of respon-dent on risk assessment and analysis. It is suggestthat most of the insurance companies are adoptedthe Quantitative techniques for accessing thepotential risk face by the insurance industry ofPakistan.

The integral part of risk management is refersto the practice, which is adopted by the insurancecompany. It is not the case at all that most of theinsurance companies may sophisticate method ofunderstanding the risk, clearly identify the risk,proper procedure of assessment and analysis arestill not clear that insurance companies areefficient in risk management practices. Tenresearch questions have been asked from therespondent on the aspect of risk management. InTable 2 combined mean of all the ten researchquestions is 3.93 and it seems that Pakistanfinancial institution is very much conducive forrisk management practices.

Hypothesis 1: “There is a positive relationshipbetween risk management practices and riskassessment and analysis, understanding risk, riskidentification and risk monitoring” the OLStechnique has been run to test the hypothesis. The

first assumption to run the OLS model is tofind multicollinerity between the explanatoryvariables. The explanatory variables more than .70correlated each other suggest that the model is notgod fitted because of positively correlated witheach other. Table 3 suggests that there is noprospective multicollinerity between the des-criptive variables that could affect the results. Itis because the value of correlation is less than 0.70.

The next step is to evaluate the regressionresult and the value of R Square in Table 4 whichis .522 supports the study of all the explanatoryvariables such as understanding risk and riskmanagement, risk identification, risk assessmentanalysis, risk monitoring and credit risk analysisexplains 52% variation in risk managementpractices. Global testing of hypothesis 1 that“there is positive relationship of RMP with URM,RI, RAA and RM” confirm it with highsignificance. The test statistic of global testing isF statistic with 5% level of significance in Table 5shows the computed value from the F Test is53.449 higher than the critical value andconcluded that there is significant and linerrelationship between the Risk managementpractices with all the explanatory variables.

The next step of the multiple regressionanalysis is to check significance of all the 5explanatory variables such as URM, RI, RAA,RM, CRA with the Risk management practices(RMP) individually. The test statistics has beenfor individual testing is T. The Coefficients of allthe 5 explanatory variables in the Table 4 creditrisk analysis, risk monitoring and understandingrisk and risk management are the mostsignificant effect with risk management practicesin public and private insurance companies.

In Table 4 confirms second hypothesis that“There is a difference between public and private

Table 3. Pearson Correlation

Name of URM RI RAA RM RMPVariables

URM 1RI 0.536 1RAA 0.487 0.562 1RM 0.540 0.478 0.622 1RMP 0.509 0.444 0.547 0.622 1



insurance companies in the understanding of riskand risk management”. The result of p-value inTable 4 shows that p-value is 0.290 and indicatesthat there is no difference in understanding riskand risk management between the public andprivate insurance companies. The study isconducted to check any difference on the basison public type and private type in theperspective of understanding risk and riskmanagement. Based on the findings study do notreject null hypothesis and concluded that thereis no difference in understanding risk and riskmanagement. Staff of both public and privateinsurance companies is well equipped with theunderstanding of risk in Pakistan.

The findings enclosed in Table 4 shows p-value to take the decision for third hypothesis“There is a difference between public and private

insurance companies in the Practice of riskidentification”. It is a technique followed by bothof the insurance companies i.e. public andprivate. Based upon the finding in Table 5,p-value is 0.040 and concluded that risk identifi-cation is clearly differs from the public andprivate insurance companies. The methods ofidentification of risk between public and privateinsurance companies are different in Pakistan.

The fourth hypothesis of the study is “Thereis a difference between public and privateinsurance companies in practice of riskassessment and analysis”. Once the risk isidentified the next step is to assess the desiredand risk and make the analysis of the risk. Onthe basis of the finding the p-value is 0.325 in theTable 4 suggest that the assessment method andanalysis method are same on both types of

Table 4. Regression coefficient Result:

Model Unstandardized Coefficients Standardized Coefficients t-value Sig.

β Std. Error β

(Constant) 0.337 0.230 1.4565 0.144URM 0.141 0.061 0.132 2.298 0.022RI 0.068 0.061 0.064 1.107 0.270RAA 0.113 0.067 0.104 1.684 0.093RM 0.309 0.062 0.306 4.970 0.000

F-Value=53.449, R2=0.522, R2-Adjusted=0.512

Table 5. One Way ANOVA of Public and Private Insurance Companies:

F Sum of Squares DF Mean Square F p-Value

URM Between GroupsWithin Groups 0.88 1 0.288 1.125 0.2963.733 249 0.256

Total 64.021 250RI Between GroupsWithin Groups 1.087 1 1.087 4.261 0.04

63.511 249 0.255Total 64.598 250

RAA Between GroupsWithin Groups 0.253 1 0.253 0.973 0.32564.749 249 0.26

Total 65.002 250RM Between GroupsWithin Groups 0.247 1 0.249 0.87 0.352

1.323 249 0.286Total 71.572 250

RMP Between GroupsWithin Groups 0.008 1 0.008 0.029 0.86672.723 249 0.292

Total 250

Risk Management Practices


insurance companies operating in Pakistan. Theprocess of assessment is the same in both of theinsurance companies such as public and privateinsurance companies.

Fifth hypothesis of study is “There is adifference between public and private insurancecompanies in practicing of risk monitoring andcontrol”. The technique of risk monitoring issolely followed by the risk managementpractices. It’s a review system and access that therisk management techniques are efficientlyworked. The statistical analysis shows the p-value 0.352 in Table 4 suggest that there is nodifference between the method of riskmonitoring followed by the public and privateinsurance companies of Pakistan. The method ofrisk monitoring is same in public and privateinsurance companies operating in Pakistan.

The finding of the p-value 0.866 shows therisk management practice has the same nature inboth type of insurance companies.

CONCLUSION

The foremost results from the finding show thatthe significant variable of risk monitoring andunder-standing risk management in theperspective of risk management practices inpublic and private insurance companiesoperating in Pakistan. The second aspect of thestudy is to evaluate the difference between publicand private insurance companies. The majordifferences between the public and privateinsurance companies are techniques to identifythe risk. It is the major reason behind the publicinsurance companies are less efficient in identifythe risk and cannot take the competitive edge onPrivate insurance companies in Pakistan. Publicinsurance companies should align the identifica-tion of risk approach with the private insurancecompanies operating in Pakistan.

REFERENCES

S. Arora and R. Jain. Risk Monitoring and controlsystem in Indian Commercial Banks: AnEmpirical Investigation. ABAC Journal, pp.52-62, 2012.

A. Chusaini and R. Isma. Credit risk managementin Indonesian Islamic Banking. Afro EurasianStudies, Vol. 2, Issues 1&2, pp. 41-55, 2013.

S. Hakim and S. Neaime. Profitability and RiskManagement in Banking: A Compara-tiveAnalysis of Egypt and Lebanon. Money andFinance in the Middle East: Missed Oportunitiesor Future Prospects, 6, pp. 117-131, 2005.

H. Hermansson. Towards a fair procedure for risk.Journal of Risk Research, pp. 512-513, 2010.

H. A. Hussain and J. Al-Ajmi. Risk managementpractices of foreign and local banks inBahrain. The Journal of Risk Finance, 13(3), pp.215-239, 2012.

Martin Schieg. Risk management in constructionproject management. Journal of BusinessEconomics and Management, pp. 8-25, 2010.

E. Richard, M. Chijoriga, E. Kaijage, C. Petersonand H. Bohman. Credit risk manage-mentsystem of a commercial bank in Tanzania.International Journal of Emerging Markets, 3(3),pp. 323-332, 2008.

R. Rosman. Risk Management Practices and RiskManagement Processes of Islamic Banks: AProposed Framework. International Review ofBusiness Research Papers, Vol. 5, pp. 242-254,2009.

S. Scott and N. Perry. The enactment of riskcategories: The role of information systemsin organizing and re-organizing riskpractices in the energy industry. InformationSystems Frontiers A Journal of Research andInnovation, pp. 19-20, 2009.



Outreach and Financial Performance ofMicrofinance Institutions—A Comprehensive

Review of Existing Literature

Kamlesh Gakhar and Meetu*

Abstract

Although the people around the world are somewhat familiar with the term microfinancewhich has drawn its core elements from the finance discipline, yet there a need to presentthe literature related to microfinance. The purpose of the present article is to introducethe finance academic community to the discipline of microfinance institutions’ financialperformance and outreach. We discuss the performance measurement of MFI’s,performance evaluation models, approaches to microfinance institutions’ performance,trade-off between outreach and financial performance and the key factors affectingperformance and outreach.

Keywords: Microfinance, Microfinance Institutions, Sustainability, Trade-off,Performance Measurement

INTRODUCTION

Poverty is the major problem in most of thedeveloping economies. In these economies,lack of access to credit is presumed to be

the main cause of the failure of the poor to comeout of poverty. Meeting the gap between demandand supply of credit in the formal financialinstitutions frontier has been challenging. Bankshave been reluctant to provide financial servicesto the people in the rural areas because of highrisks and high transaction costs. This lack ofaccess can create persistent poverty traps andincome inequality (Beck et al., 2007 and WorldBank, 2008).

Microfinance has therefore been considered

as one of the most important tools for povertyreduction as its innovative loan contracts havemade it possible to extend the small loans to thepoor and to increase the loan repayment rateeven upto 100%. (Armendariz de Aghion andMorduch, 2005). But these high repayment rateshave not turned into profits. Many of themicrofinance institutions are still dependent onsubsidies for their survival and are unable tofulfill their ultimate promise of serving the poorin a profitable way. A debate regarding theprofitability of microfinance institutions, beingemerged in 1990s, still remains unsolved.Generally it is argued that for self-sufficiency,microfinance institutions should be able to covertheir costs from the revenues they generate. As

* Institute of Management Studies and Research, Maharshi Dayanand University, Rohtak, Haryana, India


microfinance institutions become financiallysound, they would be able to borrow more andmore from the commercial market and reducetheir dependency on donations and subsidies.This calls for a more commercial approach tomicrofinance practices. This opens the way formicrofinance institutions to have access to alarger asset base to finance their operations andto serve an absolutely large number of poorpeople (Morduch, 2000; Bruck, 2006; Ghosh andVan Tassel, 2008). The other side of the debatefears that when microfinance institutions go forcommercialisation, they will end up serving thewealthier clients and these wealthier clientswould crowd out the poorest ones.

The debate on these two contradictoryaspects of microfinance institutions’ practices stillremains unsettled, and there is a clear need forrepresentative empirical studies that attempt toidentify the patterns of profitability and outreachof microfinance institutions. It is not possible toconclude precisely on outreach and financialperformance as mutually exclusive goals. It isdifficult to presume that outreach is a constraintto sustainability and vice versa.

The purpose of this paper, therefore, is tointroduce the various concepts related to theoutreach and financial performance ofmicrofinance institutions to the academic financecommunity and to provide an outline for futureresearch. In order to present a coherent andsuccinct review of the broad literature related tomicrofinance institutions.

MEASUREMENT OF THEPERFORMANCE OF MICROFINANCEINSTITUTIONS

The important goal of microfinance is to improvethe standard of living of the poor and bring themout of poverty. Performance measurement of amicrofinance institution is about examining itsprogress and determining whether the goals ofmicrofinance have been met.

On the basis of the CGAP guidelines, five coreareas are needed to be taken into considerationwhen measuring the performance of microfinanceinstitutions: (i) Outreach, (How many clients arebeing served?); (ii) Client poverty level (How poorare the clients?); (iii) Collection Performance (How

effective is the microfinance institution incollecting its loan?); (IV) Financial sustainability(Is the microfinance institution profitable enoughto maintain and expand its services withoutcontinued support from subsidized donor funds?);(v) Efficiency (How well does the microfinanceinstitution control its administrative costs?)(CGAP, 2007). Rosenberg (2009) has used fiveparameters to gauge the performance of MFI.These are: outreach (breadth), outreach (depth),loan repayment, financial sustainability(profitability) and efficiency.

For evaluating the performance of micro-finance institutions, Meyer (2002) suggests thatMicro-finance institutions must be evaluated onthe basis of their objectives. He has mentioned“Critical Microfinance Triangle” consisting of:outreach to the poor, financial sustainability andwelfare impact. However, there is a trade-off inmeeting the objectives of reaching the poorest andachieving financial sustainability, and, at the sametime, ensuring a positive impact on the borrowers.Some studies focused on both financialperformance and outreach for measuring theperformance of microfinance institutions. (Cull etal., 2007; Kereta, 2007 and Park and Ren, 2001).

Measuring Outreach

Outreach means the number of poor served,including the number of women clients. Howwell does a microfinance institution reach thepoorest and the variety of financial services, itmakes available, also explains the outreach.Outreach is defined as the ability of an MFI toprovide high quality financial services to a largenumber of clients (Martin and Frederic, 1999).Outreach is “a social benefit of microfinance”aiming at improving the well-being of the poor(Schreiner, 2002). Outreach has two components:depth and breadth. Depth of outreach is thevalue that society attached to the net gain of agiven client (Schreiner 2002) or “the value thesociety attaches to the net gain from the use ofthe micro credit services by a given borrower,”(Navajas et al. 2000). The loan size is usuallytaken as a proxy for the depth of outreach (Bhattand Tang, 2001; Cull et al. 2007; Schreiner 2002;Lensink 2008). The assumption is that the smallerthe loan size, the deeper the outreach, or thepoorer the client; the smaller the amounts or

Kamlesh Gakhar and Meetu


shorter times, indicate better depth. Accordingly,it is believed that poorest clients are served if themajorities are female and the average loan sizeis smaller (Bhatt and Tang 2001). An alternativeproxy to the depth of outreach of microfinanceis the percentage of women borrowers. The SPTF(2009) report showed that women outreach isconsidered an important indicator in the varioussocial performance measurement and assessmenttools used. Breadth of outreach simply involvesthe number of poor people reached by an MFIand is measured as the total number of activeborrowers. It can also be assessed in relation tothe increase in branch network and staff hiredover time. Hermes and et al. (2008) suggestedaverage loan balance per borrower (ALB);percent loans below US$300; percent womanborrowers (WOMAN); Average savings balanceper saver (US$) (ASB); percent clients belowpoverty Line; percent clients in bottom half of thepopulation, as the outreach indicators.

Outreach is defined by Meyer as a multi-dimensional concept and suggested outreachmeasurement into different dimensions like thenumber of people now served that werepreviously denied access to formal financialservices, number of women served, depth ofpoverty and the variety of financial servicesprovided. Similarly, Navajas et al. indicated sixaspects of measuring outreach: worth of users,depth, breadth, cost to users, length and scope.This measure is to identify the poor clients.Because, the poor are the one who fail to getaccess to have credit from formal financialinstitutions since they fail to prove that they canpay back their loan. Worth of outreach to usersrefers to “how much a borrower is willing to payfor a loan,”(Navajas et al. 2000). Similarly, “costof a loan to a borrower, is referred as cost ofoutreach to user” (Navajas et al. 2000). Thesecosts to the users might consists of prices like rateof interest and various charges that they have tomake, which could be revenue to the lender, andthe other loan related transaction costs liketransport, expenses on documents, food, taxes,etc. (Navajas et al. 2000). Finally, “breadth ofoutreach is the number of users or the numberof credit clients (Schreiner, 2002). Time frame inwhich a microfinance institution produces loansis known as length of outreach,” and “Scope ofoutreach is the number of type of financial

contracts offered by a microfinanceOrganisation,” (Navajas et al. 2000). It is arguedthat length of a loan matter, because if themicrofinance institutions support the poor onlyin the short run it will hamper their growth inthe long run. If a microfinance institution’s clientknows that he/she will not receive additionalloan in the future, it discourages them repay theirexisting loan (Navajas et al., 2000). Meyer (2002),also, noted that the poor needed to have accessto financial service on long-term basis rather thanjust a onetime financial support. Adongo andStork (2005) focused on microfinance institutionsin Namibia. Some other researchers alsoconcentrated on outreach, for example, Navajas etal. (2000) in Bolivia, Tucker (2001) on microfinanceinstitutions in 17 Latin American countries.

Measuring Financial Performance

Financial performance analysis is used as ageneral measure of a firm’s overall financialhealth over a given period of time, and can beused to compare similar firms across the sameindustry or to compare industries or sectors inaggregation.

Financial sustainability stands for the degreethat an institution is capable of generatingsufficient revenue from offered services to meetfull operating costs. According to Foster et al.(2003) and Meyer (2002), there are two levels offinancial sustainability: Operational self-sustainability and financial self-sustainability.Operational self-sustainability is the sufficiencyof an institution to cover its operational costs likesalaries, supplies, loan losses, and otheradministrative costs from its operating income.And financial self-sustainability (which hereferred as high standard measure) is its abilityto cover the costs of funds and other forms ofsubsidies received when they are valued atmarket prices. As per the MIX Market definition1,the term Financial Self Sustainability (FSS) isdefined as having an operational sustainabilitylevel of 110% or more, while Operational SelfSustainability (OSS) is defined as having anoperational self-sufficiency level of 100% ormore. However, “measuring financial viabilityrequires that MFIs maintain good financialaccounts and follow recognized accountingprinciples and standards that provide full

Outreach and Financial Performance of Microfinance Institutions


transparency for income, expenses, loan recovery,and potential losses” (Meyer, 2002).

The first level of financial sustainability isachieved when “the organisation earns sufficientincome from its own earned revenue sources tocover all administrative or operational expensesbut relies on wholly or partially subsidizedcapital base” (Forster et al. 2003). A commonlyused indicator is the operational sufficiencyindex.

Operational self-sufficiency=Total operatingincome/total operating expenses (includingadministrative expenses, interest expenses, andloan loss provision

The second level of financial sustainability isachieved when the organisation not only earnssufficient income to cover all its operationalexpenses but is also covers the cost of inflation,its loan losses and the market cost of funds. Inother words, at this level of sustainability, anorganisation earns positive net incomeindependently of donor support and can offerpositive returns to its investors (Forster et al. 2003).A commonly used indicator, accounting forinstitutional scale, is the adjusted return on assets.

Adjusted return on assets (equities)=Netoperating income (adjusted/net of taxes,inflation and subsidies)/ average total assets

Sarma and Borbora (2011) measured thesustainability of the MFIs by using the indicatorslike Financial Self Sustainability (FSS), SubsidyDependence Ratio (SDR), Subsidy DependenceIndex (SDI). Sustainability is also measured byReturn on Assets (ROA) and Return on Equity.The Return on Assets (ROA) ratio indicates howwell a MFI is using the institution’s total assets togenerate returns. Studies such as Olivares-Polanco(2004) and Cull et al. (2007) among other haveused return on assets in measuring sustainabilityor profitability. There are various indicators toanalyse the financial performance like provisionexpense ratio, portfolio at risk, operating expenseratio, write-off ratio, risk coverage ratio, cost perclient, credit officer productivity, personnelproductivity, funding expense ratio, cost of fundsratio and loan loss reserves (Cull et al., 2007; Nietoet al., 2004; Tucker, 2001). A study by Aggarwaland Sinha (2010) discussed different dimensionsto analyse the financial performance of various

microfinance institutions in which they concludedthat the difference in MFIs performance is due tothe adoption of different business models.Crombrugghe et al. (2007) suggested that a bettertargeting of the interest rate policy or increasingthe number of borrowers per field officerespecially in collective delivery models could leadto the performance improvement. Khandker et al.(1995) pointed out the loan repayment (measuredby default rate) as another indicator for measuringfinancial sustainability of MFIs; because, lowdefault rate would help to realize future lending.Operational cost and portfolio yield are theimportant variables to measure the financialperformance (Christen, 2000). A workshop report(2006) on Micro insurance suggested differentratio to measure the financial performance ofmicro insurance practitioners. These are: netincome ratio, incurred expense ratio, incurredclaims ratio, renewal rate ratio, solvency ratio,promptness of claims settlements, claims rejectionratio, growth ratio, coverage ratio and liquidityratio. Sarma and Borbara (2009) measured thesustainability by using the ratios like SubsidyDependence Index (SDI) and Subsidy DependenceRatio (SDR). Few of the experts are of the viewthat financial perfor-mance can be analysed fromdifferent angles like sustainability/profitability;assets/liability management; portfolio quality;efficiency/productivity (CGAP, 2003).

Welfare Impact

The measurement of the welfare impact of theservices of microfinance institutions on theborrowers is essential in determining the successof microfinance programmes. A report given byWorld Bank (2001) view poverty as lack ofmoney, lack of adequate food, shelter, educationand health and the poor are vulnerable to illhealth, economic dislocation and natural disaster.According to Meyer (2002) this perspective ofpoverty can be used to assess the impact of theMFIs on their beneficiaries. However, there is noclear evidence of the impact of microfinance inpoverty reduction and women empowerment, asassumed by the PRONAFIM programmes(Gonzalez-Vega, 1998; Armendariz de Aghionand Morduch, 2005). Schreiner (1999) and Bhatt(1999) support the view that microfinance maynot be an effective poverty alleviation tool in theUS. Schreiner analyses US micro enterprise



programmes and finds that some programmescan move some people from welfare to self-employment, but it only works one percent of thetime. Meyer (2002) also noted the assessment ofimpact of the MFIs on their clients as a verydifficult and controversial way of evaluating theinstitutions performance. Many researchersmeasuring the perfor-mance of microfinancefocused on the welfare impact on the borrowers(business, household and individual).

Comparison with benchmarks

An attempt can be made to compare theperformance of the MFIs with the industrybenchmarks. Comparison with benchmarks canalert management and those who fund MFIs tohow well or poorly an MFI is performing. Byrevealing weaknesses, benchmark measure canbe used as a guide to focus resources andupgrade management practices. In a study doneby Ejigu (2009), he analysed that the MFIs’ arepoor performers on depth of outreach, ratio ofGGLP to assets and not using their debt capacityproperly. In context to outreach, we found thatinstitutions are good at breadth of outreach, inmanaging the cost management and charge lowinterest rates. Oikocredit partner operationscompare favourably to other agencies withrespect to operational sustainability (OSS), evenwhile portfolio at risk and depth of outreach arestill below the industry average standards(Ruben and Schers, 2007). Aggarwal and Sinha(2010) concluded that there exist a similaritybetween the firms performance in the areas likerisk coverage, debt equity ratio, productivity, costper borrower, operational self-sufficiency etc.Bassem (2008), through the use of non–parametric DEA, found that the eight MFIs arerelatively efficient and have a notable level ofaverage efficiency. Lindsay (2010) concluded thatlegal status of the MFI determines itseffectiveness. Further, he found that nonprofitinstitutions are most effective in fulfilling thepurpose, they intended to do. Tucker (2001)found that commercial banks and the non-regulated MFIs’ performance exceeded theperformance of regulated MFIs’ in terms ofgrowth in assets, growth in portfolio, and growthin equity. Mersland and Strom (2009) found incontext of outreach that neither average loan hasincreased over the time nor there is a tendency

towards more individual loans and higherproportions of lending to the rural customers.

Tucker and Miles argued that self-sufficientMFIs are strong performers on ROE and ROA.But when measured, at the aggregate level, theyare unprofitable and far worst performer thantheir geographic commercial peers. In contrast tothis, Lafourcade (2006) found that MFIs in Africaare dynamic and perform favorably comparedwith their counterparts in other global regions.Mersland and Strom (2007) recommended thechange in board structure to improve the overallfinancial performance. He suggested the changeslike: to split the roles of CEO and chairman, tohave a woman CEO, and to grant the loans toindividuals. In regard to outreach, he assessedthat outreach increased with the higher grouplending. Thus, it can be analysed that his opinionin context of financial performance and outreachare contrasting as one focused on individual andother on the group lending. MFIs in South Asiaand Middle East & North Africa tend to be lessefficient than the others (Nawaz, 2008). A studyregarding the non-sustainability of NepaleseMFIs is done by Sharma (2008). Farrington (2000)suggested the measures like an increase in loanofficer productivity and improving portfolioquality will help to increase the profitability bythe reduction in total administrative andprovisioning expenses. The CNCAS was notprofitable for the last five years. Indeed it hasbeen accumulating losses; therefore sustainabilityhas not been achieved.

PERFORMANCE EVALUATIONMODELS FOR MFIS

During the 1990s, there was an increasing intereston the part of financial institutions inmicrofinance. As a result, several performanceevaluation indicators in the form of differentmodels emerged in relation to different areas ofmanagement considered as the most importantin evaluating an MFI’s performance. Someevaluation models were accepted in general andhave been currently adopted by institutions tomonitor and evaluate the business performance.Each of these models focused on specific profilesof analysis. These models contribute to raisingthe level of informative transparency with regardto the process of credit management of MFIs.



The qualitative analysis focuses on thesuccess of the strategy verifying the quality ofmanagement processes and the efficiency of theinformation system with the objective of guaran-teeing the internal control functions. It focusedon government and decision making, informa-tion and management tool, risk analysis andcontrol, activities and loan portfolio, financing:equity and liability, efficiency and profitability asthe performance indicators for MFIs.

INSTITUTIONALIST AND WELFARISTAPPROACHES TO MICROFINANCE

There are two schools of thought-welfarists andinstitutionists for the measurement of perfor-mance of MFIs. Welfarists argue that MFIscan achieve sustainability without achievingfinancial sustainability (Brau and Woller, 2004).Welfarists tend to emphasize poverty alleviation,place relatively greater weight on depth ofoutreach relative to breadth of outreach andgauge institutional success according to socialmetrics. This is not to say that breadth ofoutreach and financial metrics don’t matter.Welfarists feel that these issues are important, butthey should not be achieved at the cost of depthof outreach (Brau and Woller, 2004). On thecontrary, institutionists argue that unless webuild sustainable MFIs that are capable ofrunning independent of subsidies, the promise ofMFIs, of eradicating world poverty will not bemet. They argue that a sustainable MFI helps toexpand outreach and reach more poor people.Rhyne (1998) considered the two goals of MFIs-financial performance and outreach to be win-win situation, stating that MFIs following theprinciples of good banking would also be thosethat alleviate the most poverty. Markowski (2002)as cited by Wrenn (2005) stated they have a dualmission: a social mission “to provide financialservices to large numbers of low-income peopleto improve their welfare”, and a commercialmission “to provide these financial services in afinancially viable manner”. It has observed thatMFIs are not fulfilling their social mission to theextent needed to meet the demands of the poorfor financial services. Simanowitz with Walter(2002), as cited by Wrenn (2005) argued thatmicrofinance is a compromise between this socialmission and commercial mission. With thegreater emphasis on financial and institutional

performance, opportunities for maximizingpoverty impact and depth of outreach have beencompromised. They call for a balancing of socialand financial/commercial objectives because thecurrent focus on financial objectives meanstargeting fewer of those who are in utmost needof the microfinance services. To do this theyargued “it is now time to innovate and designservices that not only, maintain high standardsof financial performance, but also set newstandards in poverty impact” (Wrenn, 2005).

The debate between institutionists andwelfarists is referred as the “microfinanceschism” (Morduch, 2000). General consensusholds that there exists a tradeoff betweenfinancial self-sufficiency and depth of outreach(Von Pischke, 1996). But there is muchdisagreement about the nature, extent, andimplications of this trade off. Nonetheless, assuggested by the existing little evidence thatthose MFIs that have achieved true financial self-sufficiency have also tended to loan to theborrowers, who were either slightly above orslightly below the poverty line in their respectivecountries (Navajas et al., 2000). These MFIs areable to capture economies of scale by extendinglarger loans to the marginally poor or non-poor.This limited evidence leads many to concludethat if financial self-sufficiency is desired, thenthe very poor will not be reached by MFIservices. That is, the MFI would not be able toachieve enough depth to reach those who needcredit most desperately.

TRADE-OFF BETWEENSUSTAINABILITY AND OUTREACH?

Proponents of trade-off betweensustainability and outreach

The developments and the resulting emphasis onsustainability and efficiency of MFIs may go atthe cost of their outreach, because it is arguedthat the unit transaction costs for small loans tothe poor are high as compared to unit costs oflarger loans. Barry et al. argued that despite thesuccess of microfinance institutions, only about2% of world’s roughly 500 million small entre-preneurs are estimated to have access to financialservices. Also, the financial sustainability ofmicrofinance institutions has come undersuspicion. Thus, there may be a trade-off



between efficiency and outreach, implying thatthe shifting focus towards increasing sustain-ability and efficiency reduces the scope for themore traditional aim of many MFIs, which is,lending to the poor. It is impossible for a micro-finance institution to achieve financial sustain-ability and, at the same time, reach highernumbers of the poorest (Hartarska, 2005; Zeller& Meyer, 2002; Park & Ren, 2001). Hartarska(2005) also stressed that there is no “win-win”situation for microfinance institution betweenachieving outreach and financial sustainability.The microfinance institution either reaches onlythe poorest, charges low interest rates and issubsidized or reaches not-so-poor borrower,charges higher interest rates and achievesfinancial sustainability.

In policy circles there has been a hefty debateon this issue between the welfarists and theinstitutionalists. Related to the issue of trade-offbetween financial performance and outreach, wefind surprisingly few rigorous testing of theissue. The most comprehensive study done byYlinen (2010) on 487 MFIs suggested thatincreased profitability tends to worsen outreach.Further, he concluded that the institutional formand operation method, lending method, coststructure, operational environment determinethis trade-off. His viewpoint is supported bySarma and Borbara (2009), Nawaz (2008), Servinet al. (2011), Christen (2000), Hermes et al. (2008),Ejigu (2009) and Armendariz and Szafarz (2009).However, christen (2000) argued that there seemsto be no compelling argument that representsthis mission drift. Rather, larger loan sizes couldsimply be the function of different factors, suchas choice of strategy, period of entry into themarket, or natural evolution of the target group.Further Armendariz and Szafarz (2009) used amodel to pin down the situation where profitmaximising MFIs can deviate from their mission.They concluded that country specific factors likecost and weightage given by MFIs to the poor,affect their mission. Hermes et al. (2008) evenfound that that efficiency of MFIs is higher if theyfocus less on the poor and/or reduce thepercentage of female borrowers. Cull et al. (2007)study argued that a trade-off emerges betweenprofitability and serving the poorest whendisaggregation by lending type is done. Alongwith it, they found that institutional design and

orientation matters importantly in consideringtrade-offs in microfinance. In support of Cull’sfindings, Bassem (2012) recognized the existenceof trade-off between financial performance andthe depth of outreach (social performance). But,it does not mean that achieving the doublebottom line, the ultimate promise of microfinanceis impossible although it is difficult to achieve.Though Luzzi and Weber (2006) found that sometrade off exists between outreach andsustainability but this is not the case for everyyear. Navajas et al. (2003) do not directly analysethe existence of the trade-off, but their study mayhave implications for outreach versussustainability. They concluded that due toincreased competition, MFIs changed theirlending technologies and the borrowers onwhich they focus their activities. On the otherhand, outcomes of a study done by Martinez-Gonzalez (2008) revealed that most MFI are moreefficient in pursuing sustainability (performingloan portfolio size) rather than breadth ofoutreach (no of clients) or haven’t met either goalsuccessfully. Mersland and Strom (2009) showedthat an increase in average profit and averagecost tends to increase average loan size and theother drift measures. In the aggregate samplecomposing MFIs of seventy countries, they foundthat MFIs in every region are unprofitable andfar worse performers than their geographiccommercial peers. Self-sufficient MFIs are strongperformers on ROA and ROE. The majority ofMFIs, however, are very weak and in need ofcontinued subsidies.

Disputants of the trade-off betweensustainability and outreach

The poorest people can benefit from micro-finance from both an economic and social well-being point-of-view, and this can be donewithout jeopardizing the financial sustainabilityof the MFI (Morduch and Haley, 2002). Anefficient microfinance institution leads to thesound economic development by bringingfinancially disadvantaged people within thesphere of financial services. A study in thisregard is done by Hermes. Hermes et al. (2009)where he found a positive relationship betweenMFI efficiency and domestic financial develop-ment. The key is finding the right combinationof factors to meet credit and savings needs. In



contrast to this study, the results of the studiesdone by Kereta (2007), Crombrugg (2007),Kailthya (2009) found no evidence of trade-offbetween outreach and financial sustainability,rather positive correlation between the two isfound. Kailthya’s results are comfirmed byDacheva (2007) where he found no associationbetween the commercialisation factors and loansizes. According to Christen et al. (1995), Oteroand Rhyne (1994) cited in Meyer (2002): outreachand financial sustainability are complimentary.This is because as the number of clients increases,MFIs enjoys economies of scale and hence reducecosts which help them to become financialsustainable. Crombrugghe (2007), also, analysedthat better targeting of the interest rate policy andincreasing the number of borrowers per fieldofficer help the MFIs to improve their financialperformance. Haq et al. (2010) found that thenon-governmental MFIs particularly underproduction approach are most efficient in thefulfilment of dual objectives. To attain the dualobjectives simultaneously, Conning (1999)suggested that MFIs must charge higher interestrate, have higher staff costs per dollar loaned andmake less use of leverage. Bassem (2012) didn’tfind a justified mission drift. On the other hand,Kar (2010) in his study regarding the trade-offused a unique panel database containing 4-9years observations from 253 MFIs in 69 countries.He found a positive significant associationbetween self-sustainability and the height ofoutreach, suggesting some extent of vulnerabilityof mission drift over time for individual –basedlenders. However, he concluded that mission-drift phenomenon works differently in differentdeveloping regions in the world. It can beconcluded that MFIs can achieve their doubleobjectives and fulfil their ultimate promise.

KEY FACTORS AFFECTINGPERFORMANCE AND OUTREACH

The performance of all the microfinance playersis not the same. There are a lot of factors whichaffect the performance of these players. SomeMFIs are performing well on some parametersand others on other ones. There are differentstudies reporting different factors responsible forthe performance difference of Microfinanceplayers. Ejigu (2009) found that the use of debtfinancing and the age of the MFIs’ (CGAP, 2009)

make firms more efficient and productive. Ruben& Schers (2007) found the membership base, MFIloan size and political constituency as the generalcritical determinants for performance. Gutierrez-Nieto et al. (2007) found the country effects onefficiency and effects that depend on non-governmental organisation (NGO)/non-NGOstatus of the MFI. Qayyum and Ahmad (2006)study revealed size of the MFI as an importantfactor in determining both Technical Efficiency(TE) and Pure Technical Efficiency (PTE) levels. Incontrast to this, Bassem (2008) found that the sizeof MFIs had negative effect on their efficiency. Aresearch done by Ylinen (2010) in Uganda contextconcluded that the, non-governmentalorganisations (NGOs) and group lenders are theleast often profitable relative to their othercounterparts. Country specific factors like cost andweight age given by MFI to poor affect themission of MFI, as assessed by the Armendarizand Szafarz (2009) in their study. Martinez-Gonzalez (2008) found average loan size,performing portfolio to assets ratio, scale ofoperations, ratio of payroll to expenses, age, boardstructure, for-profit status of MFI, % of FINAFIMfunds as the determinants of difference inefficiency of microfinance institutions. Hassan andSanchez (2009) in their study revealed thatTechnical efficiency is higher for formal MFI thannon-formal MFI and also, efficiency depends uponthe region of the concerned institution. As per theresults of the work done by Kailthya (2009),operational efficiency, leverage (risk) andinstitutional structure affect the financialperformance. The study conducted by Hermes etal. (2009) discussed the surprising results sayingthe type of the loans, an MFI provide, also affectits efficiency. Arsyad (2005) concluded that goodperformance and sustainability have been verymuch influenced by the institutional environment.Hoque (2011) held that equity financing andincreased use of commercial debt lowersproductivity for client-maximizing MFIs becauseof the lower conversion of savers to borrowers orthe yield rate. Omri and Chkoundali (2011) foundthe average loan size and the number ofoutstanding loans per women as the importantfactors for the increase in commercial viability ofthe non-governmental organisations. Kinde (2012)in his study in context of Ethiopia followed aquantitative research approach using a balanced



panel data set of 126 observations from 14 MFIsover the period 2002-2010. His study found thatmicrofinance breadth of outreach, depth ofoutreach, dependency ratio and cost per borroweraffect the financial sustainability of microfinanceinstitutions in Ethiopia. However, the micro-finance capital structure and staff productivityhave insignificant impact on financial sustain-ability of MFIs in Ethiopia for the study periods.Coleman and Osei (2007) showed the critical roleof governance in the performance of MFIs. Theyalso stated that the independence of the board anda clear separation of the positions of a CEO andboard chairperson have a positive correlation withboth performance measures.

CONCLUSION

The purpose of this article has been to introducethe finance academic community to the disciplineof microfinance institutions’ financial performanceand outreach. We have discussed the performancemeasurement of MFI’s, performance evaluationmodels, approaches to microfinance institutions’performance, trade-off between outreach andfinancial performance and the key factors affectingperformance and outreach. MFI’s performancemeasurement includes measuring outreach,financial performance and assessing the welfareimpact. Outreach has been defined as the abilityof an MFI to provide high quality financialservices to a large number of poor people.Financial performance is used as a measure totrack the financial sustainability of an institutionover a period of time. This sustainability can beboth operational and financial. Finally, wediscussed the trade-off between financialperformance and outreach. We hope that thisarticle will help to turn the attention of financeresearchers to the dual aspect of microfinanceinstitutions outreach and financial performance.Many of the models, tools and frameworks in theexisting finance literature can be used to achievethe contradictory goals of microfinance perfor-mance and outreach.

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Eoin Wrenn, “Microfinance Literature Review”,Retrieved from: http://www.dochas.ie/Shared/Files/2/MicroFinance_literature_review. pdf, 03/10/1012; 4:00 pm, 2005.

M. Zeller and R.L. Meyer, “The triangle ofmicrofinance: Financial sustainability, out-reach, and impact”, Johns Hopkins UniversityPress in collaboration with the InternationalFood Policy Research Institute (IFPRI),Baltimore and London, 2002.



Innovation in Rural Region in India

Nomita Sharma*

ABSTRACT

Innovation is the key to growth in country’s economy. But it is dependent on resourceslike money, technology and skilled labour. These resources are easily available in the urbanarea.This explains the frequent innovations happening in the urban area. But a rural regionhas many shortcomings likeun skilled labour, shortage of money and technology and lessawareness about new technology.But inspite of all these shortcomings, there are manypeople as well as small enterprises in the rural regions which have come out withinnovations. These innovations have transformed their lives and improved their standardof living. Most of the rural innovations remain unnoticed because they do not get supportof promotion or their use is confined to limited rural regions. The paper exploresinnovations in the rural region in India.It further tries to analyse the cause or origin ofthe situations or environment that were instrumental in on-set of these innovations.Different innovations at rural region have been explored to understand the reasonsunderlying innovation. Secondary data was used to analyse rural innovations.

Keywords: Frequent innovations, Rural region, Common people, Cost effectiveproducts

INTRODUCTION

Innovation is the main engine in drivinggrowth and productivity in any country.There is wide spread agreement that

economic growth of any country depends largelyon how that country innovates and reinventsitselfin the competitive environment. India is oneof the fastest growing economies in the worldwith around 300 million people living belowpoverty line. These people have little access toeven basic necessities like sanitation, food, waterand other requirements of like education,accommodation electricity and transportation.Many scholars have pointed that innovation

should focus on bottom part of the pyramid.Innovative solutions can help these people belowpoverty line transform their lives.This researchpaper presents few innovations done in the ruralregion in India.It also further analyses these ruralinnovations and churns out the variables thataffect rural innovations.Over a small period oftime, these rural innovations have even inspiredpeople living in urban region to innovate andimprove standard of living. Many rural inno-vation have come with an idea of designing anddelivering products at affordable prices. Thereare many examples that show real innovation hasindeed happened in absence of required

* Shaheed Sukhdev College of Business Studies, University of Delhi, Delhi, India


resources be it money, shortage of skilled labouror shortage of technology. There is SankaraNethralaya, a charitable not-for-profit eyehospital that provides a world-class eye care topeople with a single standard of care for people.The prosthetic limb, Jaipur foot, made of rubber,wood and tyre cord has influenced the market forprosthetics around the world. A Greenway SmartStove designed by a start-up called GreenwayGrameen Infra has been able to reducesmokeemissions by 80% and fuel consumption by 65%in rural Indian households. A firm calledAyasShilpa makes suspension bridges for a tenthof the price of conventional ones to connectcountless villages to the outside world whichotherwise would use perilous rope bridges.

There is need to identify these ruralinnovations and promote them.A number ofventure capital firms are investing in companiesthat cater to the country’s rural and bottom of thepyramid populations. Global philanthropicfoundations such as Gates Foundation, OmidyarNetwork and the Acumen Fund are keen toinvest in innovations with a social impact inIndia. As the innovation juggernaut rolls on,India needs to put in place an even betterinclusive innovation ecosystem which harnessesthe dynamism of enterprise of our youth toaddress problems faced by the less fortunate.India is in a position to mount a strong initiativefor affordable innovations by taking advantageof low costs and a large talent base. Engagementof multiple stakeholders and creating Public-Private-Partnerships for promoting people-centric research will require all the necessarysupport. Innovation in rural region can addcontribute to social and economic value and leadto development of a community. Most of theinnovation in rural region go unnoticed becausethey do not get support of promotion or theirusage is limited to rural communities.

REVIEW OF LITERATURE

Innovation

An idea must be replicable to be called aninnovation at an economical cost and must satisfya specific need. Innovation uses information,imagination and initiative in making a new thing,object that can improve quality of life or providehealth benefits to people or provide an easier way

of doing a work. It may also mean reducing costof product or giving more benefits to customersat same price. Innovation helps in creatingnew ways of making same products by usingbetter alternative for example, an alternative rawmaterial or reducing time and money in makinga product. Innovation can be evolutionary orrevolutionary. Evolu-tionary can be continuousor dynamicinnovation that are brought about bymany incremental advances in technology orprocesses which revolutionary is discontinuousinnovations, which is often disruptive and new.

A rural region is characterised by open landand few people, homes and buildings. It is richwith natural environment. The “rural sector”means any place which meets the followingcriteria,

• A population of less than 5,000,• Density of population less than 400 per sq.

km., and• More than “25% of the male working popu-

lation” is engaged in agricultural pursuits.

INNOVATION IN RURAL REGION

It has been observed that people staying in ruralregions have come out with innovations thathave improved their standard of life. Theseinnovations are driven by their basic need or bysolution of a problem faced by them. This isbacked by their inability to meet their needsthrough existing options in society. In thepresence of many constraints i.e. lack ofeducation and severe cash crunch–many havesuccessfully shown new ways of improvingproducts or even made a new product. Theyhave also come with ways of reducing cost andtime of making a product and even helped inconserving environment. A washing-cum-exercise machine, hand operated water liftingdevice, portable smokeless stove, automatic foodmaking machine, solar mosquito killer, shockproof converter, a floating toilet soap are few ofthe innovations originated in rural region. Thisresearch paper explores innovation at the rurallevel in India. Further, over a period of last fewyears, it has been observed that people in ruralareas have moved to urban areas for better livingand of hope of changing ones economic circum-stances and better life. Agricultural technologyhas decreased the need for agricultural workers.

Nomita Sharma


Improved transportation, tools, fertilizer, andgenetically modified crops mean fewer farm-workers harvest more food. This decreased needfor farm employment drives many farmworkersinto cities in search of jobs. And those who couldnot move due to various reasons, they havefound innovative ways to make their life simpler.The cost of living in urban areas is usually muchhigher than in rural areas. It costs more to rent ahouse, buy food, and use transpor-tation. For thisreason, wages are usually higher in urban areas.The search for higher wages is another reasonpeople migrate from rural areas. But there aremany people who cannot migrate to urbanregion and stay in rural regions either out ofpreference or due to no option available to them.

NEED/IMPORTANCE OF THE STUDY

Innovation is the need of hour. Innovation helpsin managing uncertain business environment. Itfurther adds to country’s economy also. It isstabilizes a small company status as profitablecompany. Pandit Jawahar Lal Nehru had said thatreal India lies in Rural India. Over a period oftime, India has gone through many changes likeeconomical, political, technical demographical,societal, structural and cultural. It becomes veryimportance to study change in rural region withrespect to innovation.

Extensive literature review was done for twobroad categories. First category of literaturereview focused on identification of rural region inIndia. Second category, focused on different typeof innovations. Review of different variables likemoney, technology, knowledge, skilled labour thataffect innovation is also undertaken. Ten differentinnovation are shortlisted for analysis of thestudy.Each innovation is then analyzed withrespect to objectives of the research.

FINDINGS

Ten innovations in rural region are presentedbelow:

• A Reaper Windrower machine was innovatedto solve problem of harvesting crops on time.This problem was due to shortage oflabourers and it resulted in reduction in yieldand loss.To overcome this problem devicewas innovated. It has three different units

namely, cutting unit, which consists of cutterbar, reel unit for pushing the standing croptowards the cutter bar and gathering unit towindrow the crop at centre of the machinethus making it easy to handle/transport tothe threshing floor. It helped in reducingmanpower requirement and the drudgeryinvolved in the harvesting process. Themachine has 7 ft width of operation and cancover 0.4 hectares per hour. Further, whileoperating this machine, fuel consumption oftractor is 2.5-3 litres per hour.

• A Hand operated water lifting pump was inresponse to a dearth of available pumps thatcould be afforded by small farmers. In thiscase, though options were available in themarket but the farmers could not afford it.But this innovation went through manyimprovements before taking a final shape.Nearly five prototypes over a period offifteen years were designed before finallyperfecting design.The resulting water-liftingdevice was operated by the continuouslyrotating a handle. It is simple in design andhas a high discharge at low cost compared tothe motorized pumps and conventional handpumps. The pump has discharge of 20,000lph at 0.75 m head.

• Bullock operated sprayeris pulled by a pairof bullocks and gets the drive from theground through a gear box and belt pulleysystem.When the operator shifts the lever toa higher gear, the frequency of strokes of thepump increases as a result of which morepressure develops in the container. The sprayfluid, thus, atomizes into fine droplets witha wider swath. This sprayer considerablyreduces time requirement as compared tomanual spraying and also the drudgery andhealth hazards involved in manualspraying.It has 18 nozzles, spaced at adistance of 35 cm and can cover 3.5 acre/h.

• Lemon cutter was developed for cutting limeinto small pieces in bulk quantity. It is aninnovative technology that offers a greatvalue proposition for the pickle manufac-turing companies. The pickle industry facesproblems due to less automation especiallyfor cutting of fruits. Another problem isshortage of labour during peak seasons,



Table 1. The result is summarized in the table.

Innovation Place Cause Type of Useful to Usage/BenefitInnovation

Reaper Wind- Madhya Shortage of Product Farmers Reduction in Manpower,rower machine Pradesh Labourers/Loss Less fuel consumption,

of yield and loss Easy to handle andtransport

Hand operated Tamil Nadu Dearth of afford- Product Farmers High discharge at lowwater lifting pump able pumps cost, helps in controlling

pollutionBullock Madhya Manual spray- Product Farmers Reduces time to spray theoperated Pradesh ing which is Time whole field and healthsprayer and Gujrat consuming and hazards. It can covers

hazardous to health wider area for sprayingLemon Cutter Tamil Inefficient opera- Product Pickle It is a novel machine in

Nadu tions due to low Industry terms of its cost effective-degree of automisa- ness, efficiency, drudgerytion, Short-supply reduction for women, safetyof labour during consideraions and trans-peak seasons mission system

Bicycle Weeder Maha- Requirement for Product Farmers It is easy operate, affor-rashtra effective and dable and covers more

efficient way for area in one hourremoving weedsfrom land

Pepper thresher Kerala To control Product Farmers It can be operated bothdamage and manually and automati-increase output. cally. It can produce

more output in less timeCompost Rajasthan To increase the Product Farmers It mixes the bio-wastesAerator & fertility value thoroughly, it can pro-Leaf Pruner and reduce de- cess more waste per hour,

composition time it is better in qualityModified hand Rajasthan, Lack of surface Product People One can drink whilepump with tap Delhi water and falling using pumping hand pumpand attachment water table, short- hand simultaneously andfor filling animal age of drinking pump in comfortably with thetrough later, difficulty in villagers/ help of tap. Helps in

drinking and town/ saving extra water thatpumping water cities is wasted whileat the same time pumping

Milking machine Karnataka Shortage of skilled Product Farmers/ An easy and cost effectivelabour for milking Milk way to milk cowscows and non- vendors/affordability of diariesfarmers to usemilking machines

Shock proof Manipur Need for cost Product Household It is an easy to installconverter effective and safe individuals device that provides

electricity. electricity to everyconnection in household

Nomita Sharma


which limits the capacity. It provides a novelmechanism for reducing cost and improvingefficiency.It is also safe and less tedious workfor women and for transmission.

• Bicycle weeder has been made with by fixinga rod with a blade at the end, to an assemblyconsisting of only the front wheel and thehandle of a bicycle. This innovation isextremely efficient in removing weeds fromhard land. It is very useful device forploughing/inter culture operation in verysmall farm plots, gardens and kitchen gardens.One can cover 0.08 hectare in one hour.

• Pepper thresher is better than conventionalthreshers which can be operated both auto-matically and manually with higher outputand minimum damage. About 100 kg peppercan be threshed in a one HP machine in tenminutes (60 kg in a HP version). It consumes3/4 electric units per hour, has threshingefficiency 90% and the damage is about 2-3%.

• Compost Aerator & Leaf Pruner helps inimproving quality of biowaste. Decomposedbio-waste has better fertility values. The timefor decomposition can be decreased if thebiomass is aerated, humidified and properlymixed. This innovation is a tractor (powertake off driven machine, which canthoroughly mix the bio-wastes and addmoisture as well thereby reducing the time ofdecomposition.The machine can cover a rowof wastes disbursed by 100 trailers of size11 ft×6.5 ft×2.5 ft (i.e total 400 ton) in onehour. Tractor consumes 3.5-4.0 liter diesel perhour. This provides a better value of compost.Total time for converting the biomass intomanure while processed by this machine is

25-40 days, which is otherwise 3-4 months bythe conventional methods.

• Modified hand pump with tap andattachment for filling animal trough wasborne out due to lack of surface water sourcesand falling water table. This shortage madeavailability of clean drinking water a majorproblem in Rajasthan. This arrangementprovides 20% of pumped water directly tothe attached animal water trough. Throughthis way, the extra pumped water can bestored for animals. Another benefit that itprovides is that at the same time, a personcan drink directly while pumping water.

• Milking machine was answer to shortage ofskilled labour for milking a small herd ofcows. These farmers could not afford costlymilking machines. It provides an easy andcost effective way to milk cows. It canproduce 1.5-2 litre of milk per minute. Themachine can be used to remove all the milkfrom the udder. The cow feels as if it is beingsuckled and does not experience any pain.

• Shock proof converter is an innovative devicewhich converts all electrical lines into shock-free power lines. This is a very useful device forevery household/commercial establish-ment.The device can be installed just after the energymeter so that each and every connec-tion in thebuilding establishment gets connected to thedevice and becomes shock-free.

• Floating soap was innovated to controlslipping of soap into water while bathing.Several experiments were conducted tomake a soap that has a density of 0.878, TFM(Total Fatty Matter) as 73%, foaming stability

Floating soap Kerala Need to control Product Individuals It answers problem ofslipping of soap slipping of soap into waterinto river/make while bathing. It also hasmedicinal soap medicinal values andwith health benefits health benefits

Bamboo lathe Nagaland Need to save time Product Bamboo The machine can makemachine and save labour in industry different products effec-

making bamboo tively and efficiently. Itproducts takes less time in making

the products



as 0.1 cm and foaming power as 0.2 cm.Another innovation was.

• Bamboo lathe machine helps in makingbamboo products. First of all, outer coveringof Bamboo has to be removed for developingsmooth surface to make interior decorationitems and utility articles like cups, penstands, etc. This job is very time consumingand laborious. This innovation can do all theoperations like removing the outer knots,smoothening the surface, internal/externalcarving and finishing. The machine has softtouch joystick controlled operating system,which facilitates precision in operation.Thefinished bamboo can be used to makebamboo pet bottles. This bottle has thepotential to replace the plastics and tin bottlesand cans. The bamboo pet bottles can bemade with a capacity of 1 lit, lit, 200 ml etc.

RESULTS & DISCUSSION

The main cause or origin of these ruralinnovations is shortage of skilled labour, shortageof technology that can ease out the functioningof products. Moreover, the inability of farmers toafford available options in environment alsoforces them to innovate and devise a solution oftheir problems. Whether it is a machine that canmilk cows in less time or bullock operatedsprayer that can spray in wider farm area , allinnovations are borne out of basic problem facedby farmers.And with option or help around, theyhave devised ways to handle problems in theirsimple and cost effective ways. All innovationconsidered in this section are productinnovations. It is interesting to note that eventhough product innovations require moreresources, still without many resources at theirdisposal, people in rural regions have been able

to find solutions to their problems. Thesesolutions are cost effective and within reach ofcommon man.

The result of the research study supports thehypothesis that innovation at rural region isaffected by shortage of knowledge, money andskilled labour.

CONCLUSIONS

Innovation at rural region needs to be supportedand promoted. People living in the Rural regioncan be given training to promote innovativeactivities. Innovation at rural region is basicallyneed based. The different innovations happeningat rural region in India have been explored. Totalten innovations were shortlisted and analyzed.Different variables that affect innovativeactivities are shortage of skilled labour, shortageof technology and inability of the people toafford the available options in environment.Thisis due to less awareness level of people in ruralregion. Awareness about technology is also veryless. All the innovations are product innovations.

REFERENCES

E. Vieira, E. Vazquez-Rozas and I. Neira, “TheInnovation factor: An Economic Model ofProductivity in European Regions”, Vol. 8-1,Regional and Sector Economic Studies, 2008.

S. Hotho and K. Champion, Small businesses inthe newcreative industries: Innovation asapeople management challenge, ManagementDecision, Emerald Group Publishing Limited,Vol. 49 No. 1, pp. 29-54, 2011.

Report by Rural Areas, People and InnovativeDevelopment (RAPIDO), “Sectors whereinnovation enhance rural, 2008.

Nomita Sharma


Tourism Services in Kashmir: Perspective ofForeign Tourists

Mushtaq Ahmad Bhat and Nabina Qadir*

Abstract

Due to the complexity and globalization of today’s competitive business environments intourism, quality has become one of the most important sources of competitive advantage.For tourism enterprises, it is no longer sufficient just to maintain a business now; it isalso necessary to have systematic processes to manage quality and to gain and maintaincompetitive position. High quality tourism services attract large number of tourists andensure tourist retention. Tourist retention provides higher profit contribution in terms ofrepeat visits. Besides, the need for delivering quality tourism services arise due to the factthat foreign exchange earnings in this industry has a high added value which contributesto the growth of the GDP of an economy. Therefore, in view of the growing importance ofservice quality for successful tourism promotion and development of the economy, presentstudy is an attempt to measure the perceptions of foreign tourists in Kashmir. Based ondata gathered, with the help of a self-developed and statistically tested research instrument,from three hundred sixteen (316) respondents, the study concludes that by and large foreigntourists are satisfied with tourism services but an improvement is needed in all dimensionsto improve the overall quality of tourism services.

Keywords: Tourism Service Quality, Tourist’s Expectations and Perceptions,Dimensions of Tourism Services, Kashmir Valley

* Department of Business & Financial Studies, University of Kashmir, Srinagar, J&K, India

INTRODUCTION

Tourism has become the fastest growingindustry in the world for the past 50 years,and today it is the world’s largest industry

relating to employment, foreign exchangeearnings and overall economic development ofseveral countries. It is one of the most importantcivil industries of the world contributing about10% to the world’s GDP (Abhyankar and Dalvie).Tourism provides opportunity for poverty

alleviation and holds the key for creation of ruralwealth. It can provide impetus to other industriesthrough backward and forward linkages and cangenerate huge revenue earnings for the nation.

Tourism sector holds immense potential forIndian economy. India, a developing and anemerging market economy, is experiencing asubstantial growth in tourism sector. During theyear 2011, the number of Foreign Tourist Arrivals(FTAs) in India reached the level of 6.29 million,


registering a growth of 8.9% over the FTAs of 5.78million in 2010.

For the sustenance and promotion of tourismindustry, it is necessary to enhance its serviceefficiency. In today’s competitive businessenvironment, tourism service providers mustfind ways to make their services stand outamong their competitors. To achieve this, theymust understand their customers’ needs—andthen set out to meet these needs. Among allcustomer demands, quality service has beenincreasingly recognized as a critical factor in thesuccess of any business also suggested thatcustomer service quality is a crucial source ofdistinctive competence and is often considered akey success factor in sustaining competitiveadvantage in service industries. Research hasextensively revealed that service quality leads tocustomer loyalty and attraction of newcustomers, positive word-of-mouth, employees’satisfaction and commitment, enhancedcorporate image, reduced costs and increasedbusiness performance. Higher levels of servicequality produce higher levels of customersatisfaction, which in turn lead to higher levelsof customer patronage (Amin and Isa, 2008).Thus, attention to delivery of a higher level ofservice quality is an important strategy by whichservice organizations can position themselvesmore effectively in the market place.

RESEARCH HYPOTHESIS

To study the gap between expectations andperceptions, SERVQUAL scale, which became themost popular instrument for measuring servicequality. The instrument contained 22 items forassessing customer perceptions and expectationsregarding the quality of service. Each item isconsisted of two statements—one for expectationand the other for perception. A level ofagreement or disagreement with a given item israted on a Likert-type scale and the level ofservice quality is represented by the gap betweenperceived and expected service. The SERVQUALinstrument is based on five service qualitydimensions, namely tangibles (physical facilities,equipment and personnel appearance), reliability(ability to perform the promised servicedependably and accurately), responsive-ness(willingness to help customers and provide

prompt service), assurance (knowledge andcourtesy of employees and their ability to gaintrust and confidence) and empathy (providingindividualized attention to the customers). Theinstrument has been revised and extensivelyused in a variety of service settings such asbanking, credit card services, telecommunicationservices, repair and maintenance (Alkhattab andAldehyyat, 2011). But, despite its wide usage, ithas been subjected to several criticisms ontheoretical and operational aspects. However, inthe tourism and hospitality industry, a numberof studies have used SERVQUAL instrument andsuggested its applicability (O’Neill et al., 2000;Andaleeb and Conway, 2006; Gonzalez et al.,2007; Namkung and Jang, 2008; Martinez andMartinez, 2008; Hurst et al., 2009; Markovic andRaspor, 2010; Bhat, 2012; Bhat and Qadir, 2013b;etc.). The SERVQUAL model was of the utmostimportance for defining the real meaning ofcustomer satisfaction in the tourism industry.SERVQUAL was a simple tool for tourismmanagers to use in tackling the areas ofweaknesses in their service delivery and is seenas the most appropriate model for measuringservice quality in the hospitality industry.

SAMPLE PROFILE

The study has been carried out at Kashmir—animportant tourist destination of India that hasbeen a place of attraction for tourists sincecenturies. During the year of 2012, the valley hasreported the visit of 19,29,765 tourists. Byapplying simple random sampling technique, atotal of 316 foreign respondents has been chosen,who visited Kashmir Valley in the months of Janto May 2013. All important demographiccharacteristics like; age, gender, education,income, occupation, length of stay, purpose ofvisit and number of visits were taken intoconsideration while seeking responses from theforeign tourists regarding their expectations andperceptions about the quality of tourism servicesin Kashmir. The profile of the respondents wasdeemed to be distributed fairly around all thepossible categories.

As far as the gender of the respondents isconcerned, it was distributed fairly with 64.2%males and 35.8% females. Significant number ofrespondents (29.7%) belonged to the age group of

Mushtaq Ahmad Bhat and Nabina Qadir


31-40 years followed by 28.8% in the age group of41-50 years. Lowest participation of respondents(14%) belonged to the age group of above 51 yearsfollowed by the age group of up to 30 years(27.5%). Respondents with graduation werelargest in number (62%) followed by postgraduates (26.3%) and the remaining (11.7%) wereundergraduates. Respondents with monthlyincome of above Rs 61,000 were highest in number(28.2%) followed by the respondents havingmonthly income of Rs 21,000-40,000 (26.9%),whereas respondents having monthly income upto Rs 20,000 were lowest in number (19.9%)followed by respondents having monthly incomeof Rs 41000-60000 (25%). Majority of theparticipants belonged to service class (52.2%)followed by business (24.7%) and the remainingwere professionals (23.1%). Respondents whostayed for 1-6 days in Kashmir were highest innumber (44.6%) followed by those who stayed for7-12 days (36.1%) and those who stayed for morethan 19 days were the least (7.6%) followed bythose who stayed for 13-18 days (11.7%). Most ofthe participants were leisure/holiday tourists(74.7%) followed by pilgrimage tourists (10.1%)whereas tourists visiting to friends/relatives werethe least (3.2%) followed by tourists for businesspurpose (5.4%) and the remaining (6.6%) weresports tourists. Majority of the respondents werefirst time visitors (64.2%) followed by second timevisitors (26.0%) while as least number ofrespondents were fourth time visitors (2.5%)followed by third time visitors (7.3%).


In order to measure the foreign tourists’ expec-tations and perceptions regarding the quality oftourism services in Kashmir, a modifiedSERVQUAL instrument proposed by Bhat andQadir, (2013b) was used. Expectations andperceptions were measured by a self-administeredquestionnaire. The original items were slightlymodified to suit the present research setting. Thequestionnaire for the study consisted of two parts:part first contained 32 items for measuring foreigntourists ‘expectations and perceptions on a Likert-type scale ranging from 1=‘strongly disagree’ to10=‘strongly agree.’ The second part was designedto capture respondents’ demographic charac-teristics, which included age, gender, income,occupation, level of education, purpose of visit,

length of stay and number of visits. All thestatements in the questionnaire were wordedpositively as suggested by Parasuraman et al., (1994)and arranged alphabetically to later identify theunderlying expectation/perception dimensions byusing factor analysis. The data received from thequestionnaires were then put into the SPSS(Statistical Package for Social Sciences) 19.0 andanalyzed using exploratory factor analysis andreliability tests.

Exploratory factor analysis was performed onthe 32 expectation/perception attributesincluded in the questionnaire in order todetermine the underlying dimensions of tourismservices. R-mode Principal component analysiswith Varimax rotation and Eigen value equal toor greater than 1 was used. The approach was toretain items with factor loadings of equal to orabove 0.50 (Hair et al., 1998), which meant forexclusion of 3 items (Q3, Q17 and Q24). Thedropped questions were labeled as: comfortablerecreational facilities; professional, polite andcompetent service personnel; and, provision ofinformation about local events and entertainmentrespectively. Hence, factor analysis got com-pleted in 8 iterations and 5 factors were emergedas dimensions of tourism services consisting of29 items with 67.94% explained variance. Each ofthe 5 factors was labeled according to the itemsloaded onto it. Factor 1 was named as Tangibility;Factor 2 as Assurance; Factor 3 as Reliability;Factor 4 as Responsiveness; and, finally Factor 5as Empathy. Highest variance was observed onTangibility (17.37) followed by Assurance (16.33)and as such these two dimensions are consideredas the most important determinants of tourismservice quality.

Furthermore, a reliability analysis wasperformed to test the reliability of the scale andinner consistency of extracted factors. For thispurpose, Cronbach’s alpha coefficients werecalculated. The coefficients of the extracted factorsranged from 0.761 to 0.839 that are well above theminimum value of 0.60, which is consideredacceptable as an indication of scale reliability (Hairet al., 2006). Thus, these values suggest goodinternal consistency of the factors. Moreover,Cronbach’s alpha value for the overall expec-tation/perception scale is 0.949 and indicates itshigh reliability. The suitability of factor analysis

Tourism Services in Kashmir: Perspective of Foreign Tourists


Table 1. Factor Analysis Results and Reliability Coefficients (n=316)

Item Elements of tourism services FactorsNo. F1 F2 F3 F4 F5

V16 Well dressing and neat appearance of service personnel .772(e.g., tour and hotel escorts).

V20 Unspoiled nature and pollution free atmosphere. .724V1 Aesthetic, clean and attractive destination. .720V21 Safety and security to tourists. .710V23 Hygienic and high quality food and beverages. .710V28 Appealing accommodation facilities. .686V12 Appropriate location of facilities and equipments. .661V4 Modern and technologically relevant vehicles. .557V11 Trustworthiness and honesty of the service personnel. .872V6 Willingness of. the service personnel to help tourists .835

and advise on how to use free time.V18 Fluent and understandable communication 797

skills of the service personnel.V22 The behaviour of other participants (local people .737

and others) is not bothersome.V2 Behaviour of service personnel instills tourists’ confidence. .577V5 Providing service/s at the promised time. .854V7 Easy access to service personnel when needed. .714V27 Insisting on error-free services. .637V10 Performing services right the first time. .576V9 Providing correct and accurate information to tourists. .553V15 Uninterrupted telecommunication services. .549V13 No sudden increase in tour cost. .518V31 Cultivation of friendly relationship with tourists. .816V30 Tour operators/tour guides act on participants’ suggestions. .679V29 Sincere and keen interest in solving the problems of tourists. .658V32 Tourists being served quickly by the appropriate personnel. .640V26 The service persons do not neglect tourists’ .513

services when they are busy.V19 Individual attention to tourists. .756V25 Best tourist interest at heart. .749V8 Providing diversified service based on tourists’ needs. .651V14 Proper health care to tourists. .547

Eigen Values 10.279 3.278 3.212 2.673 2.301Percentage of Total Variance 17.374 16.332 13.521 11.582 9.139Cumulative Percentage of Variance 17.374 33.706 47.227 58.809 67.948Cronbach’s Alpha .784 .794 .839 .784 .761Number of Items per Factor 8 5 7 5 4

Table 2. KMO and Barlett’s Test

Kaiser-Meyer-Olkin Measure of Samping Adequacy 0.927Barlett’s Test of Sphericity (Approx. Chi-Square) 4264.958*Cronbach’s Alpha 0.949

*At 1% Significance Level



was validated with the help of Bartlett’s Test ofSphericity that revealed a Chi-square at 4264.958(p<0.000 at 1% level) and confirmed that thecorrelation matrix was not an identity matrix.Kaiser-Meyer-Olkin measure of samplingadequacy was also performed that showedKMO=0.927 i.e., higher than the suggested valueof 0.6 (Tabachnik and Fidell, 2001).

Results of the Study

In order to achieve the above stated objectives,expectations and perceptions were measured ona ten point Likert Type (strongly disagree/strongly agree) scale. To determine the servicequality gaps (service quality=perception-expectation), mean scores were computedseparately for foreign tourists’ perceptions andexpectations. Independent sample t-test was alsoperformed to test the hypothesis. The results areshown in Tables 3-7.

Overall Service Quality

In order to determine the foreign tourists’ overallExpectation and Perception gap related totourism services, mean scores averaged on alldimensions were calculated separately followedby independent t-test.

The results of such an analysis (Table 3)indicates significant difference (p<0.05 at 5%) inforeign tourists’ expectations and perceptions inthe overall and across all dimensions of tourismservices. Moreover, the data reveals that KashmirValley is exceeding the expectations of tourists onoverall quality of tourism services (0.44). Theanalysis clearly shows higher levels of tourismservice quality as is reflected by the respectiveSERVQUAL scores on all dimensions of tourismservices—Tangibility (0.32), Assurance (0.55),Reliability (0.42), Responsiveness (0.54), andEmpathy (0.38) respectively.

Dimension-Wise Analysis

Tangibility dimension: The data on Table 4reveals that Kashmir Valley is marginallyexceeding the expectations of foreign tourists onTangibility (0.32) which suggests improvement inthe physical aspect of tourism services. Itselement-wise analysis brings to light that Valleyis exceeding the expectations of foreign tourists

relatively more on ‘safety and security to tourists(0.84)’ followed by ‘aesthetic, clean and attractivedestination (0.56)’ while as it falls below theexpectations of tourists on ‘modern andtechnologically relevant vehicles (-0.04)’. Its’service quality score is relatively low on‘unspoiled nature and pollution free atmosphere(0.02)’ followed by ‘hygienic and high qualityfood and beverages (0.12)’ and ‘appealingaccommodation facilities (0.30)’.

Assurance dimension

Relatively higher service quality score (0.54) onassurance (Table 5) indicates that the servicepersonnel of Kashmir Valley are exceeding theexpectations of tourists significantly (p<0.05) andare credible and courteous. Its’ element-wiseanalysis shows highest SERVQUAL score on‘Trustworthiness and honesty of the servicepersonnel (0.96)’ followed by ‘willingness of theservice personnel to help tourists and advice onhow to use free time (0.67)’, whereas relativelylow SERVQUAL score is reported on ‘fluent andunderstandable communication skills of theservice personnel (0.15) followed by ‘friendlybehaviour of other participants (0.27)’.

Reliability dimension

The data on Table 6 shows significant difference(p<0.05) in tourists expectations and perceptionson reliability. Positive mean difference (0.42)indicates that Kashmir Valley is exceeding theexpectations of tourists on reliability dimension.Element-wise analysis of the said dimensionreveals lowest service quality score on‘uninterrupted telecommunication services (-0.25)’ followed by ‘insisting on error free services(0.25)’. Although, relatively higher service qualityscore is observed on ‘provision of correct andaccurate information to tourists (0.76)’ followedby ‘no sudden increase in tour cost (0.63)’ and‘providing service/s at the promised time (0.55)’.

Responsiveness dimension

Data on table 7 reveals service quality score of0.54 on responsiveness dimension, whichindicates that the service personnel of KashmirValley provide prompt services to tourists.Further, positive mean scores indicate that



Table 3. Expectation and Perception Scores Averaged on all Dimensions

Dimensions of Tourism Services Group Mean Standard Service ‘p’Scores Deviation Quality Value*

Tangibility Expectation 7.16 1.1 0.32 0.00Perception 7.48 0.9

Assurance Expectation 7.13 1.0 0.54 0.00Perception 7.67 0.9

Reliability Expectation 7.12 1.0 0.42 0.00Perception 7.54 0.9

Responsiveness Expectation 7.19 1.1 0.54 0.00Perception 7.73 0.9

Empathy Expectation 7.03 1.0 0.37 0.00Perception 7.40 1.0

Overall Service Quality Expectation 7.13 1.0 0.44 0.00(Averaged on all dimensions) Perception 7.57 0.8

*Significant (p<0.05) at 5% level

Table 4: Expectation and Perception Scores on Tangibility

Elements of Tourism Services Group Mean Standard Mean ‘p’Scores Deviation Difference Value*

Well dressing and neat appearance Expectation 7.32 1.39 0.34 0.00of service personnel (e.g., tour and Perception 7.66 1.44hotel escorts)Unspoiled nature and pollution free Expectation 6.88 1.54 0.02 0.90atmosphere Perception 6.90 1.66Aesthetic, clean and attractive Expectation 7.12 1.60 0.56 0.00destination Perception 7.68 1.43Safety and security to tourists Expectation 7.15 1.45 0.84 0.00

Perception 7.99 1.42Hygienic and high quality food and Expectation 7.38 1.39 0.12 0.31beverages Perception 7.50 1.50Appealing accommodation facilities Expectation 7.18 1.34 0.30 0.00

Perception 7.48 1.30Appropriate location of facilities Expectation 7.16 1.41 0.41 0.00and equipments. Perception 7.57 1.40Modern and technologically Expectation 7.07 1.44 -0.04 0.75relevant vehicles. Perception 7.03 1.39

Overall Tangibility Scores Expectation 7.16 1.10 0.32 0.00(Averaged on all elements) Perception 7.48 0.98


Kashmir Valley is significantly (p<0.05)exceeding the expectations of tourists on allelements of responsiveness. Specifically, higherservice quality has been reported on ‘cultivationof friendly relationship with tourists (0.81)’followed by ‘sincere and keen interest in solving

the problems of tourists (0.75)’. However,relatively low service quality score is observedon ‘tour operators/tour guides act onparticipants’ suggestions (0.22)’ followed by‘tourists being served quickly by the appropriatepersonnel (0.45)’.



Table 5. Expectation and Perception Scores on Assurance


Trustworthiness and honesty Expectation 7.30 1.28 0.96 0.00of the service personnel. Perception 8.26 1.15Willingness of the service personnel Expectation 7.12 1.30 0.67 0.00to help tourists and advise on how Perception 7.80 1.21to use free time.Fluent and understandable com- Expectation 7.29 1.21 0.15 0.12munication skills of the service Perception 7.44 1.28personnel.The behaviour of other participants Expectation 6.68 1.56 0.27 0.02(local people and others) is not Perception 6.95 1.54bothersome.Behaviour of service personnel in Expectation 7.27 1.49 0.66 0.00stills tourists’ confidence. Perception 7.93 1.39Overall Assurance Scores Expectation 7.13 1.08 0.54 0.00(Averaged on all elements) Perception 7.67 0.91


Table 6. Expectation and Perception Scores on Reliability


Providing service/s at the promised Expectation 7.27 1.44 0.55 0.00time. Perception 7.83 1.46Easy access to service personnel Expectation 7.27 1.24 0.46 0.00when needed. Perception 7.24 1.24Insisting on error-free services. Expectation 7.05 1.37 0.25 0.02

Perception 7.30 1.42Performing services right the Expectation 7.14 1.28 0.55 0.00first time. Perception 7.69 1.24Providing correct and accurate Expectation 7.07 1.42 0.76 0.00information to tourists. Perception 7.83 1.31Uninterrupted telecommunication Expectation 6.77 1.56 -0.25 0.04services. Perception 6.52 1.55No sudden increase in tour cost. Expectation 7.24 1.43 0.63 0.00

Perception 7.87 1.44Overall Reliability Scores Expectation 7.12 1.08 0.42 0.00(Averaged on all elements) Perception 7.54 0.92


Empathy dimension

Service personnel of Kashmir Valley havetourists’ best interest at heart which is reflectedby positive service quality score on empathy(0.37). The data (Table 8) clearly shows that

service personnel in Kashmir Valley areexceeding the expectations of touristssignificantly (p<0.05). Element-wise analysis ofthe said dimension reveals low service qualityscore on ‘proper health care to tourists (-0.04)’



Table 7. Expectation and Perception Scores on Responsiveness


Cultivation of friendly relationship Expectation 7.28 1.43 0.81 0.00with tourists. Perception 8.09 1.33Tour operators/tour guides act on Expectation 6.88 1.52 0.22 0.08participants’ suggestions. Perception 7.11 1.70Sincere and keen interest in solving Expectation 7.20 1.40 0.75 0.00the problems of tourists. Perception 7.96 1.38Tourists being served quickly by Expectation 7.30 1.33 0.45 0.00the appropriate personnel. Perception 7.75 1.32The service persons do not neglect Expectation 7.27 1.32 0.48 0.00tourists’ services when they are busy. Perception 7.75 1.36Overall Responsiveness Scores Expectation 7.19 1.11 0.54 0.00(Averaged on all elements) Perception 7.73 0.99


Table 8. Expectation and Perception Scores on Empathy


Individual attention to tourists. Expectation 7.12 1.30 0.50 0.00Perception 7.63 1.26

Best tourist interest at heart. Expectation 7.16 1.21 0.59 0.00Perception 7.75 1.24

Providing diversified service based Expectation 7.20 1.36 0.45 0.00on tourists’ needs. Perception 7.65 1.33Proper health care to tourists. Expectation 6.64 1.52 -0.04 0.73

Perception 6.60 1.53Overall Empathy Scores Expectation 7.03 1.08 0.37 0.00(Averaged on all elements) Perception 7.40 1.02


followed by ‘providing diversified service basedon tourists’ needs (0.45)’ whereas higher servicequality score is observed on ‘best tourist interestat heart (0.59)’ followed by ‘individual attentionto tourists (0.50)’ respectively.

CONCLUSION

The overall empirical results supported theproposed hypothesis. The current study hasemployed modified SERVQUAL instrument fordetermining foreign tourists’ expectation andperception gap scores in relation to tourismservices and identified five factors—Tangibility,Assurance, Reliability, Responsiveness andEmpathy with 29 statements . From the data, it has

been observed that most of the sampled foreigntourists came to Kashmir Valley with higherexpectations and left the destination with higherperceptions. While comparing the sampledforeign tourists’ expectations and perceptions, itcan be concluded that Kashmir Valley exceededthe expectations of the tourists significantly.

The overall expectation and perception gap(SERVQUAL) score of 0.44 clearly indicateshigher levels of tourism service quality. Theresults have confirmed that out of five tourismservice dimensions, assurance and responsive-ness dimensions are the significant contributorsof overall tourism service quality. Touristexpectations for the service are likely to rise



when the service is not performed as promised.Therefore, in order to keep expectations fromrising, tourism entrepreneurs must providediversified services based on the individualneeds of the tourists and must perform suchservices properly for the first time. They shouldmonitor the quality of tourism services andevaluate the efficiency of the service personnelby performance appraisal techniques on a regularbasis in order to avoid service failure andcustomer complaints.

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S.S. Andaleeb and C. Conway, “CustomerSatisfaction in the Restaurant Industry: AnExamination of the Transaction-SpecificModel”, Journal of Services Marketing, Vol. 20,No. 1, pp. 3-9, 2006.

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J.F. Hair, R.E. Anderson, R.L. Tatham and W.C.Black, “Multivariate Data Analysis (5thEdition). Boston, MA: Pearson EducationInc., 1998.

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Job Satisfaction of Working Women in theEducational Institutes

Neha Rani*

ABSTRACT

Teachers are the most important group of professionals for our nation’s future. Therefore,it is astonishing to know that even today many of the college teachers are dissatisfiedwith their jobs. Job satisfaction among college teachers is good not only for themselvesbut society as whole. Female Teacher job satisfaction should be taken into considerationand it should be the primary objective of an institution to be able to promote teachingand high quality education. . Employee satisfaction refers to the employee’s sense of well-being within his or her work Environment. It is the result of a combination of extrinsicrewards, such as remuneration and Benefits, and intrinsic rewards, such as respect andappreciation.This research was mainly undertaken to investigate on the significance offactors such as working conditions, pay and promotion, job security, fairness, relationshipwith co-workers and supervisors in affecting the job satisfaction. This paper presents acomprehensive diagnosis of job satisfaction indices of pharmaceutical business, the factorscausing the dissatisfaction and suggestions to improve them.

Keywords: Job satisfaction, Female teacher, Working conditions, Job security


INTRODUCTION

The importance of job satisfaction among theemployees of organizations and institu-tions goes back to the second half of the

20th century, with the appearance of Maslow’stheory (1956).

The factor like job design, work environmentfeedback, recognition, and decision makingparticipation are the potential factor for satisfyingteachers in educational institutes. Study foundthat there is a constructive association amongpromotion and job satisfaction. Academicians aremore motivated and committed to perform a job

and also more satisfied if promotion oppor-tunities are available to them.

Job satisfaction is the extent to which onefeels good about the job. It is in regard to one’sfeelings or state of mind regarding to the natureof their work. In other words, job satisfactionimplies doing a job one enjoys, doing it well,enthusiasm and happiness with one’s work. Jobsatisfaction differs from person to person andinstitution to institution and even in the contextof male and female.

Therefore, job satisfaction is such pheno-menon which comes not only from the job, but


also from one’s personal, social, academic,administrative and economical condition.

Theoretical framework and literature on thejob satisfaction of female teachers Marie-Pierre etal. [1] when asked about women’s position insociety and women’s position within theteaching profession, the notion that teachingrepresented a ‘female-friendly’ option was aprevalent theme; an initial attraction to theworking hours and long holidays provided theimpetus, yet this scenario quickly took on amythical status.

Shamima Tasnim [2], in her study found thatone of the main purposes of job is to get thepayment or salary and it is very natural that ahandsome salary will bring job satisfaction. Inhis study shows that job characteristics such assalary, promotional opportunity, task clarity andsignificance and skills utilization as well asorganizational characteristics such as commitmentand relationship with supervisors and coworkers,have significant effects on job satisfaction.

• Marie-Pierre et al., Job satisfaction amongAmerica’s Teachers: Effects of workplaceconditions, Background Characteristics andTeacher Compensation, Higher EducationEuropean Social Fund, Secondary HeadsAssociation, London Metropolitan University,July 1997.

• Shamima Tasnim, job satisfaction amongfemale teachers: A study on primary schools,Department of Administration and Organi-zation Theory, The University of Bergen,Norway 2006.

This has been found that 93% of the collegeteachers who were highly satisfied with their jobexpressed that they have cordial relationshipwith their colleagues. The study concluded thatstudent achievement may be directly connectedto teacher’s job satisfaction.

After independence women’s education,especially higher education, took off. Educationstarted playing a great role in the emancipationof women from traditional dependencies.Women became more vocal, articulate andassertive. Our constitution granted equal rightsto women and that included the Right toeducation. Jawaharlal Nehru said,” You can tell

the condition of a nation by looking at the statusof its women.”

Job satisfaction can be affected by age, sex,marital status, designation, academic qualifica-tion, professional qualification, training course,teaching experience etc.

Item Rating of Job Satisfaction Facets are asfollows:

1. Policies: This implies that school that havinga policy manual for teachers could increasejob satisfaction among teachers.

2. Supervision: This implies that teachers in theDivision of Cotabato City very satisfied withtheir schools principal in terms of trust andconfidentiality. They are confident that theirprincipals do their job at the best of theirknowledge.

3. Pay: Data shows that among the facets payhave the lowest mean in all its items. Thisindicates that teacher respondents felt thattheir salaries cannot make it more at par withthe present economic condition. Thus, salariescould make them more satisfied with their job.

4. Opportunities for Promotion/ProfessionalGrowth: finding implies that sufficientreading materials and journals for teachers tobe used in teaching process could contributefor high job satisfaction.

5. Working Conditions: This indicates thatteacher respondents find satisfaction withtheir job when stake holders more involve inschool activities.

6. Work Itself: finding implies that teacherrespondents very satisfied with their work. :Work with pride. This implies that workingwith pride is one way to satisfy the teacherswith their job.

7. Achievement: Data shows that almost all itemsof achievement got the highest mean. Thisindicates that teachers find themselvessatisfied with this facet.

8. Responsibility: This implies that when teachershave enough freedom and authority on theirjob, they feel more satisfied with their job.

STATEMENT OF THE PROBLEM

This study is to analyses the job satisfaction levelof working women in educational institutes.

Neha Rani


Table 1. Level of Satisfaction of FemaleTeachers in term of their qualification

Dimensions Percentage

Satisfied 80Average 18Dissatisfied 2


At present job satisfaction has been animportant issue. People are interested to work inthe organization as well as the services wherethey get more satisfaction. It is human behavior.But in reality how far such job satisfaction isensured in different jobs. The researcher interestis to analyses job satisfaction from organizationalperspective. Looking job satisfaction fromwomen perspective will also be interesting topresent. This study has tried to reveal the jobsatisfaction of working women in educationalinstitutes.


• Evaluate the level of employee satisfactionwith compensation and promotion potential.

• Evaluate the effectiveness of communicationwithin the organization.

• Determine the effectiveness of supervision,evaluation and appraisal of staff.

• Find out the perceived level of job satisfaction.

• Determine the extent of training anddevelopment among staff.

• Develop a composite measure of staff satisfac-tion and use it to determine the overallratingof the current level of staff satisfaction.

• Determine staff perception of the WorkEnvironment in terms of safety and policies.

• Recommend measures to enhance staffsatisfaction and productivity.


This study has been done by using both thequalitative and quantitative approach ofresearch.This study used a survey technique thatfollows a “One-shot” the quantitative methodwas used to collect data in the teacher ’smotivation to teach & the associated factorsaffecting their motivation to perform their job.Interview & questionnaire technique will be usedto collect qualitative data.

The study is an empirical research & it usefull variety of evidence-documents, artifacts&interviews to explain & test assumptionsconcerning causal relations among variablesunder investigation.

TOOLS FOR PRIMARY DATACOLLECTION

The primary data for the purpose of the studywere information & responses from Teachers ofHigher educational intuitions in Meerut. The

Table 2: COMPENSATION AND PROMOTION POTENTIAL SATISFACTION

Dimensions Strongly Agree Neutral Disagree Strongly TotalAgree Disagree

Pay package is competitive 22% 55% 8% 15% 0% 100compared to other organizationin the same line of workI understand how my salary is 10% 44% 0% 26% 20% 100determined by the organizationI am satisfied with the benefits 10% 60% 10% 12% 8% 100my organization extends to meOrganization has a fair 20% 24% 18% 14% 24% 100promotion policyOverall, I am satisfied with 7% 33% 10% 20% 30% 100my salary package


Job Satisfaction of Working Women in the Educational Institutes


Table 3. Satisfaction in Terms of Communication

Factors Strongly Agree Neutral Disagree Strongly TotalAgree Disagree

The organization recognizes 24% 58% 6% 0% 12% 100my inputWe receive feedback on issues 10% 34% 18% 14% 24% 100raised by employeesEssential flow of information 25% 55% 10% 10% 0% 100from management to staffWe hold regular staff meetings 20% 60% 15% 5% 0% 100that are quite useful in my work


Table 4. Satisfcation in Terms Supervision, Evaluation


I am satisfied with the quality 50% 30% 10% 5% 5% 100of supervision that I receiveMy supervisor treats me with 70% 20% 0% 8% 2% 100respectMy supervisor assigns me challen- 10% 50% 30% 8% 2% 100ging & motivating work to meMy supervisor gives me feedback 20% 10% 30% 35% 5% 100on my job performanceI have opportunities to provide 35% 20% 25% 16% 4% 100input into decisions that affect my work


Table 5. Job satisfaction in Terms of Safety Management


I feel safe and comfortable in 15% 45% 18% 12% 10% 100my work environmentI am satisfied with the 34% 56% 8% 2% 0% 100organization’s cultureMy organization is committed to 25% 35% 10% 24% 6% 100ensuring my health and well beingI am able to balance my work and 48% 16% 4% 12% 20% 100personal lifeI am satisfied with relationship 40% 55% 0% 5% 0% 100I have with my co-workersI do not feel stressed at my 8% 28% 0% 50% 14% 100work environment


Neha Rani


Table 6. Satisfaction in Terms of Job


I know what is expected of me 50% 10% 0% 10% 30% 100in my jobI have opportunities for career 50% 10% 20% 10% 10% 100growth within the organizationMy job is a good fit with my 20% 30% 50% 0% 0% 100skills/qualificationsOverall job satisfaction 45% 20% 25% 5% 5% 100


Table 7. Satisfaction According of WorkEnvironment


Satisfied 90%Average 10%Dissatisfied 0%


Table 8. Satisfaction in Terms of Training and Development


My organization is fair in selec- 4% 48% 24% 8% 18% 100tion of employees for training andDevelopment opportunitiesMy organization supports my 32% 30% 18% 0% 20% 100work-related training anddevelopmentOverall, I am satisfied with the 14% 40% 14% 20% 12% 100opportunities for training andcontinualMy organization is fair in selec- 4% 48% 24% 8% 18% 100tion of employees for trainingand Development opportunities


Table 9. Job Satisfaction in the Context ofFreedon of Expression in Job




Table 10. Satisfaction Because of InterpersonalRelationship






Table 11. Satisfaction with the Present ofSalary Structure




Table 12. Satisfaction with the PresentPromotion Policy




required data was collected by addressing theappropriate class of respondent & requestingthem to provide necessary information. In orderto collect primary data, the researcher hasapproached following classes of respondents.

Questionnaire-based survey of Teachers

The teachers are respondents who provide infor-mation regarding their understanding, experiences,opinion and perception towards teaching practices(job satisfaction) adopted by Institutions. Thequestionnaire incorporated different scalingtechniques as demanded by the study.

A well-structured and comprehensive ques-tionnaire was prepared to collect data from theserespondents. The questionnaire consisted of bothopen & closed ended questions.

SOURCES OF SECONDARY DATACOLLECTION

As with any research, the researcher was aware

about the value of secondary data. The secondarydata provided the researcher with informationregarding the activities, scope & opinions of otherresearchers and experts in the initial stages. Thedata further guided the researcher in defining thevariables of the study. The secondary data usefuland necessary information supplementing thequalitative aspects of research finding.

For this purpose, secondary data wascollected from all associated sources that include:Books, Research Journals, Magazines andNewspapers, Published materials & websites.

SAMPLE SIZE DETERMINATION

Sample size taken here is 100. Data has beencollected from 100 teachers in higher educationin Meerut.

CONCLUSION

On the basis of the data collected to check thedifferent factors related to the job satisfaction offemale teachers who are imparting knowledge tothe students in the higher education throughinterview & questionnaire result will beenanalyzed and interpreted as follows:

1. There is research on job satisfaction among thefemale teachers & they analyzed the ream jobsatisfaction from social psychological point.But this study can be termed as a unique oneas this is only study ever found regardingfemale teachers job satisfaction. Jobsatisfaction is the fulfillment of one’s expec-tation from job. It is a pleasurable or positiveemotional state resulting from the appraisal ofone’s job experience. But expectation of peoplemay not be homogeneous. It may differ fromperson to person, place to place, job to job,context to context, organization to organi-zation. So’ job satisfaction cannot begeneralized. From organizational perspective,policy and administration of organization,culture of that organization, workingenvironment, supervisory style affects the jobsatisfaction. Hierarchy is the part of theorganization which is linked with jobsatisfaction or dissatisfaction. Findings of thisstudy found that female teachers aredissatisfied with centralized administration.

Table 13. Participation in Decision Making




Neha Rani


2. Most of female teachers willingly enter intothis profession. According to the femaleteachers view job satisfaction is not onlylinked with nature of job but also linked withworking environment. To them having agood physical environment as well as gettinga harmonious interpersonal relation amongcolleagues is job satisfaction. They alsoexpressed that working under a democraticand participatory head teacher is jobsatisfaction. Most of teacher perceived jobsatisfaction as having a secured job and aswell as getting status and prestige.

3. The result of this employee satisfaction surveyand work environment provides feedbackonemployees’ opinion about an organization.In the whole the employees show highlevelsof job satisfaction with overallsatisfaction and work environment satisfactionworking out to52.37% and 53.6% respectively

4. Most of the female teachers considered thisjob as noble profession. They sketch the jobsatisfaction as getting honor and social status.A large number of female teachers havepointed out that the job satisfaction is to geta permanent job.

5. The factors like working environment,interpersonal relation and supervision, can bereason of job dissatisfaction.

6. Female teachers are more focusing onsatisfaction of teaching children.

7. The theory by Herzbrg used in this study.Herzbrg viewed as motivating factor for jobsatisfaction is achievement, recognition,challenging work environment,responsibility & development. Hygienefactors are environ-ment, administration,supervision, working condition,interpersonal relation security, status &salary. In this study the female teacher’s jobsatisfaction or dissatisfaction is caused byboth the factor of motivation. During thestudy the factors found as the causes ofsatisfaction or dissatisfaction are relatedeither to the motivator factors or to thehygiene factors. But according to Herzbrgsalary, interpersonal relation, workingenvironment & supervision are only hygienefactors. But this study stated these as

motivating factor also. Actually this theorydeveloped in western countries.

8. Theory of job satisfaction covers almost allthese factors which is linked with jobsatisfaction. Especially the policy of theadministration, salary and leadership styleimpacts on job satisfaction. The factorsaffecting female teacher’s job satisfaction isworking environment, interpersonal relation& supervision.

9. A large number of female teachers come intothis profession willingly.

10. Education is the backbone of a nation. If theinstructor of that backbone is unhappy anddissatisfied with their job what should be thefuture of that nation. So, we need to beconcerned about our teachers’ condition. Wehave to take the best step to make themsatisfied with their job. It will energize theteachers & their efforts will be in full swingto build up the nation.

11. It is hoped that the barrier to the femaleteacher’s job satisfaction are found in thisresearch can contribute to a great extent toimprove the level of job satisfaction of femaleteachers.

12. This satisfaction will then be infused to thechildren and next to the nation.

REFERENCES

All India on higher Education, ministry ofhuman resource Development of highereducation planning, monitoring & statisticsbureay, 2011

G.A. Arumugasamy. Study on Motivation & JobSatisfaction of Higher Secondary, Indian J.Edu. Inf. Manage, Vol. 1, No. 3, 2012.

C.R. Kothari, Research Methodology: Methods &Techniques, 2nd revised ed., New DelhiNewage International Edition, 2011.

Marie-Pierre et al Job Satisfaction Among America’sTeachers: Effects of Workplace Conditions,Background Characteristics and TeacherCompensation, Higher Education EuropeanSocial Fund, Secondary Heads Association,London Metropolitan University, 1997.



Ranjit Singh, Faculty of education and infor-mation sciences, Punjabi University Patiala,2006.

Report of Department of Administration andOrganization Theory, Job Satisfaction among

Female Teachers: A Study on PrimarySchools in Bangladesh, 2006.

Report of Meeting of OECD Education Ministers,Higher Education: Quality, Equity &Efficiency, 2006, Athens.

Neha Rani


CSR for Students of Management Studies

Sanjoy Roy, Ashutosh Gaur and Bharat Kaushik*

Abstract

Business men are running there factories, trading and shops etc. without have a thinkof the impact of unethical practices on the society. Management Institutes are mostaffected by technological changes, but seem to be less sensitive to social accountability(Raghunandan T: Strategy A Pedagogy for Efficient, Accountable and sociallyResponsive Higher Education). Therefore, one should educate the concept of CSR toupcoming managers i.e. our students of Higher Studies. The Green Paper of theEuropean Commission (July 2001) defines Corporate Social Responsibility (CSR) as ¯aconcept whereby companies integrate social and environmental concerns in their businessoperations and in their interaction with their stakeholders on a voluntary basis. Thepurpose of this paper is to study the efficiency and effectiveness of Management Institutesin making students aware of Corporate Social responsibility.

Keywords: CSR (Corporate social responsibility), Higher Education, Effectiveness

* Bharati Vidyapeeth Institute of Management and Research, Paschim Vihar, Delhi, India

INTRODUCTION

The first college level business school in thecountry was founded in 1913 in Mumbaiand was soon followed by another in Delhi

in 1920. These business colleges imparted basicskills about the principles of trade and commerceto clerks and supervisors from fields as diverseas banking, transport, and accounting. (IndianManagement, Sept 2004). The first BusinessSchool in India was Indian Institute of SocialWelfare and Business Management, Kolkata,which was established in 1953. The All IndiaInstitute of Management and Labour welfare andthe department of management, Delhi Universityfollowed suit in 1968. A number of universitiesset up their MBA programme in 1960s. The IIMswere patterned on the recommendation of Dean

Robbins of the University of California, whichwas invited by the planning commission.

The first IIM was set up in 1961 at Kolkatafollowed by IIMs at Ahmedabad in 1961,Bangalore in 1971 and Lucknow in 1974 and inthe late 1990s at Indore and Calicut. The flagshipmanagement education programme, MBA, iswidely popular as it offers quick gateway tothe riches and to the top echelon of corporateworld.

The early 90’s saw the boom of founding newmanagement schools, most of them in privatesector. In the last three years alone 400 BusinessSchools came into existence. Few BusinessSchools have also established collaboration withsome western Universities. India management


institutions produce over 30,000 full-time MBAsand 10,000 part-time MBAs every year. Manybusiness schools are also running MBAequivalent program such as distance PostGraduate Diploma in Management (PGDM),Masters in International business (MIB) etc.

CHARACTERISTICS OFMANAGEMENT INSTITUTION INCONTEXT OF SOCIETY

Management education gives a holistic picture tothe students about how to manage the four ‘M’sof any organization i.e. money, material, man andmachine. Whether the knowledge aboutmanagement principles is obtained throughformal study programs at Universities orinternally through on the job training or throughexternal seminars or programs, it is of the utmostimportance for any person in any job in life; evenfor the self-employed, entrepreneurs. However incontext of Social work there is less emphasis.

Utility of Management Education: As acorollary, one can question the utility ofManagement Education in the Indian context.The utility of management education in India canbe discerned by looking at two variables: (i)demand for management graduates and (ii)“demand for management services of faculty interms of sponsored research, training andconsultancy.

UNIVERSITY SHOULD INVOLVE IN CSR

Effective CSR aims at “achieving commercialsuccess in ways that honor ethical values andrespect people, communities and the naturalenvironment”. Consequently, the CSR perfor-mance of companies depends essentially on howimportant social and environmental CSR issuesare perceived by companies themselves on the onehand, and by their stakeholders (such as investors,employees, consumers and Civil SocietyOrganisations, etc.) on the other. If companies andstakeholders are unaware of how businesses cancontribute to sustainable development byincorporating environmental protection, socialresponsibility and consumer interests into dailymanagement routines, CSR will remain a phrase(European Commission, 2002). For this reason,raising awareness for CSR among both businessesand their stakeholders is a key task for govern-

ments as far as they assume that CSR is apromising complementary approach in achievingsocietal objectives (Public Policies on CSRawareness rising in the EU-25).

Baruch and Lemming (1996, p27) suggest that“the aims of MBA programs are to prepare

Table 1. KPMG-CSR survey has presented arange of motivating factors and drivers forCSR which are discussed in table 1 as below

Drivers Priorityin (%)

Economic Considerations 74Ethical Consideration 53Innovations and Learning 53Employee Motivation 47Risk Management or risk reduction 47Access to capital or increased value 39

shareholderReputation or brand 27Market share improvement 21Strengthened supplier relations 13Cost saving 9Improved relationship with 9

governmental authoritiesOthers 11

Source: Data Taken From—KPMG International.KPMG Surveys Of Corporate ResponsibilityReporting 2005

Sanjoy Roy, Ashutosh Gaur and Bharat Kaushik


Dunfee and Robertson (1988, pp. 847-59)support the inclusion of such subjects in businessschool programs and put forward several reasonswhy they should be featured:

1. To convince students that ethical issues are animportant part of the key business functionsof finance, marketing, and management.

2. To provide systematic coverage of a widerange of ethical issues to all students.

3. To imbue all MBA students with a perspec-tive of what ethics mean in business practice.

4. To provide students with a set of analyticaltools applicable to ethical problems in allaspects of their business education, as well astheir future jobs.

Powers and Vogel (1980) argue that teachingbusiness ethics is not solely about helpingmanagers to resolve a specific moral dilemma,but also to develop competencies or capacitiesfor, moral judgment in business contexts, theability to integrate broader social issues with themanagerial role and to implement, to developcompetencies or capacities for, moral judgmentin business contexts, the ability to integratebroader social issues with the managerial roleand to implement.

WAY TO ACCOMPLISH CSREFFICIENCY IN UNIVERSITIES

There should be integration of the industry andacademics for better implementation of CSRactivities. Students work as a team to create aprogram model to recommend for inclusion inthe companie’s corporate social responsibilityportfolio. University’s should focus on healthcarecamps and touch the lives of people in poorcondition and isolated communities.

CSR orientation visits of the students of theUniversity to non-governmental organizationslocated in the rural and urban areas should beorganized. These visits are useful in sensitizingstudents to the work and activities of the socialand voluntary sector and they will get anopportunity to interact with professionals

With regard to the macro view of the environ-ment such as that of a university the CSRprinciples are dependent on the following set offactors:

graduates for managerial roles, help them gain abetter understanding of the industrial and businessworld and its needs, enrich their skills and providethem with competencies relevant to their careers”.According to Trevino and Nelson (1999), businessschool students may need training in ethics andmoral reasoning more than most other students.Research conducted by Best (1987) found thatstudents in business schools ranked lower in moralreasoning than students in philosophy, medicineand dentistry. Crane (2004, p 149) cites a study oftop business schools in the United States that foundbusiness school education has not only failed toimprove the moral character of students.

The students have to be enlightened aboutthe right and wrong ways of using all techniquesand interventions. Business ethics have to beingrained as the central notion in all subjects andtheories taught in class, irrespective of thecomplications of semesters and teaching faculty.

Crane (2004) highlights that in recent years;the ethical content in business school subjects hasalso been diminishing to the minimum contentrequired by ranking agencies such as theAssociation to Advance Collegiate Schools ofBusiness and AMBA. He opines that some busi-ness ethics educators highlight the marginali-zation of business ethics in favor of other “hard”business topics such as finance, strategy and mar-keting, as one of the reasons for the deteriorationof ethical conduct in business (Gioia, 2002).

Only a few universities across the world havewoken up to this challenge and immense powerthat they wield. In 2001, Cardiff University won£3.1 million in research funds from the Economicand Social Research Council to develop a ResearchCentre for Business Relationships, Accountability,Sustainability and Society (BRASS).

By looking into the data above it seems thatonly 53% of the employees consider the ethicalvalues as part of CSR. Which means almost halfof the managers don’t consider ethics as animportant aspect of running a business.

Therefore, it is a dreadful need for includingbusiness ethics in course curricula and broadeningthe outlook of students about concepts likeCorporate Social Responsibility to increase thecapabilities of future professionals to make moreresponsible decisions.

CSR for Students of Management Studies


• CSR should begin with the poorest of thepoor in the community at the ground levelwhere there is a great need for professionaland concerted interventions.

• Responsiveness and involvement of thecommunity is extremely necessary.

• Accountability of the community members inmaintaining and continuing the interventionsinitiated by the academic agency is equallyessential.

• Industry partners play a vital role inachieving the community efforts.

• Collaborative partners help in mobilizingfinancial and other resources for the plannedand organized CSR initiatives.

• Students and research associates in theuniversity become the change initiators.

• CSR is an ongoing process requiring frequentand continuous monitoring of the community.

• It requires acceptability of change by thecommunity and the university both.

The membership in this regard is unlimitedand very broad in scope comprising of peoplewho are directly or indirectly associated towardsthe welfare of community and environment.These members can be the management,teachers, industry partners, vendors, Liaisoningofficers, government officials, visiting anddistinctive personalities associated in theadvisory boards and so on.

Corporate Social Responsibility (CSR) is alsoan approach that takes into account the socialimpact an organisation like University, has on thecommunity both local and global. CSR is a fertileground for innovation, creativity and challengesold ideas and working practices by allowing avoice for all stakeholders. Universities are a kindmirror, for seeing the reflections and gainingthese experience from the special side of students(Hopkins 2004).

CONCLUSION

Universities are the most important areas ofimparting education, still in light of moderni-zation the basic objective of providing educationmust not suffer. Educational systems must notbecome commercial organizations stressing upononly growth in number of students and span ofcontrol. It should be the responsibility of theacademicians as well to do contribute a bittowards the welfare of the society by making theworld a little healthier.

REFERNCES

T. Raghunadhan, A Pedagogy for Efficient,Accountable and Socially Responsive HigherEducation, National Institute of Technology,Cailcut, NIT Campus (PO), Vol. 1, No. 1, pp.36-48, 2009.

W. Stubbs & C. Cocklin, “Teaching sustain-abilityto business students; shifting mindsets”International Journal of Sustainability inHigher Education, vol. 9, issue no. 3, pp. 206-221, 2008.

G. Berger & A. Konrad. Public policies on CSRawareness raising in the EU-25. CSR-Politikenin Europa, Vol. 15, No. 3, pp. 1-13, 2009.

E. Brown & J. Clokel. Corporate SocialResponsibility in. ACME: An International E-Journal for Critical Geographies, Vol. 8, No. 3,pp. 474-483, 2009.

P. Khanna & G. Gupta. Status of Corporate SocialResponsibility: In Indian Context. APJRBM,Vol. 2, No. 1, pp. 178-187, 2011.

D. Matten & C. Moon. “Corporate SocialResponsibility Education in Europe” Journalof Business Ethics, Vol. 54, pp 323–337, 2004.

W. Stubbs & C. Cocklin. “Teaching sustain-abilityto business students; shifting mind-sets”,International Journal of Sustainability in HigherEducation, Vol. 9, No. 3, pp. 206-221, 2008.

Sanjoy Roy, Ashutosh Gaur and Bharat Kaushik


Stress Management with Special Referenceto Public Sector Bank Employees in

Delhi NCR Region

Anshu Choudhary*

Abstract

This paper gives the conceptual frame wok of stress management. Researcher hasconducted a study on 60 numbers of respondents and found about 97% of therespondents believed that they face high level of stress, which may be due to bothprofessional and personal reasons. This study also found that the respondent wereoverburdened with work load in their work place and work life imbalance is one of themajor attribute which contribute to stress for an employee.

Keywords: Stress management, Work life imbalance, Over burdened with work load

INTRODUCTION

Hans Selye was one of the foundingfathers of stress research. His view in1956 was that “stress is not necessarily

something bad—it all depends on how you takeit. The stress of exhilarating, creative successfulwork is beneficial, while that of failure,humiliation or infection is detrimental.” Selyebelieved that the biochemical effects of stresswould be experienced irrespective of whether thesituation was positive or negative.

The most commonly accepted definition ofstress (mainly attributed to Richard S Lazarus) isthat stress is a condition or feeling experiencedwhen a person perceives that “demands exceedthe personal and social resources the individualis able to mobilize.” In short, it’s what we feelwhen we think we’ve lost control of events.

Stress is inevitable in our society. Researcherson stress make it clear that, to enter in to thecomplex area of stress, especially in to the areaof occupational stress, is very difficult. Stress isan unavoidable consequence of modern living. Inlight of the above, the present study attempt tothrow light on the various problems ofoccupational stress among banking professionalsspecifically the Nationalised bank employees.

REVIEW OF LITERATURE

• According to Douglas [1980], stress is definedas any action or situation that places specialphysical or psychological demand upon aperson.

• Cobb (1975) has the opinion that, “Theresponsibility load creates severe stressamong workers and managers.”



• If the individual manager cannot cope withthe increased responsibilities it may lead toseveral physical and psychological disordersamong them.

• Brook (1973) reported that qualitative changesin the job create adjust mental problem amongemployees. The interpersonal relationshipswithin the department and between thedepartments create qualitative difficultieswithin the organization to a great extent.

RESEARCH OBJECTIVES & SCOPE

Primary Objective

The primary aim for the study is to analysis thejob stress among the public sector bankemployees in DELHI and NCR.

Secondary Objective

To examine what is the effect of stress on workfactors (e.g., morale, job satisfaction, task effort,organizational commitment, etc) when peopleare under high stress.

SCOPE OF THE STUDY

United States National Institute of OccupationalSafety and Health has defined workplace stress as“The harmful physical and emotional responsesthat occur when the requirements of the job do notmatch the capabilities, resources, or needs of theworker. Job stress can lead to poor health and eveninjury.” Workers who are stressed are also morelikely to be unhealthy, poorly motivated, lessproductive and less safe at work. Theirorganizations are less likely to be successful in acompetitive market. Stress can be brought aboutby pressures at home and at work. Employerscannot usually protect workers from stress arisingoutside of work, but they can protect them fromstress that arises through work. Stress at work canbe a real problem to the organization as well asfor its workers. Good management and goodwork organization are the best ways of stressprevention.

OBJECTIVE OF THE STUDY

• To analyze the origin and growth level ofbanking sector in Delhi and NCR region.

• To analyze the level of job stress among bank

employees in Delhi and NCR region.• To analyze the contribution of over load,

authority, conflict and Lack of Support fromcolleagues to the job stress among bankemployees in Delhi and NCR.

• To analyze the importance of interventionalstrategies at organizational level to managestress among bank employees.

• To evaluate the progress, goals and successof stress management programme organizedby the banks.

• To give suitable suggestions to the bankingsector to develop stress less workingcondition among the bank employees did notresponded.

METHODOLOGY OF THE STUDY

Population

The population selected for this particular studyis employees from public sector units in DELHIAND NCR. Public sector comprise of SyndicateBank of India, Punjab national Bank and the StateBank of India.

Research Design

The study is explorative as well as descriptive innature.

Sample Design

The particulars of sample design,

1. Type of Universe: Delhi and NCR2. Sampling Unit: Public Sector Employees3. Source List: Finite4. Size of Sample: 605. Parameter of Interest: In estimating the number

of persons being stressed in their jobs.

Tool of Data Collection

A pilot testing was conducted initially byadministering the questionnaire on around 60numbers of respondents. The information wascollected from the bank employees at executivelevels. Interviews were conducted with theemployees for gathering information on theirperception about their organization and theproblems which they face both directly andindirectly in the discharge of their respon-sibilities.

Anshu Choudhary


Sources of Data

The study consists of both primary and secondarydata. The primary data was collected by directinterview through questionnaire. The secondarydata was collected from research publications,standard journal and periodicals including thegovernment organizations and from respectiverecords about the job related occurrence.

Research Instrument-Questionnaire Method

The instrument has been administered at theworkplaces of groups. Data will be collected fromthe employees. Data will be collected using astructured questionnaire, which will bedistributed in the workplace to employees andin Delhi and Ncr region.

Analysis of Data

The data will be analyzed to determine anydifferences between the stress levels ofemployees and their impact on reducing stress.

From the table 1, it is indicated that majorityof the respondents working in public sectorbanks were stressed, whereas only fewrespondents felt that they were not stressed.

From Table 2, it is inferred that major causesof stress among the bank employees are excessof work load [21%] and lack of cooperationamong the impatient customer [17%].Hence itwas found that employees felt that they werefacing severe work pressure, as they wereexpected to handle multiple roles andresponsibilities. Time stress is created by a realor imaginary deadlines; encounter stress iscreated by contact with other people [bothpleasant and unpleasant], and in this study, theemployees suffer from stress because of lack ofsupport from the management and colleagues.

The above table depicts the various attributesrelated to stress; work life imbalance is one of themajor attribute which contribute to stress for anemployee. This can be regarded as a factorbuilding up stress because a lot of employeescomplained that they were unable to balanceboth the personal and professional frontssuccessfully. Extra work pressures and demandsfrom work environment at times led to neglectof personal front.

From the above table, it is interpreted thatMeditation form an integral part of the science ofYoga, has a direct, positive impact on the mindgiving it the strength and power to resist stress.Moreover, around 18 percent of the respondentsexpected that they required recognition asacknowledging people’s value is especiallyimportant in times of stress. Based on the analysis;the initiatives taken by the banks to reduce stressare by providing good ambience, continuoustraining, proper communication and conductingeffective stress management programmes.

FINDINGS OF THE STUDY

About 97 % of the respondents belived that theyface high level of stress, which may be due toboth professional and personal reasons

The respondent were overburdened withwork load in their work place

Work life imbalance is one of the majorattribute which contribute to stress for anemployee.

The researcher identified few initiatives foreffectively handling stress. Meditation was foundto be the integral part of life to reduce stress.

Table 1. Percentage of respondents who feltthat they were stressed.

Category % of Respondants

Stressed 97Not Stressed 03

Table 2. Causes Of Stress

Causes of Stress % of Respondants

Work Overload 21Lack of Acceptability 07Time Management 08Lack of Support 06Feeling of Inequality 08Job Difficulty 14Inadequacy of Role Authority 03Impatient Customer 19Stress due to Technological 17Problem

Stress Management with Special Reference to Public Sector Bank


IMPLICATION OF STRESS

1. Physical problems and health problems likeheart diseases, ulcers, arthritis, increasedfrequency of drinking and smoking,cardiovascular, gastrointestinal, endocrineand other stress related disorders.

2. Psychological and behavioural problems:psychological problems like change ofmoods, inferiority complex, widespreadresentment, reduced aspirations and selfesteem, reduced motivation and job skills,

3. Organizational: job dissatisfaction, behavioralproblems, production turn over, increasedabsenteeism, increased accidents, lowerproductivity,

SUGGESTION ANDRECOMMENDATIONS

1. Organize Stress Management Programs foremployees.

2. Take adequate steps to redesign jobs, whichare taxing to employees’ abilities andcapacities.

3. Adequate role clarification to be made when-ever necessary to eliminate role ambiguity.

4. Introduce more job oriented trainingprograms, which improve employees skilland their confidence to work effectively.

5. Encourage open channel of communicationto deal work related stress.

6. Undertake stress audit at all levels in theorganization to identify stress area improvingconditions of job and alleviating job stress.

7. Introduce ‘Pranayam’ (Brain Stilling andcontrol of Vital Force) as a holistic managerialstrategy to deal with Occupational strategy.

CONCLUSION

The paper includes an analysis of data collectedpresented it in tabular form along with inter-pretations. The information collected were alsoanalysed to arrive at proper conclusion.

REFERENCES

H. Selye. “Stress without Distress.” Harper andRow Publications, U.S.A., 1974.

M.E. Douglas & D.N. Douglas. Manage your time,manage your work, manage yourself. New York:Amacom (a division of American Manage-ment Associations), 1980.

Express news service, 2011.

Steve Mc Connell.”Brooks law repealed” Ieeesoftware Vol. 16, pp. 6-8, 1999.

Media Report, Press Releases, RBI Documents,2013.

http://www.mindtools.com/pages/article/newTCS_82.htm

S. Cobb, J.R.P. French, R. Van Harrison and S.R.Pinneau. Job demands and worker health.Cincinnati, OH: National Institute forOccupational Safety and Health, PublicationNo. 75-168, 1975.

A. Brook. Mental Stress at Work. The Practitioner,Vol. 210, p. 500, 1973.

Table 3. Various Attributes of Stress

Various Attributes of Stress % of Respondents

Communication Gap 14Lack Of Skills 05Work Life Imbalance 46Work Environment 14Unmatched Expectations 08Economic Status 07Resources Inadequacy 06

Table 4. Initiatives for handling the StressLevels of the Bank Employees.

Initiatives of Stress % of Respondents

Good Ambience 16Recognition 18Continous Training 13Effective Communication 15Programme on Stress 15ManagementMeditation 23

Anshu Choudhary


Risk Perception of Investors In RepeatedGambles—An Empirical Study

Prabha Rajagopalan1 and S. Gurusamy2

Abstract

Risk perception relates to the extent to which one is aware of the risk. Risk attitudedetermines whether it is judged to be positive (as an opportunity to gain) or negative (athreat of losing). The researcher explores the relationship between risk aversion andpersonality traits and to examine the risk-perception of retail investors in repeatedgambles. Various statistical tools such as Simple percentage analysis, Factor analysisby principal component method has been applied to reduce the number of psychologicalbiases and personality traits into ten meaningful factors and seven meaningful factorsrespectively. Correlation analysis matrix has been derived to determine the relationshipbetween risk aversion, psychological bias and personality traits. One way Analysis ofvariances is undertaken between seven personality traits and ten psychological biases.Results indicates that Among the ten psychological biases identified in the study, Illusionof control and socio conformity bias are the foremost biases which are influenced by theeight proposed independent variables viz., Gender, Age, Marital status, Occupation,Income, Time spent for analysis, Number of trades performed per month, Percentage ofshares held for speculation, Investment experience and annual rate of return on equity.

Keywords: Illusion of control, Risk aversion, Personality traits, Risk taking, Riskpropensity, Correlation analysis matrix

1 Department of Corporate Secreataryship, DG Vaishnav College, Chennai, India2 Department of Commerce, University of Madras, Chennai, India

INTRODUCTION

Risk is defined as the probability of decisionoutcomes in the context of expected utilitytheories which has been applied in

financial decision making. Risk taking is domainspecific. Weber, Blais and betz assert that at anindividual level, risk taking in one domain (e.g.the financial domain) has little or no relationshipwith risk taking in another domain (e.g. the

social domain). Risk taking is mediated by riskperception, risk attitude and risk propensity. Riskperception relates to the extent to which one isaware of the risk. Risk attitude determineswhether it is judged to be positive (as anopportunity to gain) or negative (a threat oflosing). Risk propensity refers to the extent towhich one intends to take or avoid the risk. Riskpropensity relates to habitual or routine ways ofhandling risky situations. These routine patterns


persist over time. Risk taking is also moderatedby the person and situational factors.

Individual who has been risk averse in thepast are likely to continue to make cautiousdecisions whereas investors who have been riskseeking in the past are likely to continue to makerisky and adventurous decision. Yet a pattern ofrisk taking will not persist when it is provenunsuccessful. Positive outcomes will allowdecision makers to remain stable whereasnegative outcomes will induce them to changetheir strategies. Most of the individuals take riskin order to reap some psychological or materialbenefit but not for the sake of risk itself.

Risk Aversion and Personality Traits

To measure the link between personality factorsand risk aversion the revised scales of Big fivepersonality dimensions has been adapted in thecurrent study. For measuring the risk aversion ofretail investors in Chennai City, three items havebeen used with Five Point Likert’s type response( viz. Strongly disagree, disagree, neutral, agree,strongly agree). These items were reworded tomake them situation specific to assess investorbehaviour and personality type.

RISK PERCEPTION

Risk perception is an indispensable componentof financial decision making and other risktaking behaviour. It encompasses an assessmentof the degree of situational uncertainty, control-lability of that uncertainty and the confidence inthese estimates. It is basically a cognitiveassessment but influenced by affects such as fear,regret and optimism and susceptible to manybiases such as over confidence, self attributionbias and illusion of control, In addition, risktaking is multidimensional phenomenoninvolving personality correlates, self regulatingprocesses and the most cognitive aspects ofdecision making. It can be viewed as focussedtowards ‘fear of failure’ as well as ‘fear of losses’.In this study, the sample respondents perceivethat they are risk averse in financial decisions.

To measure the link between personalityfactors and risk aversion, the revised scales of BigFive personality dimensions has been adapted in

the current study. Risk aversion is investigatedthrough three items with likert’s five pointresponse (type). These items have been rewordedto make them and personality type of therespondents.

Research Methodology

The methodology of the study is based on primarydata collected through well framed and structuredquestionnaire to elicit the perception of retailinvestors in the share market. Simple randomsampling has been used to collect responses fromthe retail investors. The study has been conductedin a two stage format with preliminary pre-testingfollowed by the main study.

Profile of Retail Investors

Retail investors are individual investors whoinvest in small quantities. The term investor isgeneric term that encompasses all marketparticipants. A trader could be seen as a specialtype of investor who has a very short investmenthorizon. Traders have a belief in the possibilityof earning excess returns from short term securityprice movements. This is a typical characteristicof day traders and majority of them base theirtrades on technical analysis. Whereas, investorsare usually market participants who have longinvestment horizon and who self manageportfolios or seek the assistance of independentfinancial advisors or portfolio managers.However, investors are seen as traders who tradein order to move their wealth from the presentto the future.

According to Securities and Exchange boardof India (SEBI), retail individual investor meansan investor who applies or bids for securities of/for a value of not more than `1,00,000. Retailinvestors are individual investors who buy andsell stocks on their own account. In India, partici-pation of retail investors in capital market iscomparatively low. Retail investors find the stockmarket activities too complex and difficult tocomprehend. A cross-country comparison revealsthat Indian investors despite being one of thehighest savers in the world do not evince interestin stock market investments (www.articles.economictimes.indiatimes.com 26-07-2012).

Prabha Rajagopalan and S. Gurusamy


Study area and period

The study has been conducted among the retailinvestors of different broking and sub brokingfirms having several branches in Chennai City.The pilot study was conducted during the periodfrom 1st May, 2011 to 15th June, 2011 while themain study was conducted during the periodfrom 15th July, 2011 to 30th November, 2011.

Selection of Respondents

A heterogeneous sample was adopted to cover awide variety of demographic group. The primerespondents are the retail investors of sharebroking firms and sub-broking firms. Since theyhave numerous branches in Chennai city, care wastaken to ensure the selection of retail investors ofshare market in a fairly proportionate manner.

Questionnaire was also administered to theretail investor participants in the meetingsconducted by the Madras Stock Exchange,Bombay Stock exchange, National Stock exchangeand Securities exchange board of India. Further,questionnaire was circulated and collected duringthe regular meetings conducted by the TamilNadu Investors Association. The student tradersof B-School Institute for Financial Managementand Research, Nungambakkam also responded tothe primary survey questionnaire.

Sample Size

The retail investor participation in Chennai cityis about 1.4 percentage of its population [CDSLUpdate]. The total sample size of the study iscross verified for representation of the populationparameters. Therefore, the researcher profoundlyconcludes that the sample size of 606 is adequateto conduct the research.

Data Collection

Data for this study was primarily collectedthrough a survey in the form of a questionnaireas well as through research based published dataconcerning retail investor participation. Primarydata refers to data, which is collected for specificpurpose and which is required in order tocomplement secondary data. Secondary datarefers to the existing collected and summarizedmaterial of the research papers and publications.

This data originates from sources such asdatabases, literature, journals and the internet.

Primary Data

The primary data was collected from the retailclients of share broking firms in person by theresearcher through survey method. For a fewrespondents who were busy during tradinghours and those who experienced difficulty inlanguage, responses were collected orally by theresearcher in a one-to-one interview manner. Amail survey instrument was also chosen as themethod of collecting the self-reported data.Despite potential problems with non-response,mail questionnaires are commonly held as themost efficient means of collecting empirical data.The researcher developed a web page thatcontained the survey questionnaire and allowedrespondents to mail their response to an emailaccount specifically created for this purpose.

Based on the pilot study results, 1200 ques-tionnaires were distributed for the main survey tothe respondents in Chennai City. The number ofquestionnaire collected after sustained follow upwas 859. Out of the 859 responses only 606 werecomplete and suitable for statistical analysis. Outof the total 1200, 341 questionnaires were notreturned and 253 were eliminated for inconsistentreplies and incomplete answers. Therefore, theexact sample size for this study is 606.

Pilot Study

The pilot study was conducted by distributing150 questionnaires to retail investors of variousbroking firms in Chennai city but only 100responses were suitable to be taken up for testingthe internal consistency and reliability of theconstructs. Cronbach alpha test was used todetermine the degree of consistency among themultiple measurements of each factor. Itmeasures the inter-item reliability of a scalegenerated from a number of items.

Ideally, the reliability coefficient above 0.5 isconsidered acceptable as a good indicator ofconstruct reliability, above 0.6 is treated satisfac-tory, but alpha above 0.7 is considered sufficient(George and Mallery, 2001). These alpha valuesare statistically significant to ensure a smoothnormal distribution and to justify the sample

Risk Perception of Investors In Repeated Gambles


statistics for the representation of populationparameters. Further, during the pilot study, therespondents expressed difficult to comprehendcertain questions and give responses. Such issueswere redressed to make the questionnaire fullyrefined for the main study.

Data Analysis

The primary data collected through the question-naire is analysed using the SPSS-V 15 (StatisticalPackage for Social Sciences) computer packages.The statistical tools used for data analysis basedon the data enumerated from the questionnaireare as follows.

• Simple percentage analysis is used to describethe sample unit considered for the research.

• Factor analysis by principal componentmethod has been applied to reduce thenumber of psychological biases andpersonality traits into ten meaningful factorsand seven meaningful factors respectively

• Correlation analysis matrix has been derivedto determine the relationship between riskaversion, psychological bias and personalitytraits

• One way Analysis of variances is undertakenbetween seven personality traits and tenpsychological biases

FACTOR ANALYSIS OF PERSONALITYTRAITS OF RETAIL INVESTORS

The factor analysis of the psychological biases andpersonality traits is conducted by means ofexploratory factor analysis. Factor analysis is usedto summarize a set of variables into a smaller setof factors by means of the inter correlationbetween variables (Pallant). Within the broadspectrum of factor analysis, this study made useof principal axis factor analysis which rotates thedata such that maximum variabilities are projectedonto the axes (Pallant; Tabachnick and Fidell,2001). In deter-mining the number of factors to beextracted, the Kaiser eigenvalues greater than onecriterion is considered (Pallant, 2007).

As a first step towards an exploratory factoranalysis, a principal component analysis wasconducted in order to determine the underlying

dimensions of psychological biases and per-sonality traits of retail investors of share marketin Chennai City. Seven principal componentswere constructed out of the personality traitsusing the Kaiser’s varimax rotation techniquewhich explains 54.926 % of the total variancewhich shown in Table 1.

Therefore, the researcher appropriately movedthird variable to the fifth component factor to givevalue addition and variances for the fifth factorand deleted the eleventh variable. The sevencomponents resulting from factor analysis ofpersonality traits are described as follows:

The variables in Table 2 relate to individualswho are assertive, energetic, stimulated andexcited with people around. They possesspositive emotions and are venturesome toaccomplish their ambitions (Watson and Clark,1997). Conversely, individuals scoring low on theabove traits are reserved and independent. Theyperform things at even pace and prefer to remainin their own company. They correspond to thepersonality trait extroversion in the big fivepersonality inventory. Hence, factor I is labeledas gregariousness.

Table 1. Rotated component matrix forpersonality traits

Compo- Eigen % of variance Cumulativenents value explained variance

I 3.376 13.503 13.503II 2.895 11.581 25.084III 1.603 6.411 31.495IV 1.473 5.894 37.389V 1.268 5.071 42.460VI 1.075 4.299 46.759VII 1.023 4.093 50.852VIII 1.019 4.074 54.926

Source: Computed data

Table 2. Factor I Gregariousness

Variables Factor loading

I really enjoy talking to people .804I am cheerful and high spirited .804I am very active .715I avoid social gathering .411




The variables in Table 3 relate to individualswho are prone to anxiety; feel unsure and worriedabout their investments and trading decisions.Such individuals respond emotionally to marketevents and become easily tensed leading to erraticdecisions. Due to their subjective feeling andinsecurity, they experience negative emotions andthus enter and exit trade on whims of emotions.Additionally, unstable emotions make them lessdependable. They correspond to the personalityfactor high neuroticism of the big five personalityinventory. Hence, factor II is described as Self-consciousness.

The variables in Table 4 indicate that thesample respondents perceive them as risk-averseand risk-avoiders. It shows that investors neitherprefer nor have willingness to bear risk to achievedesired outcome in the stock market. They arefound to be risk averters as they want to avoid riskand choose the safer option in making thedecision. Majority of the investors take risk inorder to reap some psychological or materialbenefit not for the sake of risk itself. This issupported by Olsen in his studies, in which mostpeople consider themselves to be risk-avoidersrather than risk-takers. Similar results werereported by Audrey Lim Li Chin in his studywhere investors tend to be cautious in exercisingchoice towards investment while judging risk-return relationship. It is expected that theirtendency to be risk-averse has exacerbated due tothe major losses they had experienced before.Therefore, factor III is labeled as Risk-aversion.

The variables Table 5 deal with individualswho are thoroughly organized, achievement-striving, efficient and adhere to moral precepts.They are self-disciplined and persevering.Conversely, individuals who are low on thesevariables tend to be hedonistic, distractible intheir efforts, careless towards responsibilities anddisorganized (Haslam, 2007). They correspond tothe personality trait conscientiousness in the bigfive personality inventory (Costa & McCrae).Hence, factor IV is named as Diligence.

The variables in Table 6 represent individualswho are emotionally stable. They have goodemotional control during stressful conditions oftrading and are less prone to irrational ideas.They are generally calm and collective underpressure (Hans Eysenck), remain even-temperedand composed (Taylor and de Bruin). They arepredisposed to adopt practical approach towardsmarket and not capitulated to temptations anddesires (McCrae and Costa). They correspond tothe personality factor low neuroticism of the bigfive personality inventory (Costa & McCrae).Hence, factor V is labeled as Pragmatism.

The variables in Table 7 represent individualswho possess inquiring intellect, vivid imaginationresulting in creative ideas. They have broadinterest domains and appreciate aesthetics(Trapnell). Alternately, individuals low on thesetraits is conventional and conservative. They have

Table 5. Factor IV Diligence


I approach my task meticulously .732I perform each aspect of a job .684in the best mannerI apologise on failure to do .638my work


Table 6. Factor V Pragmatism


I analyse market action to .653respond aptlyI do not trade by gut feeling .626I take market setbacks as cost .588I feel worthless in trading .437


Table 4. Factor III Risk aversion


I do not prefer to take risk .805I avoid risk totally .687I choose low risk-steady return .583over high risk high returns


Table 3. Factor II Self- consciousness


I am often tensed .737When I fail, I consider giving up .715Sometimes I am not dependable .601




narrow interest and remain comfortable withfamiliar experience and are unwilling to explorenew experience (Taylor and de Bruin). They relateto the personality trait openness to experience inthe big five personality inventory (Costa &McCrae). Hence, factor VI is labeled as Aesthetic.

The variables in Table 8 stated measureindividuals who are empathetic, helpful andconsiderate (Taylor and de Bruin).They areconcerned with individual’s interpersonalorientation. (Pervin and John). Conversely,individuals who are low on them are indifferent,hostile (Haslam, Pervin and John), manipulativeand self centered (Taylor and de Bruin). Theycorrespond to the personality trait agreeablenessin the big five personality inventory (Costa &McCrae). Hence, factor VII is named as Altruism.

FACTOR ANALYSIS FORPSYCHOLOGICAL BIAS

The variables covered in the survey capture tenpsychological biases exhibited by the retailinvestors in Chennai city. Table 9 shows the tenprincipal components which are constructed outof psychological biases using the varimaxrotation technique that explain 54.481 % of thetotal variance. The variables in Table 10 relate tothe investor who is motivated to promotepositive self views rather than negative selfviews of themselves (Taylor and Brown). Hestrives systematically to promote the perception

that others think well of him (Shrauger). It stemsfrom over confidence (Martin Glaser and MartinWeber) of the investors which is manifested inthe form of illusion of knowledge (H.K Bakerand J.R. Nofsinger,), illusion of control (Pressonand Benassi), better than average effect.

Retail investors in Chennai City overestimatethe accuracy of their own judgment towards stockmarket which is amplified because others seekinformation from them regarding investment.Further they are overly confident about their stockpicking skill and claim to be self disciplined to fixstop loss limits while trading. It is evident thatfamiliarity towards trading, access to informationincreases their confidence and induces them toenhance their self image. Therefore, factor I islabeled as Self-enhancement bias.

Table 7. Factor VI Aesthetic


I often try new and strange food .667I am inquisitive .612I seek thrill .535


Table 8. Factor VII Altruism


I often argue .644People think that I am cold .628and calculativeI am thoughtful and considerate .434


Table 9. Rotated component matrix forpsychological biases

Compo- Eigen % of variance Cumulativenents value explained variance

I 4.351 13.597 13.597II 2.326 7.270 20.867III 2.077 6.490 27.356IV 1.450 4.531 31.887V 1.353 4.229 36.116VI 1.293 4.039 40.156VII 1.259 3.934 44.090VIII 1.147 3.585 47.676IX 1.128 3.526 51.202X 1.050 3.280 54.481


Table 10. Factor I Self enhancement bias


I have the ability to cut losses .752I am more knowledgeable than .679average investorOften, I am able to pick winning .661stocksI am familiar with trading process .553I have access to vast amount of .543informationOthers seek information on stock .517from me




The variables in Table 11 indicate that thesample respondents in Chennai prefer to beexposed to information that is supportive of theircurrent beliefs rather than to non supportiveinformation which presumably could arousedissonance. The investors are prone to inconsis-tent thoughts and action leading to disharmonywhich has to be balanced. Further they areanchored to their preconceived ideas and theyignore any information which is incompatiblewith their preconceived notion. They interpretnew information as confirmation to their priorheld beliefs. It reveals that these investors areprone to intrapersonal conflict between theirobjective self and subjective self. While objectiveself encourages rational thoughts and decisionssubjective self induces instinctive and myopicaction to protect self image. They try to changetheir original thought or accept the new thoughtor rationalize their action to resolve the conflict.

Investors face and handle two consistentrealities in the market. On the one hand marketscannot be controlled or predicted and on theother virtually any trader or investor has to tryto predict market movements. In such a situationto reduce the dissonance investors pay attentionto the evidence that confirms favorable proposi-tions and discount evidence against such pro-positions. Generally investors agonize overwhether they have exercised right choice intrading and investment decisions. Often beingplagued with regrets and second thought aftertough choice, they automatically seek informa-tion that vindicate their decision and allaysnagging doubts to reduce dissonance. Therefore,a good way to reduce such dissonance is to seekexclusively positive information on the decisionand avoid negative information about it. Thus,factor II is named as Cognitive dissonance.

The variables in Table 12 reflect the investor’stendency to choose familiar stocks rather thanunfamiliar ones. It indicates that the samplerespondents have distaste for ambiguity asuncertainty accompanies risk. Individuals areaverse to ambiguity, as they cause irrationalchoices (Ellsberg), emotional tendency such asfear towards risky choices. Individual investorsare likely to express ambiguity aversion becauseof obvious absence of identifiable parameters ofthe decision problem which often associated withhigher risk and possibly lead to hostilemanipulation. Further, retail investors prefergamble that give them a sense of understandingor competence. Hence factor III is described asAmbiguity aversion.

The variables in Table 13 imply that samplerespondents exhibit unrealistic perception of theircontrol in trading and investment decisions. Thisbias basically emerges in investors due to theirover confidence. So they underestimate the size ofthe risk they are undertaking and assume largerisks (Terrance Odean). These investors ownresponsibility for the outcome both for profits andlosses. It is evident few investors do not conformto the group behaviour yet, over-confident in theirability and skills to outperform the market. Thetraders and investors’s familiarity with the tradingprocess, the competition they face, the choice they

Table 13. Factor IV Illusion of control


I own responsibility for my .752decisionsFollowing the crowd is not .512always correctI have experienced both positive .466and negative outcomesGood results are due to my .416investment skills


Table 12. Factor III Ambiguity aversion


I prefer familiar stock to the .753unfamiliarI prefer certain over uncertain .746


Table 11. Factor II Cognitive dissonance


I ignore information contra- .694dicting my beliefI look for information support- .692ing my beliefI brush aside negative informa- .663tion about stock




could exercise, the information they possess andtheir personal involvement causes illusion ofcontrol. They behave as if the stock marketsituation is determined by their skill and theycould exert control over price movements.

Further sample respondents have a preferencefor control so they adopt online trading terminalto trade than someone else doing it for them orthey watch live updates and order transactions tothe broker through phone. These investorssubstantially overestimate their degree of controlthough it is chance determined event and caughtunder the illusion that they were instrumental ifthe outcome turns out successfully. Hence factorIV is named as Illusion of control.

The variables in Table 14 capture the retailinvestor’s tendency to extrapolate the recenttrends in stock prices while forming expectationsabout future stock returns. They expect stockprices to continue the recent trend, predictinghigher returns following price rallies and lowerreturns after price decline (Vissing-Jorgensen). Itindicates that certain investors in Chennai aretrend chasers thereby reflecting their overoptimism towards past winners and pessimismabout past losers. They strongly believe that byextrapolating historical price pattern they cansuggest future movements of the correspondingshares (Sheen and Kendall). The need to spendresources on tracking price trends, volume andnumerous other gauges of demand for equitiesis emphasized because it is the investor ’ssentiment which moves prices rather thaneconomic fundamentals. Further, investors thinkthat good companies represent good investmentand expect the good companies to continue theirsuperior perfor-mance in the future (Shefrin andStatman; Solt and Statman). Therefore, factor Vis labeled as Extrapolation bias.

The variables in Table 15 measure investorstendency to attribute internal factors viz. theirown ability, effort and skill for successful out-comes, conversely ascribe external uncontrollablefactors such as market events and circumstancesfor unfavourable outcomes. Although, investorsperceive that all information about financialmarket is readily available, the preponderancelies in the direction of self serving biases. Theycontend that they have adequate training,experience and skills to interpret information inan unbiased manner. They tend to give them-selves too much credit when trades go their wayas it promotes ego enhancement but rationalizesituations that lose money since it is egothreatening. They are likely to become over confi-dent after a string of winning trades, raise theirtrading frequency or size and place themselvesat risk, jeopardising their performance. It showsthat investors do not own losses and gain withequal fervor. So, factor VI is labeled asPerformance attribution bias.

The variables Table 16 imply that the samplerespondents are more willing to bet on their ownjudgment because they are skillful and know-ledgeable in trading and investment field. It islikely that educational background and otherdemographic characteristics make some investorsfeel more competent than others in understandingan array of financial instruments, information andopportunities available in the stock market. Thecompetency effect posits that individuals’willingness to act on their own judgment isaffected by their subjective competence, whichinduces them, to turndown alternate methods.Further they claim that critical analysis is notnecessary for efficient investment decisions. Thus,factor VII is named as Competency bias.

Table 14. Factor V Extrapolation bias


Past performance of stocks .798indicate future price trendGood companies sustain high .723growth levels achieved in the pastGood companies do not always .604make good investment


Table 15. Factor VI Performance attribution bias


All information on financial .669market is readily availableMy investment losses are due .540to unpredictable factorsI have the training, experience .442and skills required to interpretinformation




The variables in Table 17 measure theperceived potentiality of investors towards infor-mation collection, segregation and com-pilationin terms of its utility towards trading decisions.The respondents perceive although moreinformation leads to better decision, the timeframe is too short to consider all information.They possess positive illusion that more informa-tion increases their knowledge but the fact is thatthey lack the necessary training, experience andskill to interpret the information. Moreover, thetime and cognitive resources often are limited toanalyse the data optimally (David Hirshleifer).

Investors lay more emphasis on the quantumof information rather than the factors such asrelevance, reliability, speed, anticipated marketsurprise, and expected market impact which israted foremost in judging the efficacy of infor-mation (Oberlechner and Hocking). In additionretail investors are unaware of the latent effectthat increased amount of information leads toillusion of control and overconfidence (Nofsinger;Peterson and Pitz). Therefore, factor VIII islabeled as Information Overload bias.

The variables in Table 18 indicate that thesample respondents are motivated to conform tosocial norms in their trading and investmentdecisions. They use evidence of other’s behaviourto decide most effective course of action when thesituation is novel, ambiguous and uncertain. Theyseem to follow other’s leads to avoid loss or tograb profitable opportunities as this ‘social proof’saves time and cognitive effort (Cialdini).Investors in Chennai associate with social groupsbecause they view group members as trust worthysource of information. It helps them to resolveconflict between one’s own senses and perceptionof others i.e. to seek social approval. Socio-conformity decreases search costs and helps tocircumvent their lack of expertise in tradingdecisions (Margarida Abreu and Victor Mendis).Groups consensus provide simple heuristics to acteffectively (Tversky and Kahneman), in situationswhich evoke ambiguity and uncertainty, for goalattainment and vicarious reinforcement fromothers provide reward power. Hence, factor IX isnamed as Socio-Conformity bias

The variables Table 19 relate to the perceptionof investors to erroneously believe in meanreversion of prices i.e. they believe today’s losers

will outperform today’s winner likewise today’swinners would be losers of tomorrow. So they sellwinners and buy losers. As far as valuation isconcerned they exercise their choices in terms ofpotential gains or losses relative to the purchaseprice. So they are risk averse in the domain of gainand risk seeking in the domain of loss. Theseinvestors stick to previous unsuccessful actionsbecause they feel the need to justify or rationalizetheir decisions. They are reluctant to admit thatthe prior decisions were incorrect (Zuchel). Theysell winning stocks to realize gains, implying thatthey have made a good initial decision. Further,

Table 16. Factor VII Competency bias


Critical analysis is not required .699for investment decisionsI do not consider alternative .635methods


Table 17. Factor VIII Information Overload bias


More the information better .718the forecastTime constraints prevent .526considering all information


Table 18. Factor IX Socio conformity bias


I discuss about stocks often .648with my friendsI act on others’ behavior to .535grab profit opportunitiesI follow the herd to avoid loss .461


Table 19. Factor X Disposition effect


I tend to sell stocks that go .637up in valueOften I hold stocks that have .502lost value




realizing profits early allows them to maintainself-esteem while realizing losses causes them toadmit an implicit erroneous investment decision.Thus they hold on to losers (Martin Vlcek). Hence,factor X is named as Disposition Effect.

RISK PERCEPTION OF INVESTORS INREPEATED GAMBLES

The Frequency distribution for measuring thebehavior of investors during prior gain or priorloss in a gambling situation with two optionswas givento the respondents. The investorpreference towards their options in the sampleunit is presented in the following table.

The findings of the repeated gamble areconsistent with the prospects theory. Table 20indicates that 51% of the sample respondentswith an initial gain opt for the first choice while49% are contented with initial gain and do notprefer further gain or loss. The gain contributesto house money and thus investors are morelikely to assume high level of risk (Kim andNofsinger, 2008). The initial win is denoted ashouse money which prompts them to seek riskin winning situation. This implies that they arerisk seeking in winning situations.

Table 21 shows that 46% of the samplerespondents who begin with an initial lossexercise the first option of gamble whereas 54%of them prefer no further gain or loss. Thisevidence is referred as snake bite effect and isconsistent with studies done by Audrey Lim LiChin (2012). After experiencing a loss, investorsare less willing to take risks. (Odean, Strahilevitzand Barber).

Table 22 reveals that 40% of the samplerespondents who begin with an initial lossexercise the first choice of gamble while 60% ofthem opt for the second choice with a sure gain.Even if the gamble offers them a chance to breakeven, it does not stimulate retail investors ofChennai to seek risk. They continue to exhibitrisk-averse characteristics. This finding iscontrary to the result of Thaler and Johnson whoexamined MBA students with real money gambleand found that 60% of their respondents optedfor the chance to gamble so as to break evenrather than the sure gain of `10, which only 40%resorted to opt.

RISK AVERSION

The correlation analysis result betweenpersonality trait identified and risk aversion ispresented in the table below.

From Table 23, it can be observed that selfconscious personalities of the sample respondentsexhibit strong correlation of r=0.247 towardsrisk aversion. This personality is predisposedto experience negative emotion anxiety anddepression. They attend to and weigh negativeoutcomes; over estimate the probability of lossesrelative to probability of gains. Further, focus onprevention of losses rather than striving to promotegains and are characterised for propensity to avoidrisk, hence take few or smaller financial risk.

Table 21. Percentage analysis of investorbehaviour during gamble II

Option Freq %

You have just lost Rs.30. Now choose between

A 50% chance to gain Rs. 9 and 281 46a 50% chance to lose Rs. 9 orNo further gain or loss 325 54Total 606 100


Table 22. Percentage analysis of investorbehaviour during gamble III

Option Freq %

You have just lost Rs. 30. Now choose between

A 33% chance to gain Rs. 30 and 242 40a 67% chance to gain nothing orSure gain of Rs. 10 364 60Total 606 100


Table 20. Percentage analysis of investorbehaviour during gamble I

Option Freq %

You have just won Rs. 30. Now choose between

A 50% chance to gain Rs. 9 and 308 51a 50% chance to lose Rs. 9 orNo further gain or loss 298 49Total 606 100



Diligent respondents are prone to riskaversion with a strong correlation of r=0.127since they are unwilling to venture failure evenin low stakes situation (McGhee et al., 2012). Theyhave a strong desire to be correct in their tradingand financial decisions. This is also consistentwith the finding of Nicholson et al., who reportedthat high diligent investors are typicallyassociated with risk aversion.

Gregarious personalities are not correlated torisk aversion (r=-0.007) which indicates that theyare neither risk averse nor risk seekers. Morseargued that there was no relationship between selfreported risk level and overall risk level (i.e.,between sensation seeking and actual levels ofrisk taking). Moreover, using participation insports as a proxy for sensation seeking did nothave significant effect on risk preferences.

Aesthetic and gregarious investors are highsensation seekers who possess intense stimulationand need for arousal. Thus, they take more andlarger risk. Findings in this study is inconsistentwith personality literature since the questionnairewas circulated post global crisis when economicrecession set into the economies worldwideand in India too. Therefore, respondents whobenefitted from the favourable returns in periodsof economic upswing ran into problems and

confronted unsustainable losses due to therecessionary trend. Perhaps the personalities viz.,pragmatic, aesthetic, altruistic were unsuccessfulin their stock market dealings which caused achange in strategy from routine risk taking to riskaverse tendency. Thus, these personalities exhibitstrong correlation towards risk aversion.

INVESTORS RISK PERCEPTIONDURING REPEATED GAMBLES ANDITS INFLUENCE ON PERSONALITYTRAITS AND PSYCHOLOGICALBIASES

The influence of risk perceptionof investorsduring repeated gambles on personality traitsand psychological biases is more appropriate tostudy and to derive microscopic informationabout psychological changes and behaviouralchanges in the personality of the retail investors.This context is analysed through one wayANOVA for seven personality traits and tenpsychological biases found out by the researcher.

From Tables 24 & 25, it is found that thesample respondents differ in risk perceptiontowards repeated gambles depending on thepersonality traits and the psychological biasesthey are susceptible. In the first gamble, the

Table 23. Correlation between personality traits and risk aversion

Personality trait Self conscious Pragmatic Diligent Aesthetic Altruistic Gregarious

Risk aversion(r value) 0.247** 0.134** 0.127** 0.116** 0.156** -0.007


Table 24. Influence of personality traits on risk perception during gamble I

Personality trait Source Sum of df Mean F Sig.squares square level

Self consciousness Between groups 3.925 1 3.925 5.197 .023Within groups 456.092 604 .755Total 460.017 605

Aesthetic Between groups 7.014 1 7.014 15.308 .000Withingroups 276.738 604 .458Total 283.752 605

Risk aversion Between groups 3.066 1 3.066 3.939 .048Within groups 470.041 604 .788Total 473.107 605




differences are significant for self consciousness(F=5.197, p=.023) Aesthetic (F=15.308, p=.000), riskaversion (F=3.939,p=.048) and those respondentswho subject them to information overload bias(F=7.961, p=.005). The difference in their riskperception and its influence on personality traitsand psychological bias is estimated through meancomparison. It can be observed that out of totalsample unit 606, 308 (51%) of the investors whoexercise the first option of chance situation aremoderately self conscious (mean=3.1364),moderately aesthetic (mean=3.1623), less riskaverse (mean=2.9729), are prone to moderateinformation overload bias (mean=3.6607).Contrarily 298 (49%) of the investors who arehappy with the initial outcome profit and thus donot prefer further gain or loss are less selfconscious (mean=2.9754), less aesthetic (mean=2.9471), moderately risk averse (mean=3.1152) andprone to moderate information overload bias(mean=3.4681).

From Tables 26 & 27, it is found that in thesecond gamble, the difference in risk perceptionis significant for sample respondents who exhibitself consciousness (F=7.904, p=.005), cognitivedissonance (F=4.782, p=.029), competency bias(F=5.582,p=.018), information overload bias(F=6.073,p=.014), Socio conformity bias(F=8.306,p=.004) and disposition effect(F=6.464,p=.011). The difference in their riskperception and its influence on personality traitsand psychological bias is estimated through mean

comparison. Further, it can be observed that outof total sample unit 606 investors, 281 (46%) ofthem who exercise the first option of chancesituation are moderately self conscious(mean=3.1637) and are prone to moderatecognitive dissonance (mean=3.2147), moderateinformation overload bias (mean=3.6566), lowsocio conformity bias (mean=2.9929) andmoderate disposition effect (mean=3.4093).Alternatively, 325 (54%) of the investors whoexercise the second option of no further gain orloss are less self conscious (mean=2.9651) andexhibit moderate cognitive dissonance (mean=3.0646), moderate information overload bias(mean= 3.4877), low socio conformity bias (mean=2.7677) and moderate disposition effect (mean=3.2262).

From Tables 28 & 29, it is observed that in thethird gamble, the difference in risk perceptionduring repeated gambles is significant forrespondents who display self consciousness(F=23.611, p=.000), self enhance-ment bias(F=5.245, p=.022), cognitive dissonance (F=4.770,p=.029), ambiguity aversion (F=7.867, p=.005) andcompetency bias (F=6.034, p=.014). The differencein their risk perception and its influence onpersonality traits and psychological bias isestimated through mean comparison. Further, itis found that out of total sample unit 606 investors,242 (40%) of them who exercise the first choice ofchance situation are moderately self conscious(mean=3.2645) and exhibit moderate self

Table 26. Influence of personality traits on risk perception during gamble II


Selfconsciousness Between groups 5.942 1 5.942 7.904 .005Within groups 454.075 604 .752Total 460.017 605


Table 25. Influence of Psychological bias on risk perception during gamble I

Psychological bias Source Sum of df Mean F Sig.squares square level

Information overload bias Between groups 5.678 1 5.618 7.961 .005Within groups 426.242 604 .706Total 431.860 605




Table 28. Influence of personality traits on risk perception during gamble III


Self consciousness Between groups 17.306 1 17.306 23.611 .000Within groups 442.711 604 .733Total 460.017 605


Table 27. Influence of Psychological bias on risk perception during gamble II


Cognitive dissonance Between groups 3.395 1 3.395 4.782 .029Within groups 428.800 604 .710Total 432.195 605

Competency bias Between groups 4.986 1 4.986 5.582 .018Within groups 539.529 604 .893Total 544.515 605

Information overload bias Between groups 4.299 1 4.299 6.073 .014Within groups 427.561 604 .708Total 431.860 605

Socio-conformity bias Between 7.642 1 7.642 8.306 .004Within groups 555.697 604 .920Total 563.339 605

Disposition effect Between groups 5.052 1 5.052 6.464 .011Within groups 472.064 604 .782Total 477.116 605


Table 29. Influence of Psychological bias on risk perception gamble III


Self enhancement bias Between groups 2.406 1 2.406 5.245 .022Within groups 277.113 604 .459Total 279.519 605

Cognitive dissonance Between groups 3.387 1 3.387 4.770 .029Within groups 428.809 604 .710Total 432.195 605

Ambiguity aversion Between groups 7.027 1 7.027 7.867 .005Within groups 539.532 604 .893Total 546.559 605

Competency bias Between groups 5.386 1 5.386 6.034 .014Within groups 539.129 604 .893Total 544.515 605




enhancement bias (mean=3.5000), moderatecognitive dissonance (mean=3.2259), moderateambiguity aversion (mean=3.4669) and moderatecompetency bias (mean=3.0661). Conversely, 364(60%) of the investors who exercise the secondoption of sure gain are less conscious (mean=2.9194) and exhibit moderate self enhancementbias (mean=3.3713), moderate cognitivedissonance (mean=3.0733), moderate ambiguityaversion (mean=3.6868) but low competency bias(mean=2.8736).

CONCLUSION

Among the ten psychological biases identified inthe study, Illusion of control and socio conformitybias are the foremost biases which are influencedby the eight proposed independent variables viz.,Gender, Age, Marital status, Occupation, Income,Time spent for analysis, Number of tradesperformed per month, Percentage of shares heldfor speculation, Investment experience and annualrate of return on equity. Self enhancement bias isinfluenced by occupation, income, time spent foranalysis, number of trades performed per month,investment experience and annual rate of return.Performance attribution bias is influenced byincome, time spent for analysis, number of tradesperformed per month, investment experience andannual rate of return on equity.

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Entrepreneurial Orientation and Locus of Control:An Empirical Study of Youths

Amar Kumar Mishra*

Abstract

This paper investigated the influence of gender and locus of control on entrepreneurialorientation. The participants in this study were three hundred fifty students in the agegroup of 18-25 studying management courses in Uttarakhand. 60 percent were malesand 40 percent were females. Dimensions of Entrepreneurial Orientation were analyzedusing principal component analysis and three hypotheses were tested using variousstatistical techniques including independent‘t’ test, and spearman’s correlation. Thefindings showed that a significant difference existed between internal locus of controland entrepreneurial orientation; and there was no significant difference in theentrepreneurial orientation based on gender differences. On the basis of the findings,potential entrepreneurs are advised to take cognizance of their personality since it cango a long way to determine the success or failure of an enterprise.

Keywords: Entrepreneurship, Entrepreneurial orientation, Locus of control

INTRODUCTION

There is a saying “there are two certaintiesin life: death & taxes”. In the context ofmanagement, it can easily be said that there

is another certainty and that is change. From theformula fifties, sensitive sixties, strategic seventies,excellence eighties and nanosecond nineties, itwill not be an exagge-ration to say it isentrepreneurship twenty-first century. The dearthin employment has rendered many educatedyouths unemployed or at least underemployed.Nonetheless, MBA students are increasinglyturning to entrepreneurship and the scenario isuniversal. There is an increased rate of MBAstudents across developed and developing

countries considering the issue of self-employ-ment; whether it is a choice or a necessity for apreparation of new venture (Pietrobelli, Rabellotti,& Aquilina, 2004). A recent Graduate ManagementAdmissions Council survey found that 11 per centof MBA alumni (who graduated between 1959 and2013) now run their own businesses. Such anincreasing trend is even more evident fordeveloping countries than for developedcountries. Business schools are tailoring MBAprogrammes to ensure they engender the specificskills necessary to start one’s own company. Whileknowledge undoubtedly enhances entrepre-neurial skills; the success of a business is due tomany factors, and the greatest determinant of abusiness’s success is the entrepreneur him/herself.

* IMS Unison University, Dehradun, Uttarakhand, India


People who start up and run businesses need toknow their own strengths and weaknessesbecause “entrepreneurship involves the ability tobuild a ‘founding team’ with complementaryskills and talents” (Timmons, 1994). Banks andventure capitalists, as well as consultants, whoassist entrepreneurs, stress the importance of theentrepreneur’s personality for the success of abusiness. A deeper understanding of thepersonality of the entrepreneur is needed for asound judgment of whether the entrepreneur willcarry through the business plan successfully.While many researchers have conducted studiesexploring entrepreneurship with variouspersonality traits; little has been done to exploreentrepreneurial orientation from the point of viewof personality dimensions. More specifically thereis dearth of studies in India exploring the impactof personality dimensions on various dimensionsof entrepreneurial orientations.

LITERATURE REVIEW

Entrepreneurial orientation has emerged as aforemost construct within the entrepreneurshipliterature over the last few decades (Drennan,Kennedy, & Renfrow, 2005). Much research hasbeen conducted into the characteristics ofsuccessful entrepreneurs and the researchershave identified following characteristics forsuccessful entrepreneurs.

Brandstätter, 1997; Zhao and Seibert, 2006,Rauch and Frese, 2007, Caliendo, Fossen,Kritikos, 2011 examined the relationship betweenpersonality traits and entrepreneurship andfound that personality characteristics are mostimportant determinants of entrepreneurship.

Ahmed (1985) in a study found that signifi-cant relationships exist among risk-takingpropensity, locus of control and entrepreneurship.

Rauch and Frese (2000) took individual as theunit of analysis and found that the personalityand environmental factors have maximum levelof impact on entrepreneurship.

Fairlie and Holleran (2011) investigatedeffects of entrepreneurship training onindividuals and found differential impact basedon their personality characteristic.

While many researchers conducted studies

exploring entrepreneurship with variouspersonality traits (achievement need, powerneed, Big 5 traits etc.); little has been done toexplore entrepreneurial orientation from thepoint of view of personality dimensions.

McClelland (1961) noted that entrepreneursshow responsibility for their actions and areinnovative, suggesting relationship betweencontrol orientation and entrepreneurship on theone hand and creativity on the other.

Perry (1990) found that Internal locus ofcontrol has been one of the psychological traitsmost often posited as predictive of entrepre-neurship; Shapero (1975) found that entrepre-neurs tended to have an internal focus. Boone,Debrabander and Van Witteloostujin’s (1996)found internal locus of control to be associatedwith performance. Their findings corroboratedprior study findings of (Begley and Boyd 1987;Bonnett and Furnham 1991, Nwachukwu 1995)that internal locus of control is an importantentrepreneurial psychological trait.

Wolleat (1980) studied the relationshipbetween locus of control, sex and achievementand found that males are more achievementoriented, energetic, and enterprising than females;while Nelson (1991) studied the relationship onfemales and found that female entrepreneurs havea significantly more internal locus of control thando females in the general population while Bonnetand Furnham (1991) used a three dimensional(Internal, External and Chance) economic locus ofcontrol scale developed by Banks (1989) andfound a significant difference between the locusof control of a group of student entrepreneurs anda control group.

Levin and Leginsky (1990) used Levenson’s(1974) IPC scale and found that entrepreneurialsocial workers tended to exhibit a greater internallocus of control.

Rupke used both Rotter ’s I-E scale andLevenson’s IPC scale and found entrepreneurs todisplay significantly higher levels of internallocus of control than the non-entrepreneurs withboth measures.

Somewhere every study confirmed Lefcourtand Phares (1976) study that suggested thatinternal individuals are prone to entrepreneur

Amar Kumar Mishra


Table 1. Gender-Wise

Gender Respondents %

Female 140 40Male 210 60

Table 2. KMO and Bartlett’s Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .618Bartlett’s Test of Sphericity Approx. Chi-Square 3753.298

df 780Sig. .000

success than externals as internal persons appearto take more initiative and are responsible inperformance situation. They seek and utilizeinformation more efficiently and seem to be morein touch with external realities. They furtherconcluded that externals are less likely to persistat a task since they do not feel that exertion ofenergy is likely to lead to meaningful results. Theyhave the belief that external determinants, such asfate, luck and powerful others are at work in anysituation requiring a need for attainment of goals.

OBJECTIVES

Based on the review of literature; followingobjectives have been set forth for the proposedstudy:

• To identify and measure the variousdimensions of Entrepreneurial Orientation(EO) among youths.

• To study the relationship of variousdimensions of EO with locus of control.

• To study the impact of gender on variousdimensions of Entrepreneurial Orientation.

METHOD

Prfesent study employed the use of surveydesign. The independent variables are genderand personality (locus of control) and thedependent variable is perceived entrepreneurialorientation.

The participants in this study were threehundred fifty youths studying managementacross various colleges and universities in thestate of Uttarakhand, India. 60% were males and40% were females aged between 18 and 26.

RESEARCH INSTRUMENT

The scale for the study was divided into threesections. Section A measures the demographics;section B is a 23-item scale which measuresentrepreneurial orientation with reliability

coefficient of 0.79 on a ten point Likert typescoring format ranging from 1 to 10; section Cis 24-item Rotter’s scale which measures locusof control with reliability coefficient of 0.65. Bothscales were thus found to be reliable on theparameter of Nunally.

STATISTICAL ANALYSES

The various dimensions of EO were identifiedthrough Principal Component Analysis of factoranalysis; Hypotheses 2 and 3 were analyzedwith independent t-test; hypothesis 1 wasanalyzed with Spearman’s correlation.

DEMOGRAFIC RESULT

As the value of test statistic chi-square is3753.298, p<.05; the null hypothesis of identitymatrix is rejected implying variables in questionare correlated. Further KMO > 0.5 implies thatsample size is adequate.

Kaiser ’s rule of retaining factors witheigenvalues larger than 1.00 has been used inthis analysis. The eigen values for the first twofour components with eigen values of 7.28, 1.739,1.317 and 1.227 were retained. Thus most of thevariance (50.317%) of these variables wasaccounted for by these four dimensional factorsolutions.

In the Principal Components Output, theRotated Component Matrix gives the correlationof each variable with each factor. From thecontribution of the variables (also called a“loading”) we can name these factors (i) achieve-ment needs, (ii) urge for innovation, (iii) controlon self and (iv) self esteem.

Entrepreneurial Orientation and Locus of Control


esteem, and personal control and over allEntrepreneurial Orientation. Both male andfemale youths stand equal opportunity and equalpotential for becoming entrepreneur. Thedescriptive statistics, however suggest that so faras innovativeness is concerned, female havemore variance than their male counterparts. Thisindicates that the majority of female need to bemore innovative.”

GENDER & LOCUS OF CONTROL

“An independent-samples t-test wasconducted to compare LOC score for male andfemale respondents. There was no significantdifference in the scores for male (M=, SD=) andfemale (M=, SD=); t (348)=–1.154, p=0. 064.

The result thus suggests that gender does nothave any significant impact on youth’s Locus of

GENDER & ENTREPRENEURIALORIENTATION

“An independent-samples t-test wasconducted to compare Entrepreneurial Orienta-tion score for male and female respondents.There was no significant difference in the scoresfor male (M=166.75, SD=14.36) and female(M=163.48, SD=14.68); t (348)=2.264, p=0.291.

Further the independent-samples t-test wasconducted to compare every dimension ofEntrepreneurial Orientation score for male andfemale respondents. There was no significantdifference in the scores on any dimension formale and female as given in Table 1.

The results accordingly suggest that genderreally does not have a significant effect onachievement motive, innovative urges, self-

VARIANCE EXPLAINED

Table 3.

Component Initial Eigenvalues Extraction Sums of Rotation Sums ofSquared Loadings Squared Loadings

Total % of Cumula- Total % of Cumula- Total % of Cumula-Variance tive % Variance tive % Variance tive %

1 7.28 31.652 31.652 7.29 31.696 31.696 3.73 16.219 16.2192 1.73 7.561 39.213 1.73 7.561 39.256 3.34 14.523 30.7423 1.31 5.726 44.939 1.31 5.726 44.981 2.55 11.099 41.8424 1.22 5.335 50.274 1.22 5.335 50.317 1.94 8.475 50.3175 0.98 4.296 54.570 6 0.89 3.891 58.461 7 0.80 3.500 61.961 8 0.78 3.404 65.365 9 0.75 3.265 68.630 10 0.71 3.117 71.748 11 0.68 2.974 74.722 12 0.67 2.913 77.635 13 0.61 2.661 80.296 14 0.57 2.513 82.809 15 0.54 2.387 85.196 16 0.52 2.274 87.470 17 0.50 2.209 89.678 18 0.45 1.983 91.661 19 0.42 1.843 93.504 20 0.40 1.774 95.278 21 0.37 1.648 96.926 22 0.36 1.583 98.509 23 0.34 1.493 100.002

Amar Kumar Mishra


Table 4. Component Matrix

Component

1 2 3 4

VAR18 0.701VAR07 0.685VAR16 0.679VAR13 0.573VAR12 0.669VAR21 0.658VAR14 0.656VAR11 0.652 –0.4VAR17 0.643VAR04 0.634VAR03 –0.529VAR15 0.583VAR01 0.585VAR05 0.556VAR08 0.549 0.401 –0.417VAR10 0.437VAR20 0.436 –0.404VAR19 –0.427

Table 5. Group Statistics

Gender N Mean Std. Std.Devia- Error

tion Mean

ACH M 210 57.10 6.585 1.472F 140 54.14 5.379 1.174

INN M 210 50.85 5.537 1.238F 140 49.05 8.084 1.764

SE M 210 22.95 3.927 0.878F 140 20.10 3.254 0.710

PC M 210 35.85 6.268 1.402F 140 33.19 4.434 0.968

EO M 210 166.75 14.360 3.211F 140 163.48 14.682 3.204

V1 1 0.435V2 1 0.414V3 1 0.53V4 1 0.469V5 1 0.343V6 1 0.654V7 1 0.545V8 1 0.739V9 1 0.484V10 1 0.335V11 1 0.69V12 1 0.513V13 1 0.536V14 1 0.488V15 1 0.378V16 1 0.487V17 1 0.683V18 1 0.597V19 1 0.343V20 1 0.484V21 1 0.55V22 1 0.464V23 1 0.412

INITIAL EXTRACTION

Communalities VAR09 0.627VAR02 0.548VAR22 0.465VAR06 562 0.571 0.507VAR23

Rotated Component MatrixVAR18 0.8VAR07 0.684VAR16 0.647VAR13 0.638VAR12 0.579VAR21 0.55VAR14 0.459VAR11 0.677VAR17 0.661VAR04 –0.567VAR03 0.523VAR15 0.516VAR01 0.514VAR05 0.496VAR08 0.429VAR10 0.833VAR20 0.747VAR19 0.747VAR09 0.548VAR02 0.545VAR22 0.586VAR06 0.543VAR23 0.427



Table 8. Independent Samples Test

Levene’s Test t-test for Equality of Meansfor Equalityof Variances

F Sig. t df Sig. Mean Std. Error 95% Confidence(2-tailed) Difference Difference Interval of the

Difference

Lower Upper

locEqualvariancesassumed 3.669 .058 -1.87 238 .064 -1.154 .616 -2.377 .069

Control personality dimension.

LOCUS OF CONTROL ANDENTREPRENEURIAL ORIENTATION

“Spearman’s correlation coefficient was alsocomputed to assess the relationship betweenLOC and various dimensions of entrepreneur-ship. There was a negative correlation betweenthe two variables, ñ=–0.349, n=350, p=0.006. LOCwere inversely correlated with EO score and the

degree was significant i.e. overall, there was asignificant negative correlation between LOCand EO score.”

Further the rho-score was calculated betweenLOC and each dimension of Entrepreneurialorientation and all coefficients were found to benegative. While there is not much significantrelationship between locus of control and self-esteem, nevertheless it is significant withachievement motive, urge for innovation andpersonal control.

Table 6. Independent Samples Test

Levene’s Test t-test for Equality of Meansfor Equalityof Variances

F Sig. t df Sig. Mean Std. Error 95% Confidence(2-tailed) Difference Difference Interval of the

Difference

Lower Upper

ACH 0.446 .508 1.578 348 .123 2.957 1.874 –0.832 6.747INN 1.970 .168 0.829 348 .412 1.802 2.175 –2.596 6.201SE 1.268 .267 2.540 348 .152 2.855 1.124 0.581 5.128PC 1.869 .179 1.575 348 .123 2.660 1.689 –0.757 6.076EO 0.008 .929 2.264 348 .291 10.274 4.538 1.094 19.454

Table 7.

N Mean S.D.

Internal 131 7.83 2.91Male External 79 12.9 1.22

Total 240 9.73 3.45Internal 92 9.48 1.36

Female External 48 13.5 1.65Total 140 10.85 2.41

Amar Kumar Mishra


Table 9.

LOC EO ACH INN SE

EO –0.349ACH –0.357 0.862INN –0.255 842 0.525SE –0.061 728 0.453 0.632PC –0.414 0.785 0.577 0.659 0.437

Thus it can be inferred that as one’s locusbecome more externally oriented; the achieve-ment motive, innovative urge and control on selftend to decline.

CONCLUSION

The study shows that a significant difference existbetween internal and external locus of control andentrepreneurial orientation and confirms theresults of earlier studies that entrepreneurs aremore likely to be characterized by locus of controlinternality than non entrepreneurs (Inegbenebor,2007). It also shows growing emergence of womenentrepreneurs in the society. Entrepreneurship inNorthern India had for long a bastion of male. Theresult that male and female did not differ inentrepreneurial orientation confirms thepreponderance of females’ aspirations in self-employment activities especially in the growinginformal sector of the Indian economy and heraldof a new era where women entrepreneur havingwings of fire will lead to more equality, equity andempowerment in the society.

Thus it can be concluded that the greatestdeterminant of a business’s success is theentrepreneur herself. People who have thewillingness to start up and run businesses shouldponder in germane way about their strengthsand weaknesses not only on one or twodimensions but on all dimensions to emergesuccessful.

REFERENCES

Ahmed, S.U., “Risk-taking, locus of control andentrepreneurship’’. Personality andIndividual differences, 6, 781-782, 1985.

T.M. Begley and D.P. Boyd, “Psychologicalcharacteristics associated with performance

in entrepreneurial firms and smallerbusinesses”, Journal of Business Venturing, 2,79-93, 1987.

C. Bonnet and A. Furnham. Who wants to bean entrepreneur? A study of adolescentsinterested in a Young Enterprise scheme.Journal of Economic Psychology, 12, 465-478, 1991.

R.H. Brockhaus, The psychology of theentrepreneur. In C.A. Kent, D.L. Sexton andK.H. Vesper (Eds.), Encyclopedia of Entrepre-neurship, Englewood Cliffs, NJ: Prentice Hall,39-56, 1982.

M. Caliendo, F. Fossen and A.S. Kritikos,Personality Characteristics and the Decisionto Become and Stay Self-Employed, IZADiscussion Paper No. 5566, 2011.

P. Drucker, “Innovation and entrepreneur-ship”New York NY: Harger and Row, Publishers,1987.

R.W. Fairlie, A. Robb. Gender Differences inBusiness Performance: Evidence from theCharacteristics of Business Owners Survey.Small Business Economics 33(4), 375-395, 2009.

W.B. Gartner, A conceptual framework fordescribing the phenomenon of new venturecreation. Academy of Management Review, 10,696-706, 1985.

R.D. Hisrich, and M.P. Peters, Entrepre-neurship.Boston: McGraw-Hill, , 2002.

J.A. Hornaday and J. Aboud, “Characteristics ofsuccessful entrepreneurs.” PersonnelPsychology, 24: 141-153, 1971.

A.U. Inegbenebor, Pharmacists as Entrepre-neursor Employees: The Role of Locus of Control.Tropical Journal of Pharmaceutical Research,6(3): 747-754, 2007.

G. Nelson, Locus of control for successful femalesmall business proprietors. The Mid-AtlanticJournal of Business, 27, 213-224, 1991.

O.C. Nwachuckwu. CEO locus of control,strategic planning, differentiation, and smallbusiness performance: A test of path analyticmodel. Journal of Applied Business Research, 11:9-14, 1995.



R.H. Rupke, Entrepreneurial potential andassessments. Personality and Social PsychologyBulletin, 6, 57-62, 1980.

A. Shapero, The displaced, uncomfortableentrepreneur. Psychology Today, 83-88, 1975.

K.G. Shaver & L.R. Scott, Person, process, choice:The psychology of new venture creation.Entrepreneurship Theory and Practice, 23-45,1991.

P.L. Wolleat, “Sex Differences in High SchoolStudent causal attributions and performancein Mathematics”. Journal of MathematicsEducation, 11, 356-366, 1980.

H. Zhao and S.E. Seibert, The Big-FivePersonality Dimensions and EntrepreneurialStatus: A Meta-Analysis Review, Journal ofApplied Psychology, 91, 259-271, 2006.

Amar Kumar Mishra


Examining Factors of Customer Experience andtheir Mediating Role in Retail Banking Sector:

An Empirical Study

Meenakshi Chandok and N.L. Gupta*

Abstract

This study was conducted within the evolving retail banking industry and investigatedcustomer experience as a possible strategic differentiator in this industry. The paperidentifies the critical success factors of Customer Experience which have been identifiedfrom the literature survey and through expert’s opinion and to find their priorities forsuccess in banking organizations. This, in turn, would help in the enhancement of therelationship between the retail banks and their customers, and thus aid the decisionmakers of the banks to identify the major factors that determine the satisfaction of theircustomers. Data from 400 survey respondents(100 each from four banks two public andtwo private sector banks) were collected from bank branches of Garhwal region ofUttarakhand. The findings suggest that the managers in banking organizations mustameliorate these critical factors according to their weights, in order to attain favourableCustomer Experience, sustainable Customer Satisfaction and Customer delight.

Keywords: Retail banking, customer experience, customer satisfaction, customermotivation, public sector banks, private sector banks, etc.

* Uttaranchal University, Dehradun, Uttarakhand, India

INTRODUCTION

The banking industry, as is the case withother financial services industries, is facinga rapidly changing market, new techno-

logies, economic uncertainties, fierce competition,and more demanding customers; and thechanging environment has presented anunprecedented set of challenges. In India too, thecross border flows and entry of new players andproducts have forced banks to adjust theproduct-mix and undertake rapid changes intheir processes and operations to remain

competitive. Over the years, Indian banks haveexpanded to cover large geographic andfunctional area to meet the developmental needsof their customers. They have been managing aworld of information about customers—theirprofiles, location, etc. They have a close relation-ship with their customers and a good knowledgeof their needs, requirements and cash positions.What our banks, especially those in the publicsector, lack is the marketing attitude. What isneeded is the effort on their part to improve theirservice image and exploit their large customer


information base effectively to communicateproduct and/or service availability.

The banking organizations have to rigorouslywork on the ‘touch points’ of the customers(Berry and Carbonc. 2007). These ‘touch points’are, the experiences of the customers which arcgenerated when any type of interaction occursbetween the customer and the organization(Gentile et al., 2007: Ravizza, 1977). According toShaw (2005), “The customer experience is acombination of everything you do. or fail to dofor that matter, that underpins any interactionwith a customer or potential customer”.

RETAIL BANKING AND CUSTOMEREXPERIENCE

The first and the foremost challenge for retailbanking business is customer retention, toincrease the profitability and market share, bankshave to pay proper attention in retain theircustomers. In case of consumer < comprisingcredit cards and personal loans, the risk weighthas increased from 100 percent to 125 percent.Third challenge which arises in front of retailbanks is their high dependency on InformationTechnology (IT) departments

As mentioned above, the first and theforemost challenge the Indian retail bankingsector is facing is, the retention of the customer.According to Gerpott el al., (2001). “the pheno-menon of customer retention encompasses adegree of fuzziness’ since it represents atheoretical construct which cannot be observeddirectly”. It is linked with customer satisfactionand customer loyalty (Homburg and Bruhn.1998). where customer loyalty is determined bycustomer satisfaction and acts as a determinantof customer retention (Gerpott ei al., 2001).Though each of these three constructs i.e.customer satisfaction, customer loyalty andcustomer retention is affected by variety of otherfactors, but in the existing body of literaturecustomer experience has shown a significanteffect on customer satisfaction and loyalty asdepicted in Table 2. According to Meyer andSchwager. (2007), customer satisfaction is theresultant of the good minus the bad experiencesthe customer avails from any organization.

OBJECTIVES OF THE STUDY ANDRESEARCH METHODOLOGY

Banking system is the backbone of economy. Theworking of customer’s mind is a mystery whichis difficult to solve and understanding customerexperience is a challenging task. It is seen thatcustomer experience with the product or servicesleads to his satisfaction or dissatisfaction. Withthis in mind, Present Research work has beentaken up with the objectives to identify theattributes of customer experience & customersatisfaction of retail banking services and analyzethe impact of customer experiences on customersatisfaction derived from retail bank services. Itwas hypothesized that there is no significantrelationship between Customer Experience andCustomer satisfaction.

To achieve the above state objectives, bothExploratory and Descriptive type of research hasbeen carried out. Two banks of public sector andtwo from private sector namely, SBI, PNB, HDFCand ICICI were chosen for the proposed study.A well designed questionnaire was administeredamongst the customers of these banks located inGarhwal region of Uttarakhand. Of all the fourbanks under sample and data obtained wasprocessed and analyzed with the help of analytical& statistical tools, besides, the secondaryinformation was collected from most reliablesources which include—Economics survey, RBIBulletin, IBA Bulletin, www.rbi.org.in.

To measure the customer experience andtheir satisfaction, primary data of 400 respon-dents (100 from each bank) from convenientlyselected respondents of these four banks locatedin garhwal region has been taken.

DISCUSSION

Among others, the questionnaire included asegment on customers’ profile. This was donebecause an assortment of demographic and otherfactors were likely to influence the degree ofcustomer experience on the products andservices offered by the bank. Information ondemographic features is also useful informulating the bank’s marketing strategy. Thedemographic profile of the respondents ispresented in Table 1.

Meenakshi Chandok* and N.L. Gupta


Table. 1. Demographic profile of the respondents

Description Frequency Percent(400) (100)

Gender Male 256 64Female 144 36

Marital status Married 235 58.75Unmarried 165 41.25

Age wise classification Less than 20 16 421-35 170 4336-50 131 3351-65 46 12Above 65 37 9

Educational Qualification High school & below 3 1Diploma 23 6Bachelor Degree 119 30Master Degree 202 51Professional Degree 53 13

Income Less than 10,000 27 6.810,001-30,000 103 25.830,001-50,000 134 33.550,001 & above 90 22.5None 46 11.5

Demographic characteristics of the respon-dents presented in the above ttable indicates thatin the sample 64% were males and 36% females ,59% were married and 41% were unmarried.Furthermore, sample is the representation ofqualified respondents as out of the total respon-dents only 1% are high school and below, 6% areonly diploma holders, 30% are graduates and maxthat is 51% out of total respondents are postgraduates and 13% have a professional degree aswell which implies that there is high literacy levelamong the respondents. With regard to employ-ment status 6.8% have a monthly income less than10,000, 25.8% have income between 10,000-30,000,majority that is 33.5% earn monthly between30,000-50,000 , 22.5% of them have income above50,000 while 11.5% 0f the respondents do not earn(may be students or retired persons).

Referring to the Table 2, Factor 1 havingvariance 32.8295% represents the elements of theconvenient services provided by the bank and istherefore labeled as ‘CONVENIENCE’. Theseelements are the convenient location of banks,convenient operating hours, ATMs at convenientlocations, the clear statements sent and properinformation provided by banks. Factor 2 with a

variance of 5.24475% has all the statementsrelated to the physical appearance of bank asperceived by the customers and therefore hasbeen termed as ‘SERVISCAPE’, an abbreviatedterm for bank personality. The elements were thecleanliness, exterior appearance ,physical layout, ambient conditions, and advertisement visuals,its clear cut objective is to attract its customersand build a brand (image) of the bank. Thestatements that load into factor 3, havingvariance 4.60481% all were concerned with theattitude and behavior of the bank employees andthus was abbreviated as ‘EMPLOYEE WILLING-NESS’. The elements were the friendliness ofemployees, error free services provided,employees prompt services, willingness to solveproblems, empathy and helpullness. Factor 4having variance 4.30061% consisted of the onlinefunctions provided by banks and has been namedas ‘ONLINE FUNCTIONAL ELEMENTS’. Theelements factored were, the ease of login/logout,quick downloading of pages, functioning of webpages and updated websites. Factor 5 havingvariance equal to 3.96543% was a summation ofthe elements that are related to attitude ofcustomers with other customers present in thebank and was termed ‘PRESENCE OF OTHER

Examining Factors of Customer Experience and their Mediating Role


Table 2. Results of the Factor Analysis

Results of Factor Analysis of 50 items of Customer Experience and its 12 Dimensions

Factors and items Eigen Factor % of CumulativeValue loadings Variance %

Conveniance 16.4148 32.8295 32.8295The location of the bank is at convenient place 0.682 The operating hours of bank are convenient & sufficient 0.573The atm of bank is at convenient locations 0.546 The statements and letters sent by bank are clear 0.461 The bank provides you proper information 0.438

Serviscape 2.62237 12.2447 45.0742The cleanliness of bank is excellent 0.592 The exterieror apperance of bank is visiually appealing 0.629 The physical layout of equipments and furnishing are 0.512

comfortableThe ambient conditions as temp,ventilation, noise and 0.602

adour of bank are goodThe singns, symbols, advertisments, board, pamplets 0.625

and other artifacts are properly placed

Employee Willingness 2.30241 8.60481 53.67901The employeesof bank are social and friendly 0.625The employeesof bank are capable enough to deliver you 0.595

error free servicesThe employeesof bank delivers prompt services 0.483The employeesof bank are willing to solve problem of 0.611

customersThe employeesof bank always help out customers 0.542

CUSTOMERS. The elements were irritation onpresence of other customers, a feeling of socialsurrounding, number of customers in buildingreputation, recommendations made by othercustomers. Factor 6 with a variance of 3.82595%consisted hedonic elements of website and wastermed as “ONLINE HEDONIC ELEMENTS”comprising design of website, informationarchitecture of website and understandablelanguage of website. Factor 7 having variance3.48885% was related to customized retail servicesand so abbreviated as “CUSTOMISATION”. Theelements were range of services to meet specificrequirements, capability to alter services ascustomer needs and financial help by bank attime of emergencies. Factor 8 with a variance of3.00713% was related to the core retail servicesprovided and hence labeled as “CORESERVICE”consisting capability of banks to handlecomplaints, transactions proper and confidential,employees personal attention, all types of

services provided by banks. Factor 9 havingvariance 2.74589% consisted of elements of valueadded services provided by retail banks, addedvaluable services, useful innovative servicesprovided. Factor 10 with a variance equal to2.58499% was related to timely and speedyattention hence labeled as “SPEED” containedelements waiting period in ques, promptresponse to queries , promises made on time.Factor 11 variance equal to 2.58499% was relatedto promotional efforts made by bank so termedas “PROMOTION” having elements effectivepromotion of products/services, attractivepromotional schemes, competitive prices .Factor12 with a variance 2.26664% comprised ofelements related to security of online servicesand termed as “ONLINE AESTHETICS”. Theelements being web pages do not freezeinformation, feeling of security while transactingonline and willingly use of self banking services.



Online functional Elements 2.15031 5.30061 58.97962You can easily login/logout of bank website 0.557 The links are problem free, accurate and pages download 0.576

quicklyThe functioning of webpages is proper 0.546 The website of bank posseses up to date and error free 0.466

information

Presence of Other Customers 1.98271 4.96543 63.94505The presence of other customers in the bank irritates you 0.569The presence of other customers in the bank gives you 0.621

social surroundingThe number of customers affects the reputation of bank in 0.602

your mindThe recommendation made by other customers affects you 0.498

Online Hedonic Elements 1.91298 3.82595 67.7712The presentation quality of bank website is high 0.521The design elements of bank website are innovative 0.634The information architecture of banks website is clear 0.657The language of banks website is easily understandable 0.642

Customisation 1.74443 3.48885 71.25985The bank offfers a range of credit facilities that meets 0.651

your specific requirementsThe bank is capable to alter its products/services to meet 0.625

your needsThe bank helps you at the time of financial emergencies 0.63

Core service 1.50356 3.00713 74.26698The bank is capable to handle complaints 0.658The transactions of account are proper and confidential 0.585The employess of bank gives you personlised attention 0.578The bank provides all types of services 0.636

Value addition 1.37294 2.74589 77.01287The bank offers some type of gift as incentives 0.528The additional services provided by the bank are 0.514

valuable for youYour bank provides useful innovative services 0.656

Speed 1.2925 2.58499 79.59786You do’nt have to stand in ques for long time 0.553Bank gives prompt responses for your querries 0.645Bank delivers its promises on time 0.689

Promotion 1.21797 2.43593 82.03379The bank promotes its products/services effectively 0.652The promotions of the bank are attractive 0.573The bank offers its prouduct/services at competitive prices 0.548

Online aesthetics 1.13332 2.26664 84.30043The web pages of the bank donot freeze any information 0.623

given by youThe feel secure while transacting through banks website 0.566You try to avail self banking services offered by bank 0.536

willingly

Factors and items Eigen Factor % of CumulativeValue loadings Variance %

Examining Factors of Customer Experience and their Mediating Role


CONCLUSION

The findings of the research provide the practicalinferences of the identified customer experiencefactors, which may be supportive in formulatingthe strategies essential for the growth of Indianbanking sector. In the long run, these strategiescould help the banking organizations to attaincompetitive advantage through customer loyalty,customer retention and positive word of mouth.It is anticipated that the present research workwould be very fruitful for the academicians,practitioners, decision makers, managers andfuture researchers of this arena.

REFERENCES

Alda´s-Manzano, J., Lassala-Navarre, C., Ruiz-Mafe, C. and Sanz-Blas, S., “The role ofconsumer innovativeness and perceived riskin online banking usage”, International Journalof Bank Marketing, Vol. 27 No. 1, pp. 53-75,2009.

Al-Eisa, A.S. and Alhemoud, A.M., “Using amultiple-attribute approach for measuringcustomer satisfaction with retail bankingservices in Kuwait”, International Journal ofBank Marketing, Vol. 27, No. 4, pp. 294-314,2009.

Berry, L.L., Carbone, L.P. and Haeckel, S.H.,“Managing the Total Customer Experience”,MIT Sloan Management Review, Vol. 43, No. 3,pp. 85-89, 2002.

Brakus, J.J., Schmitt, B.H. and Zarantonello, L.,“Brand Experience: What Is It? How Is ItMeasured? Does It Affect Loyalty?” Journalof Marketing, Vol. 73, pp. 52-68, 2009.

Brauer, H., “Financial Services CustomerLoyalty”, Finance Week, Vol. 49, 2005.

Bridges, E. and Florsheim, R., “Hedonic andutilitarian shopping goals: The online

experience”, Journal of Business Research,Vol. 61, pp. 309–314, 2008.

Gentile, C., Spiller, N. and, Noci, G., “How toSustain the Customer Experience: AnOverview of Experience Components thatCo-create Value With the Customer”,European Management Journal, Vol. 25, No. 5,pp. 395–410, 2007.

Hsieh et al., “How to diminish the investmentsystematic risk?”, African, 2008.

Khan & Mahapatra, “Service quality evaluationin internet banking: an empirical study inIndia”, International Journal of Indian Cultureand Business Management, Vol. 2,No. 1, 2009.

Meyer, C. and Schwager, A., “Understandingcustomer experience”, Harvard BusinessReview, Vol. 85, No. 2, pp. 116-126, 2007.

Nagasawa, S., “Customer experiencemanagement: Influencing on human Kanseito management of technology”, The TQMJournal, Vol. 20, No. 4, pp. 312-323, 2008.

Shaw, C. & Ivens, J. Building Great CustomerExperiences. New York: Macmillan, 2005.

Srivastava & Thakur, “Performance Appraisal inPublic Sector Banks, A Case of the State Bankof India”, Mangalmay Journal of Management &Technology, Vol. 1, No. 1, 2006.

Verhoef, P.C., Lemon, K.N., Parasuraman, A.,Roggeveen, A., Tsiros, M., Schlesinger, L.A.,“Customer Experience Creation: Determinants,Dynamics and Management Strategies”,Journal of Retailing, Vol. 85, No. 1 pp. 31-41,2009.

Walter, U., Edvardsson, B. and Ostrom, A.,“Drivers of customers’ service experiences:a study in the restaurant industry”,Managing Service Quality, Vol. 20, No. 3, pp.236-258, 2010.



Indian Government Financial Reporting Standards(IGFRS): A Case Study of Selected Municipal

Corporations from Various States of India

Archana Singh1 and G. Soral2

Abstract

The CAG of India has constituted the GASAB (Government Accounting StandardsAdvisory Board) will be issued as ‘Indian Government Financial Reporting Standards(IGFRS)’. Five IGFRSs have been given by the board on following topics like: IGFRS1Framework for Financial Reporting under accrual basis accounting, IGFRS2 Property,Plant & Equipment, IGFRS3 Revenue for Exchange Transactions, IGFRS4 Inventoriesand IGFRS5 Provisions, Contingent Liabilities and Contingent Assets. Whencomparison has been done between given IGFRSs with relevant IFRSs, it is found thatIGFRSs are mostly based on the IFRSs. However very few IGFRSs have come out ascompare to the available IFRSs. This paper has also covered the success case study ofseven states Municipal Corporations those are using accrual based accounting system,ex: Tamil Nadu, Maharashtra, Gujarat, Andhra Pradesh, Delhi, Kolkata and Karnataka.Among all seven states Tamil Nadu’s accounting reform is one of the best example ofthe reforms underway in India’s urban sector. Municipal Corporation of Delhi (MCD)is using tally software and Bangalore Mahanagar Palika is using fund based accountingsystem. It is suggested that accrual based accounting has so many benefits in comparisonto cash basis accounting so government sector must follow this.

1 Aishwarya College of Education Sansthan, University Road, Udaipur, Rajasthan, India2 Accountancy and Statistics Department, UCCMS, MLSU, Udaipur, Rajasthan, India

INTRODUCTION

Gone are the days when the function ofaccounting was limited to record keeping.In today’s environment accounting, apart

from being a statutory requirement is alsoexpected to provide the government and otherusers of government’s financial statements withrelevant, reliable and timely information that willassist them in the decision-making process.

Presence of an efficient and transparent

financial reporting system has become extremelyimportant for the governments specially in viewof increasing awareness for use of public fundsby governments.

EVOLUTION OF GOVERNMENTACCOUNTING REFORMS

Significant changes in public sector accountingand financial reporting systems around theworld and their increasing convergence to an


accrual basis for accounting over the last twodecades. Countries across the world startedmoving towards the IFRS. Alongside the need forglobally applicable government accountingstandards has taken centre stage.

CASH-BASIS ACCOUNTING SYSTEMVS ACCRUAL-BASIS

Accounting System with Reference toGovernment

Due to ease of compilation of information, cash-basis of accounting was used by governmentsacross the world. Some benefits of cash-basis ofaccounting are:

(i) Government budgets and appropriationsare cash based. Monitoring of receipts andspending are easier.

(ii) Cash based financial reports are budgetcompliant.

(iii) Principles underlying the cash basis are easyto understand and easy to explain.

(iv) Operating costs are lower.(v) No need to exercise any judgment in

determining the amount of cash flows forthe period.

LIMITATIONS OF CASH-BASISACCOUNTING SYSTEM

There are so many limitations of cash-basisaccounting system. Some are given below:

(i) Information on assets and liabilities isnot available.

(ii) Impact of consumption of stock of netassets held by government is not known.

(iii) Cash accounting focuses solely on thecash flows of the current period.

(iv) There is no system of reporting ofcontingent liabilities which may havesignificant impact on future revenues.

(v) Matching of costs and benefits is notpossible.

MAJOR BENEFITS OF ADOPTION OFACCRUAL-BASED ACCOUNTINGSYSTEM ARE SUMMARISED AS UNDER

(i) The quality of government financialreporting can be improved manifold.

(ii) Comparable financial information isavailable.

(iii) Harmonization of financial reportingwithin the government entities.

(iv) Performance evaluations become easier.(v) Efficient and standardize financial

reporting system into better decision-making.

(vi) Reliability of financial informationincreases.

(vii) Information on assets and liabilities arereadily available.

(viii) Matching costs are recorded againstthe revenues.

CONVERGENCE OF ACCOUNTINGSTANDARDS

In India Central and State governments arecurrently using cash-basis of accounting butthere are plans to introduce accrual-basedaccounting system in Central and State govern-ment soon. Four State governments includingTamil Nadu, Maharashtra, U.P. and Karnatakaare using accrual-based accounting system.

The Honorable Supreme Court of India, in2001, opined that the urban local bodies shouldadopt immediate measures to convert theiraccounts from cash to accrual basis. The accountsof MCD are being maintained on accrual-basedaccounting since 2003.

PHASED-PROGRAM OFINTRODUCTION OF ACCRUAL-BASEDACCOUNTING SYSTEM

Conversion of cash accounting system in all tiersof government in one-go is gigantic task. There-fore this task requires phase-wise completion. Inthe first phase, an action plan should be preparedfor introduction of accrual-based accountingsystem in the public sector entities and localbodies, the work can then be started at the levelof provinces/states and finally the accrual-basedaccouning be introduced at the Federal/Centralgovernment.

EXPERIENCES OF INDIA WITH IPSAS

Countries across the world started movingtowards the IFRS. Alongside the need for

Archana Singh and G. Soral


globally applicable government accountingstandards has taken centre stage. The CAG ofIndia has constituted the GASAB(GovernmentAccounting Standards Advisory Board) will beissued as ‘Indian Government FinancialReporting Standards (IGFRS)’ and on notificationby Government of India will be applicable toCentre as well as State governments in thepreparation of accounts under accrual basisaccounting.

The board has decided to develop standardson accrual basis on the following topics:

(i) IGFRS 1: Framework for financialreporting under accrual basis accounting.

(ii) IGFRS 2: Property, Plant and Equipment.

(iii) IGFRS 3: Revenue from exchangetransactions.

(iv) IGFRS 4: Inventories

(v) IGFRS 5: Provisions, Contingent liabilitiesand Contingent assets.

GASAB has two fold mission improvements inthe existing cash basis accounting system, andfacilitating an eventual migration to accrual basisaccounting. GASAB develops accounting standardsunder cash basis known as Indian GovernmentAccounting Standards (IGAS) for the existingaccounting system and standards for accrual basisunder the nomenclature of Indian GovernmentFinancial Reporting Standards (IGFRS).

(i) IGFRS 1

IGFRS 1 on presentation of Financial statementssets overall requirements for the presentation offinancial statements, guidelines for their structureand minimum requirements for their contentsprepared under accrual basis accounting to befollowed in government sectors.

Objective: The objective of this standard is toprescribe the manner in which general purposefinancial statements should be presented toensure comparability both the entity’s financialstatements of previous periods and with thefinancial statements of other entities.

Scope: This standard shall be applied to all generalpurpose financial statements prepared and

presented under the accrual basis of accounting inaccordance with IGFRSs. The standard shouldapplied to all reporting entities in preparing thefinancial statements of the government.

General purpose financial statements arethose intended to meet the needs of users. Usersof general purpose general purpose financialstatements include various stakeholders,government and their agencies and the public.These statements include those that arepresented separately or within another publicdocument such as an annual report.

This standard should apply to all reportingentities in preparing the financial statements ofthe government.

Consistency of Presentation: The presentationand classification of items in the financialstatements shall be retained one period to thenext unless:

(a) It is apparent, following a significant changein the nature of the entity’s operations or areview of its financial statements, thatanother presentation or classification wouldbe more appropriate having regard to thecriteria for the selection and application ofaccounting policies in IGFRS6; or

(b) An IGFRS requires a change in presentation.An entity changes the presentation of itsfinancial statements only if the changedpresentation provides information that isreliable and is more relevant to users of thefinancial statements and the revised structureis likely to continue, so that comparability isnot impaired.

Reporting Period: Financial statements shallbe presented at least annually. When an entity’sreporting date changes and the annual financialstatements are presented for a period longer orshorter than one year, an entity shall disclose, inaddition to the period covered by the financialstatements:

(a) The reason for using a longer or shorterperiod; and

(b) The fact that comparative accounts for certainstatements such as the statement of financialperformance, statement of changes in netassets/equity, cash flow statement andrelated are not entirely comparable.

Indian Government Financial Reporting Standards (IGFRS)


Presentation of true and fair view andcompliance with IGFRSs:

(a) True and fair presentation of financialstatements require the faithful representationof the effects of transactions, other events andconditions in accordance with the definitionsand recognition criteria for assets, liabilities,revenue, and expenses set out in IGFRSs.

(b) In virtually all circumstances, a presentationof true and fair view is achieved bycompliance with applicable IGFRSs.

(c) The financial statements shall be identifiedclearly, and distinguished. From otherinformation in the same published document.

(d) IGFRSs apply only to financial statements ,and not to other information presented in anannual report ar other documents.

(ii) IGFRS 2

The IGFRS 2 is an adaptation of InternationalPublic Sector

Accounting Standards (IPSAS) 17 dealingwith Property, Plant and Equipment aligned toIndian requirements.

Objective: The objective of the standard is toprescribe the accounting treatment for property,plant and Equipment so that users of financialstatements can obtain information regarding anentity’s investment in its property, plant andequipment and any changes in such investments.

The existing cash basis accounting ingovernment recognizes PPE in terms of capitalexpenditure in the final accounts. Assets areclassified based not on their nature but on thebasis of major heads. There is no concept ofdepreciation.

Scope: An entity which prepares and presentsfinancial statements under the accrual basis ofaccounting should apply this standard inaccounting for PPE, except when a differentaccounting treatment has been adopted inaccordance with another IGFRS . This standarddoes not apply to Government BusinessEnterprises (GBE) i.e., Public sector enterpriseslike Indian Oil Corporation, BHEL etc.

Measurement at recognition:

(a) An item of PPE which qualifies for recognitionas an asset should initially be measured at itscost.

(b) Where an asset is acquired through a non-exchange transaction, its cost shall bemeasured at its fair value as at the date ofacquisition.

(c) Where determination of cost or fair value ofsuch an asset is difficult due to first timerecognition under migration to accrualaccounting, at a nominal value of Rs. 1.

After recognition as an asset, an item of PPEshall be carried at its cost less any accumulateddepreciation and any accumulated impairmentlosses.

(iii) IGFRS 3

Revenue is one of the key constituents of thefinancial performance of an entity. Thegovernment receives revenue from exchange(rendering of goods & services) and nonexchange (taxes, transfers and fines) transactions.The IGFRS 3 on” Revenue from governmenttransaction” was initiated in July 2008. TheExposure Draft(ED) was circulated for invitationto comments from stakeholders with approval ofGASAB in November 2008. The ED used theterm approval of GASAB in ‘approximatelycomparable value’.

Objective: The primary issue in accounting forrevenue is determining when to recognizerevenue. Revenue is recognized only when it isprobable that future economic benefits or servicepotential will flow to the government entity andthese benefits can be measured reliably.

According to this standard revenue should beaccounted for only when it is earned and it hasbecome reasonably certain that the revenue willbe realized.

This standard is applicable to governmententities like Union states and Territories withlegislature and also their sub-entities where theseentities are treated as reporting entities for thepurpose of financial statements.

Scope: A government entity which prepares and



presents financial statements under accrual basisaccounting should apply this standard inaccounting for revenue arising from thefollowing exchange transactions and events:

(a) The rendering of services

(b) The sale of goods

(c) The use by others of entity assets yieldinginterest royalties, dividends and fees.

Measurement of Revenue: The amount of revenuearising on a transaction is usually determined bythe agreement between the government entity andthe purchaser or user of the goods, services orassets. It is measured at the value of theconsideration received or receivable taking intoaccount the amount of any trade discount andvolume rebates allowed by the government entity.

(iv) IGFRS 4

The purpose of this standard is to prescribe theaccounting treatment for inventories. A primaryissue in accounting for inventories is the amountof cost to be recognized as an asset and carriedforward until the related revenues are recognized.This standard provides guidance on the deter-mination of cost and its subsequent recognition asan expense.

Objective: The existing cash basis accountingsystem in government recognizes inventories interms of expenditure either charged off to acapital head or revenue head. The financeaccounts of government do not depict the stockat the end of the year as a distinct line item.

This standard aims at using accrual principlesof accounting for inventories, both at the stage ofcharging as expense and depicting the closingstock in the financial statements at the end of thereporting period.

Scope: An entity that prepares and presentsfinancial statements under the accrual basis ofaccounting shall apply this standard inaccounting for all inventories except:

(a) Work in progress arising under contracts,including directly related servicescontracts;

(b) Financial instruments;

(c) Biological assets (living animals or plants)related to agricultural activity and agri-cultural produce at the point of harvest;and

(d) Work in Progress of services to beprovided for no or nominal considerationdirectly in return from the recipients.

Inventories in the government may include:consumable stores, ammunition , maintenancematerials, share parts for plant and equipmentother than those dealt with in the standard onproperty; plant and equipment, stocks of unissuedcurrency, postal service supply held for sale (forexample stamps) ; land/property held for sale.

Measurement of Inventories: Inventoriesshall be measured at the lower of cost andcurrent replacement cost where they are held for:

(a) Distribution at no charge or for a nominalcharge; or

(b) Consumption in the production process ofgoods to be distributed at no charge or fora nominal charge.

(c) Consumption of single use inventory.

(v) IGFRS 5

The purpose of the IGFRS on contingentliabilities (other than guarantees) and contingentassets is to provide for disclosure requirementsof contingent liabilities (other than guarantees)and contingent assets of governments in thefinancial statements. Disclosure of contingentliability is relevant from the point of view ofknowing what risk of future liability thegovernment carries. Disclosure of contingentassets is relevant in knowing what possible assetsmay accrue to the government.

Objective: The objective of the IGFRS on thesubject is to lay down the principles for dis-closure requirements of contingent liabilities(other than guarantees) and contingent assets forboth the Union and State Governments includingunion territories with legislatures, in theirrespective financial statements in order to ensureuniform and appropriate disclosure of suchliabilities and assets. It also ensures consistencywith international best practices leading to



transparency and improved quality of disclosurein the financial reports of governments for thebenefit of various stakeholders.

An important objective of the IGFRS is toensure that governments portray the risksassociated with contingent liabilities andcontingent assets in a transparent manner.

Scope: The IGFRS shall apply to both the Unionand State Governments including Unionterritories and legislatures in preparation of theirfinancial reports. The standard also excludestreatment of off budget borrowings, for which aseparate statement may be developed, whenfound necessary.

IFRS: At present 27 IAS and 13 IFRS are existthere. Comparison between IGFRS V/S IFRS:There is a comparison between IFRS and IGFRSare given below:

a) IGFRS 1 V/S IAS 1: Framework forfinancial reporting under accrual basisaccounting:IGFRS talks about Budget realization butIAS not. Like this regarding frameworkfor financial reporting, IGFRS and IASboth are similar except some points likedisclosures, IAS focuses on dividends,capital disclosures etc.

b) IGFRS 2 V/S IAS 16: Property, Plant andEquipment:Regarding Property, Plant and Equipmentboth standards are almost the same.Except regarding some points like, IGFRStalks about the heritage assets . In case ofheritage assets and those entities, recentlyadopted accrual accounting ,nominalvalue of Rs.1 may be taken for financialstatements purposes.And IAS throws light on revaluationmethod but IGFRS is silent about this.

c) IGFRS 3 V/S IAS 18: Revenue fromExchange Transactions:There are no major differences in bothstandards regarding revenue except somepoints have been covered by IGFRS andsome by IAS. Like: IGFRS mentions thatrevenue includes only the gross inflows of

economic benefits or service potentialreceived or receivable by the governmententity on its own account. Amountscollected as agent of the government oranother government entity or on behalf ofthird parties , are excluded from revenue.And IAS describes about significant risk,that if the entity retains significant risk ofownership, the transaction is not a saleand revenue is not recognized.

d) IGFRS 4 V/S IAS 2: : InventoriesThere is a minor difference between bothtwo standards on regarding some pointslike, IGFRS mentions that for a serviceprovider, the point when inventories arerecognized as expenses normally occurswhen services are rendered, or uponbilling for chargeable services.Like this IAS has given techniques formeasurement of the cost of inventories,such as the standard cost method or theretail method, may be used for con-venience but IGFRS is silent about that.

e) IGFRS 5 V/S IAS 37: Provisions, Contingentliabilities and Contingent assets.Regarding Provisions, Contingent liabilitiesand Contingent assets IGFRS and IAS bothare similar except some points like IGFRSdescribes types of contingent liabilities likeexplicit, implicit, funded ,unfunded,quantifiable and unquantifiable liabilitiesbut IAS not. On the other hand IAS focuseson restructuring but IGFRS not.

On the basis of above comparison, this isevident that the IGFRSs are mostly based on theIFRSs. However very few IGFRSs have come outas compare to the available IFRSs. This indicatesthat standardization of Accounting Standards bythe Indian government is still in its infancy stage.Only a few points of accounting relevance havebeen picked up for standardization and suchselection of points does not have any apparentjustification. It is therefore suggested that acomprehensive set of Accounting Standardscovering most of the relevant aspects should beadopted and implementation for the sameshould be initiated.



CASE STUDY

In early 1990s, three states Gujarat, Karnatakaand Rajasthan made attempt to introduce doubleentry system they failed to get success. TheMunicipal reforms exercise in various cities ofIndia is a model which can be replicated by anyother municipal corporation of the countrycontemplating such reforms. This paper hascovered the success case study for the following:

(i) The Tamil Nadu Case Example

(ii) The Maharashtra Case Example

(iii) The Gujarat Case Example

(iv) The Andhra Pradesh Case Example

(v) The New Delhi Case Example

(vi) The Kolkata Case Example

(vii) The Karnataka Case Example

(i) The Tamil Nadu Case Example

In January, 1999, the state of Tamil Nadu approveda measure to begin with pilot testing of doubleentry accrual based accounting system in twomunicipal corporations and 10 municipalities.With the pilot project successfully in progress, thestate inaugurated this new system in its remainingthree municipal corporations and 92 munici-palities on April 1, 2000. Tamil Nadu is the firststate in India to initiate such extensive accountingreforms on a state wide scale. The State Govern-ment began the process by appointing acommittee chaired by a retired joint director of theLocal Fund Audit in January 1998. The committeesubmitted its first draft of an accounting systemmanual for all Urban Local Bodies (ULBs) in thestate in June 1998. The first part of the accountingmanual for ULBs in Tamil Nadu deals withaccounting procedures, the second part providesthe chart of accounts, and the third part presentsthe new forms and formats to be used in the newaccounting system. Every procedure, account andform was specifically designed for the state’sULBs.

Tamil Nadu’s accounting reforms is one ofthe best example of the reforms underway inIndia’s urban sector. The state contracted with afirm to develop accounting software for the ULBs

that will be introduced after it has been testedwith cities using the new system manually. TamilNadu introducing accounting and other reformsis exemplary. It has proved that if there isadministrative and political will, and appropriatemethodology is adopted, it is quite possible tobring about municipal reforms not only in oneor a handful of municipal bodies, but in all themunicipal bodies of the state.

Following factors were responsible for thesuccess of Tamil Nadu experiment:

a. Strong felt need for municipal accountingreform;

b. Unstinted political and administrativesupport;

c. State-wide unified accounting systemapproach;

d. Training and opinion building exercises;

e. Involvement of experienced localgovernment officers;

f. Engaging local consultants; and

g. Committed and motivated participationby municipal bodies.

(ii) The Maharashtra Case Example

The Government of Maharashtra (GoM) initiatedmunicipal accounting reforms during 2001 anddeveloped the accrual based municipal account-ing manuals for the ULBs. The Director ofMunicipal Administration (DMA), Governmentof Maharashtra is responsible for supervising the230 municipal councils in the state.

(a) Thane Municipal Corporations: TMC hadtaken the decision to adopt accrual basedaccounting system from the financial year 2004-05. Preparatory work was done by TMCpertaining computerization of data base programsalary, property taxes, Public Works Department(PWD) data and a program for tracking of assetsand work in progress.

Results Achieved: Some of the achievements ofthe accounting reforms are as follows:

(a) Using of data forms-collating, analyzingthe same, identifying gaps to take actions.



(b) Policy decision based on manuals,standards etc.

(c) Comparing available data with agreedpolicy implementation.

(d) Evolving unique-custom built solutionslike use of Tally software to minimize timeand cost.

(e) Depreciation methodology and impact.

(f) Drafting of accounting policy disclosureand framing of accounts.

(g) It ensures transparency and accountability.

(iii) The Gujarat Case Example

As in the case with the rest of the country, themunicipalities in Gujarat followed cash based,single entry accounting system. There was anunwieldy heterogeneity in every aspect accountcode, chart of accounts, classifications, formats etc.Further, there was no software, thus resulting inlack of uniformity. The state had not updatedmunicipal account codes for past thirty to fortyyears. Moreover, accounts were pending and notaudited over the years. The financial reportingsystem was inadequate ever for the internal users.

While many states were still attempting ‘Pilot’Projects, Gujarat courageously decided to go allout for all the municipalities in the state. Since theyear 2000, City Managers’ Association Gujarat(CMAG), a registered Trust and Societyestablished in 1997 by the office bearers of variousULBs of Gujarat has been conducting workshopsand seminars in order to spread awareness aboutthe double entry accrual based and computerizedaccounting system with hands-on learning.Theproject initially started with focus ofimplementation in 141 municipal bodies. In 2005,CMAG launched the Gujarat MunicipalAccounting Reform Project (GMARP). Due torestructuring of municipal bodies during 2006-07and 2007-08, thirteen municipalities were mergedwith Municipal Corporations of larger cities whilethirty new municipal bodies got added. Thus theGMARP program has been expanded to total 159municipalities of Gujarat state.

Some states municipal corporations are usingaccrual based accounting system.

(iv) The Andhra Pradesh Case Example

As a measure of finance and accounting reform,Municipal Corporation of Hyderabad (MCH) hasintroduced accrual based accounting system fromthe financial year 2002-03 using an e-application.The MCH has engaged a Chartered AccountantFirm to design and implement the software. Withthe assistance of the consultants, MCH hasdeveloped accounts manual including chart ofaccounts and system software. It has revisedchart of accounts from the year 2006-07 when itmoved to Oracle Financials ERP. It issophisticated software application program forcomputerizing double entry accounting system.

(v) The New Delhi Case Example

In May 1994, the NDMC (New Delhi MunicipalCorporation) Act 1994, replaced the PunjabMunicipal Act, 1911, and the committee wasrenamed as “New Delhi Municipal Council”. TheNDMC has shifted over to accrual based doubleentry system of accounting. It has madesignificant headway in developing a proper chartof accounts, collection of details of fixed assetsand liabilities and determination of openingbalance as on April 1, 2004. NDMC had signedagreements with a non-profit organization set upby Infosys, e-Government Foundation Bangalore,for computerization of its financial accounts. Thisproject was meant to implement the e-Government financial, a double entry fund basedfinancial accounting system in the council andprovide an efficient and transparent service topublic. Currently they are using Tally Software.

(vi) The Kolkata Case Example

Kolkata Municipal Corporation (KMC) is thelargest ULB in West Bengal. KMC is practicingdouble entry based accounting since 1978.However, the accounting was partially accrualand steps are being taking to make theaccounting fully accrual. KMC had beenpreparing its annual accounts since 1972 and thecurrent Act makes it mandatory to preparemonthly accounts adopts it by the Mayor-in-Council. The annual accounts are prepared andto be adopted by the Corporation. In fact the Actspecifies a fund based accounting system.However, it is pertinent to mention that during



the period 1990-91 to 2002-03 nobody took up theeffort to prepare the accounts. No annualaccounts for KMC were prepared for 12 yearsduring this pried, as was required under the Act.What is more alarming is that even though there

was a clear non compliance of KMC Act, whichwas brought to the attention of the variousauthorities, no corrective action was taken tillvery recently before external consultants wereappointed to update the accounts. Then KMC

AccountingAspect

Method ofAccounting

Computeri-sation Level

Frequencyof FinancialStatements

AnnualFinancialStatements

Maharashtra

Double entryaccrual basedaccountingsystem

Currentlymanual.Supported byan accountingmanualcontaining allthe details.To becomputerised

Annual andquarterly

Overallincome andexpenditureaccount, andbalance sheetprepared

Tamil Nadu


Computerisedaccounting.Supported byan accountingmanual andalso a usermanual

Annual

Separateincome andexpenditureaccount, andbalance sheetare preparedfor differenttypes of fundconsolidatedfinancialstatements notprepared

Hyderabad

Double entrymodifiedaccrual basedaccountingsystem

Computerisedaccounting.Supported byan accountingmanual

FinancialStatements-Annual,Comparisonwith budgetand review-Annual

Income andexpenditureaccount, andbalance sheetare prepared.Apart fromthese,fundwise financialstatementsare prepared

Delhi


Computerisedaccounting(Tally)

Annual

Statement ofrevenueexpenditures,and fundbalances; andbalance sheetare preparedfor thedifferentfunds

Kolkata

Double entrycash basedaccounting.The accrualaccountingadjustmentsare separatelyadded to thecash basedaccounting atthe year end

Computerisedaccounting.No accountingmanual inplace yet

FinancialStatements-Annual,Comparisonand annualreview withbudget/previousperiod iscarried outmonthly

Income andexpenditureaccount,receipt andpaymentaccount andbalance sheetare prepared

Karnataka


Web-enabledcustomizedsoftware underimplementationwill run inparallel

Required toprepare halfyearly accounts

Consolidatedand fund wiseincome &expenditurestatement,receipt 7paymentaccount,balance sheet,notes toaccounts

Table 1.



was ready to prepare the 2005-06 accounts withinthe prescribed time. The financial statements ofKMC for the year 2003-04 have been audited bythe office of the C&AG Local Bodies Audit andhave been certified to be “True and Fair”.

(vii) The Karnataka Case example

Bangalore Mahanagara Palika (BMP) is the largestof the six city corporations in Karnataka.Bangalore became the first city in India to shift toFund Based Accounting System in 2002 .Theinitiative was taken up by the Bangalore AgendaTask Force (BATF), which provided fundingsupport to implementation of fund basedaccounting system in BMP. Consultants wereidentified and brought in by BATF to respectivelyfacilitate design and implementation of fundbased accounting system in corporation. Some ofthe key steps undertaken during this exerciseincluded, (a) preparation of a detailed budgetexercise and creating focus on financial accountingand creation of financial information flow aspects;(b) collection of information of BMP assets anddistributing the same to various departments forverification and updating; (c) physical verificationof all assets listed; (d) collection of information onall works in the pipeline; (e) computerization ofall data available at BMP.

Conversion of accounting system to FundBased Accounting System has also played amajor role in ensuring public oversight. Halfyearly balance sheets are now published in allnational newspapers and given to the proof forquarterly assessment.

Table 1 shows a implementation status-comparison across various states:

CONCLUSION

The role of the government is being continuouslymodified. Over the last twenty years, there havebeen sustained calls for government to movetowards accrual based accounting and to adoptprivate sector style financial statements. In nutshell it could be said that accrual basedaccounting has so many benefits in comparisonto cash basis accounting so government sectormust follow this.

REFERENCES

Government Accounting-Accrual is the Way toGo, www.thehindubusinessline.com.

IGFRSs, www.caparivaar.com.

IGFRS 1,2,3,4,5 , www.gasab.gov.in.

IAS 1- Presentation of Financial Statements-IASPlus, www.iasplus.com.

IAS 2 Inventories-IFRS, www.ifrs.org.

IAS 16 Property Plant and Equipment,www.accaglobal.com.

IFRS at a Glance IAS 18: Revenue,www.bdointernational.com.

IAS 37 Provisions, Contingent Liabilities andContingent Assets, www.ifrs.org.

Municipal Accounting System, www.ccs.in.

Public Financial Management and Account-ability, www.ipeglobal.com.



Impact of Future Contract on AgriculturalCommodity Prices: An Indian Perspective

Sandeep Sehrawat*

Abstract

The future market can reduce volatility in the spot prices of the commodities and provideeffective hedging of the price risk. The turnover of the commodity futures market hasgrown in a short span of time. The futures market can become an effective instrumentof risk management and price discovery for the benefit of the producers, investors,consumers and companies. The competent authorities have over-looked the mechanismof checks and balances which can redistribute income from the small players to the bigspeculative financial market entities. The present study seeks to assess the role andsignificance of the Indian commodity futures market in the context of its efficientfunctioning. It is noted that instead of restricting the commodity futures market, it canbe used successfully to strengthen the commodity market structure in India to achievethe broader target.

Keywords: Hedging, Speculation, Arbitrage, Contango, Forward Contract

* Dept. of Commerce, Satyawadi College (Evening), Delhi, India

INTRODUCTION

Agricultural commodities are vital for anydeveloping country because they providefood, create income-generating oppor-

tunities and export earnings to the peopleinvolved in agricultural activities. Like othersectors, the agricultural commodity sector alsoexperienced tremendous surge towards a moresophisticated structure during the last decade. TheGovernment intervention has entered into themarketing of major agricultural products, whichincludes the Minimum Support Price (MSP) forspecific commodities, regulation of variousactivities of marketing, such as transportation,storage, credit supply and international trading.

However, the Government intervention hassignificantly declined after the initiation ofliberalisation and economic reforms starts in 1991.

Several market-based instruments, involved inthe commodity price risk, focus on the intro-duction of derivatives on several commodities. Inother words, it is widely proposed to set-up anefficient derivative market for commodities tostrengthen the agricultural commodities market.If the derivatives market functions properly, oneof the important policy goals regarding the pricevolatility of agricultural commodities can beaddressed. The basic need, to trade in commodityderivatives in general and commodity futures inparticular, arises essentially to get the necessary


support from any variation in the commodityprices. This is commonly referred to as hedging.Hedging has been defined as the required amountof counter position (buy or sell) in the futurescontract against the corresponding position (sellor buy) of the related underlying commodity. Thiscounter position helps to off-set the loss expectedin the near future arising out of the adverse pricemovement of the underlying commodity.

Thus, it is important to develop futures andother forms of derivative trading in commoditieswhich are vulnerable to large and erratic pricefluctuations.

Turnover of Commodity Futures Market

The commodity futures market facilitates theprice discovery process and provides a platformfor the price-risk management in commodities.The turnover in commodity futures market from2010-11 to 2012-13 is given in table-1. As shownin the table, the year 2012-13 witnessed a declinein the total value of trade compared to thecorresponding period of the preceding year.

The present study seeks to ascertain therelationship between spot and futures prices ofthe Indian agricultural commodities traded in thenational level commodity exchanges and toexamine the influence of futures contract on thespot prices.

Relevant Concepts in Commodity FuturesContract

A ‘futures contract’ is an agreement to buy or sella certain quantity of an underlying asset, at acertain time in the future, at a predeterminedprice. It is a standardised financial contracttraded in a recognised commodity exchange. Theprice at which the contract is traded in thefutures market is called the futures price. Thefutures contract has onemonth, twomonth orthreemonth expiry cycles and usually expires onthe last Thursday of the respective month.

There are three types of the participants inthe futures market:(1) Speculators, who bet onthe future movement of the price of an asset, (2)Hedgers, who try to eliminate the risks involvedin the price fluctuations of an asset by enteringinto the futures contract, and (3) Arbitrageurs,who try to take advantage of the discrepancybetween the prices in different markets.

While hedgers participate in the market tooff-set the risk, speculators make it possible forhedgers to do so by assuming the risk.Arbitrageurs ensure that the futures and the cashmarkets move in the same direction. The risks ofphysical commodity losses due to fire, theft,accidents, etc., are covered by insurance.However, the risk of value deprecation resultingfrom adverse price variations is not insured by

Table 1. Turnover in Commodity Futures Market (Volume of trading in lakh tonnes, value in Rs. crores)

Commodity 2010-11 2011-12 2012-13(Up to 30-11-12)

Volume Value Volume Value Volume Value

Agricultural commodities 4168 1456390 4942 2196150 3113 1536268(32.6) (12.2) (35.24) (12.12) (30.77) (13.21)

Bullion 7.38 5493892 10.27 10181957 5.02 5363816(0.05) (46.0) (0.07) (56.17) (0.05) (46.13)

Metals 1410 2687673 1388 2896721 1046 2157139(11.0) (22.5) (9.9) (15.98) (10.33) (18.55)

Energy 7220 2310959 7686 2851270 5954 2569619(56.4) (19.3) (54.8) (15.73) (58.85) (22.1)

Others 29.04 6.45 1.28

Total 12806 11948942 14026 18126104 10119 11626842

Source: Economic Survey (2012-13), Ministry of Finance (Government of India)Note: Figures in brackets are the percentage to the total volume and value of trade of the respectivegroup.

Sandeep Sehrawat


insurance. Although hedging is the practice ofoff-setting the price risk in any cash marketposition by taking an equal but opposite positionin the futures market. However, the hedgeravoids buying the physical commodity toprevent the blocking of funds and does not wantto incur large holding costs. For instance, a wheatmiller enters into a contract to sell flour to abread manufacturer four months from now. Theprice is agreed upon today though the flourwould be delivered after four months. A rise inthe price of wheat during the course of the nextfour months would result in loss to the miller. Tosafeguard against the risk of increasing prices ofwheat, the miller buys wheat futures contractsthat call for the delivery of wheat in four monthstime. After the expiry of four months, as fearedby the miller, the price of wheat has risen. Themiller then purchases the wheat in the spotmarket at a higher price. However, since he hashedged in the futures market, he can now sell hiscontract in the futures market, at a gain, sincethere is an increase in the futures price as well.Hedging, thus, offsets loss from the purchase ofwheat at a higher cost through the sale of thefutures contract, thereby ensuring the profit onthe sale of the flour.

An important part of understanding futuresand cash price dynamics is being able to explainand anticipate basis movement. The basis isnormally calculated as cash price minus thefutures price. A positive basis indicates a futuresdiscount (‘backwardation’) and a negative basismeans a futures premium (‘contango’). When thespot price is higher than a particular futurescontract, it is said to be trading at backwardation.It is usual for a contract maturing in the peakseason to be in backwardation during the leanperiod. Contango means a situation where futurescontract price is higher than the spot price. Itarises normally when the contract matures duringthe same crop season. In a well-integrated market,contango is equal to the cost of carry (interest rateon investment, loss on account of the loss ofweight or deterioration in quality).

Evolution of Commodity Futures Market

Futures trading in commodities had its genesisin Japan in the 17th century where silk and ricewas underlying commodities for a futures

contact. The Dojima Rice Exchange in Osaka,Japan, is said to be the world’s first organisedfutures exchange, where trading started in 1710.

In the USA, the Chicago Board of Trade(CBOT) was established by 83 merchants tofacilitate trade in forward contracts on April 3,1848. It was only in 1865 that standardisedfutures contracts were introduced. The ChicagoProduce Exchange was established in 1874 andthe Chicago Butter and Egg Board in 1898. In1919, it was re-organised to enable futurestrading and it was named as Chicago MercantileExchange (CME).

India had experienced its first futures marketfor cotton in Mumbai in 1875.Subsequently,futures trading started for oilseeds (Mumbai,1900), jute (Calcutta, 1912), wheat (Hapur, 1913)and bullion (Mumbai, 1920). After a few years oftrading, the markets underwent rapid growthbetween the two World Wars. As a result, beforethe outbreak of the Second World War, a largenumber of commodity exchanges, trading futurescontract in several commodities, such as cotton,jute, oilseeds, groundnut, wheat, rice, sugar,silver and gold, flourished at various locationsacross the country. However, the futures tradingin some commodities during the World War IIwas prohibited by the Defense of India Act, 1943.

After India’s Independence, on the recommen-dations of the Forward Market Commission(FMC), futures trading were initiated on variouscommodities in the latter half of 1950s. However,this growing status of commodity futures marketin India could not last for long. In the wake ofrecurring agricultural shortages, rising prices, anda growing apprehension that speculating activitieson commodities through futures trading may fuelinflation in Indian economy, then, the CentralGovernment banned the futures trading in mostof the commodities. Even if the DantwalaCommittee (1966) recognised the benefits ofcommodity trading even at the time of commodityscarcity, the recommendations were ignored bythe authorities. This banning process continued tillthe 1970s, it was followed by the setting up of theKhusro Committee in the year 1980; therecommendations of this committee supported therevival of futures trading in most of the majorcommodities, including potatoes and onions.

Impact of Futures Contract on Agricultural Commodity Prices


However, the ban on all other commoditiesstill continued with the misconception thatspeculative futures trading destabilises the pricesof commodities. During the new era ofliberalisation in the 1990s, the Governmentappointed another committee in 1993, under thechairmanship of Prof. Kamal Nayan Kabra tohave another look on the necessity of commodityfutures in the Indian economy. The KabraCommittee (1994) recommended the re-introduction of futures trading in a wide numberof commodities and the up-gradation of existingcommodity exchanges to facilitate futures tradingat the international level. The Government ofIndia accepted and implemented the majority ofrecommendations of the Kabra Committee. Thiseagerness to stimulate commodity futurestrading in India not only led to recognising andstrengthening of various regional commodityexchanges, but also to build up national-level,muti-commodity exchanges.

Regulation of Commodity Futures Market

The Forward Contracts (Regulation) Act, 1952(FCRA) was passed to regulate this market withFMC which was set up in 1953 in Mumbai as theregulator. Commodity derivatives were banned inthe late 1960s, but were revived again in the 1980s.After the successful equity market reforms in the1991, the Government of India tried to replicatesimilar reforms for the commodity derivativesmarket and in 1999 suggested that the MSP as aprice-hedging instrument could be used for thederivatives market. National-level multi-commodity exchanges were set up on conditionsof being backed by internationally prevailing bestpractices of trading, clearing and settlement. Thenational commodity exchanges follow electronic,transparent trading and clearing with innovation,similar to the equity market.

According to Nair (2004), the majorobstruction in the development of commodityfutures market in India is the fragmentedphysical or spot market with government lawsand various taxes that disturb the free movementof commodities.

The Ministry of Consumer Affairs madeattempts in the past to amend the FCRA, 1952.The Forward Contracts (Regulation) AmendmentBill, 1998, lapsed because it was not passed by

the Lok Sabha. After the liberalisation ofcommodity futures market at the beginning of2003, the need for a comprehensive amendmentto the Act came up with the establishment ofthree national online exchanges and a host ofcomplex trading systems and practices whichshowed that the existing regulatory capacity wasinsufficient to cater to the need of exponentiallygrowing market. The Ministry of ConsumerAffairs came up with the Forward Contracts(Regulation) Amendment Bill, 2006, but thisfailed again to sail through before the dissolutionof the Lok Sabha. This was replaced by theForward Contracts (Regulation) Amendment Bill,2010, which is now pending with the Parliament.

The bill proposes to empower the commissionand transforms it to a powerful independentregulator. This is critical to commodity futuresmarket in general and the farm sector in particularfor many reasons. It is risky for a country with adominant farm sector to liberalise internal tradein commodities without a powerful regulator inplace. Inadequately developed spot markets andspurious price discovery in excessivelyspeculative futures markets (commodities inwhich open positions are excessively larger thantheir actual production figures are considered tobe speculative) can distort the market prices ofcommodities and jeopardise investments inagriculture. A major obstacle to growth ofagriculture is inadequate formal institutionalcredit, particularly to the rural farm sector.Lending institutions in India do not considercommodities as a standard asset class because ofthe lack of back-end infrastructure and well-regulated liquid market.

More importantly, the proposed opening upof multi-brand retail can attract foreign directinvestment (FDI) to build infrastructure in thecommodities supply chain, especially in storageand collateral management, only if there is aneffective regulator that ensures integrity andinvestor confidence in the marketplace.

An active regulator is very useful in theformative stage of markets, particularly to ensurethey have the best practices and procedures fortrading, margining, clearing, market monitoringand surveillance, risk control, settlement, anddelivery. If the contracts are well formulated, andthe delivery modalities provide an effective line

Sandeep Sehrawat


of defense against manipulation, the regulatorhas to only act as an off-site watchdog.(Sahadevan 2002)

Benefits of Commodity Futures Contract

The commodity futures markets have beendeveloped because of its potential contributionto price stability, Poverty reduction and economicdevelopment and some of them are given belowin the form of benefits.

Benefits to Investors: All participants in thecommodity markets ecosystem across the valuechain of different commodities are exposed toprice risk. These participants buy and sellcommodities and the time lag betweensubsequent transactions result in exposure toprice risk. Commodity derivatives marketsenable these participants to avoid price risk byutilizing hedging techniques.

Benefit to Producers: The commodity trade isuseful to the producer because he can get an ideaof the price likely to prevail on a future date andtherefore can decide between various competingcommodities, the best that suits him. Farmers, forinstance, can get assured prices, thereby enablingthem to decide on the crop that they want togrow. Since there is transparency in prices, thefarmer can decide when and where to sell, so asto maximise his profit.

Benefit to Consumers: The commodity tradebenefits the consumer because he gets an idea ofthe price at which the commodity would beavailable at a future point of time. He can doproper financial planning and also cover hispurchases by making futures contract.

Benefit to Companies: Corporate entities canbenefit by hedging their risks if they are usingsome of the commodities as their raw materials.They can hedge the risk even if the commoditytraded does not meet their requirements of exactquality or technical specifications.

Commodity Exchanges in India

As on September 1, 2013, there are five on-linenational exchanges and 16 regional exchanges thatare permitted to offer futures in 113 commodities,including agriculture, metals, energy and plastics.Though the FMC has notified 113 commodities

under Section 15 of the FCRA, 1952, exchangeshave not offered futures in all of them. Forexample, the Multi Commodity Exchange (MCX),which had 82 per cent of the total value of tradeduring 2010-11, trades only in 52 commodities.(Annual Report 2011-12, FMC)

However, there are three major NationalLevel Exchanges in India. Due to a large numberof commodities traded in these exchanges andthe importance they are gaining lately, thesethree exchanges are explained below.

National Multi Commodity Exchange ofIndia Ltd. (NMCE) was promoted by commodityrelevant public institutions namely CentralWarehousing Corporation (CWC), NationalAgricultural Cooperative Marketing Federationof India (NAFED), Gujarat Agro-IndustriesCorporation Limited (GAICL), Gujarat StateAgricultural Marketing Board (GSAMB),National Institute of Agricultural Marketing(NIAM), and Neptune Overseas Limited (NOL).Punjab National Bank (PNB) took equity of theExchange to establish the financial linkage.NMCE, the first state-of-the-art demutualisedmulti-commodity exchange, commenced futurestrading in 24 commodities on November 26, 2002on a national scale.

National Commodity and DerivativesExchange Limited (NCDEX) is a professionallymanaged on-line multi-commodity exchangepromoted by ICICI Bank Limited, Life InsuranceCorporation of India (LIC), National Bank forAgriculture and Rural Development (NABARD)and National Stock Exchange of India Limited(NSE). NCDEX is a nation-level, technology-driven, de-mutualised online commodityexchange with an independent Board ofDirectors and professional management. Itcommenced operations on December 15, 2003.

MCX is an independent and de-mutualisedmulti-commodity exchange, promoted by majorfinancial institutions like Financial TechnologiesLtd., State Bank of India and its associates,NABARD, NSE, Corporation Bank, Union Bankof India, Canara Bank, Bank of India, Bank ofBaroda, HDFC Bank and SBI Life Insurance Co.Ltd. MCX is India’s largest independent and de-mutualised multi-commodity exchange. It wasinaugurated on November 10, 2003 and has

Impact of Futures Contract on Agricultural Commodity Prices


permanent recognition from the Government ofIndia for facilitating online trading, clearing andsettlement operations for commodities futuresmarket across the country.

Policies supporting Commodity FuturesContract

In October, 2012, the Financial-Sector LegislativeReforms Commission, headed by Justice B. N.Srikrishna, recommended that a super regulatorshould be created to merge Securities andExchange Board of India (SEBI), InsuranceRegulatory and Development Authority (IRDA),Pension Fund Regulatory and DevelopmentAuthority (PFRDA), FMC in itself. The financeministry already accepted the recommendationsand it is now working out a plan on how toimplement it.

The commission also recommended bringingthe FMC under the finance ministry and theregulator for commodities futures tradingstruggles to contain the payments crisis at theNational Spot Exchange Limited (NSEL). Thefinance ministry is of the view that if thecommodities regulator, which is currently underthe consumer affairs ministry, is brought underits ambit then it can be merged with the SEBI.

CONCLUSION

The futures markets in commodities, which arenearly eight-years old, are here to stay andshould be allowed to grow with the regulatorymeasures. Contrary to the thinking in certainareas, futures prices should be used as asignaling device for the government policy. Theregulators ought to ensure that there is no scopefor manipulation of markets and the pricesbehave in a well-manner. Higher spot-prices,caused by economic fundamentals and the pricevolatility, has come down in the post-futurestrading era. A large number of commodities user,especially the farmers who would be benefitted

from such markets. In fact, markets should beallowed to grow rather than restrained. Marketsworld over seek to provide efficient solutions,which is also the requirement in India.

REFERENCES

Ghoshray, Atanu, “An Examination of theRelationship between U.S. and CanadianDurum Wheat Prices”, Canadian Journal ofAgricultural Economics, Vol. 55, No. 1, pp. 49-62, 2007.

Gilbert, Christopher L., “How to UnderstandHigh Food Prices”, Journal of AgriculturalEconomics, Vol. 61, No. 2, pp. 398-425, 2010.

Government of India, Report of the ExpertCommittee to Study the Impact of FuturesTrading on Agricultural Commodity Prices(Chairman: Abhijit Sen), New Delhi, 2008.

Richa Kumar, “Mandi Traders and the ‘Dabba’: On-line Commodity Futures Markets in India”,Economic and Political Weekly, Vol. 45, No. 31,pp. 63-70, 2010.

Tulsi Lingareddy, “Expert Committee onCommodity Futures: Agreements and Dis-agreements”, Economic and Political Weekly,Vol. 43, No. 34, pp. 35-42, 2008.

Nath, Golaka C and Tulsi Lingareddy, “Impact ofFutures Trading on Commodity Prices”,Economic and Political Weekly, Vol. 43, No. 3,pp. 18-23, 2008.

K.G. Sahadevan, “Sagging AgriculturalCommodity Exchanges-Growth Constraintsand Revival Policy Options”, Economic andPolitical Weekly, Vol. 37, No. 30, pp. 3153-3160,2002.

P. Srinivasan, K. Srinivasan and Malabika Deo,“Impact of Derivatives and AsymmetricEffect on Indian Stock Market”, Asia-PacificJournal of Management Research andInnovation, Vol. 5, No. 3, pp. 11-18, 2009.

Sandeep Sehrawat


The Relationship of Strategic Brand Managementand Corporate Social Responsibility on

Brand Loyalty

Aliya Bushra and Anam Rizwan*

Abstract

Corporate Social Responsibility (CSR) is an emerging phenomenon in the developingcountries and has gained a lot of attention in the developed countries. The companieswith a strong brand loyal background have used the concept in order to achieve thepositions they are currently enjoying. This study focused on Corporate SocialResponsibility to formulate a relationship with brand loyalty of the consumers. The studywas conducted in Pakistan which comprised of a sample size of 307 respondents.Structural Equal Modeling was done. As explication by the model showing the directrelationships, it was analyzed that CSR, company customer identification and customersatisfaction had a positively significant impact on brand loyalty. Whereas, trust alsoimpact brand loyalty via company customer identification.

Keywords: Corporate social responsibility, strategic brand management, companycustomer identification, structural equation modeling

INTRODUCTION

Corporate social responsibility is anemerging concept in the developingcountries. Most of the companies now

hire experts and consultants to widen thecompany’s horizon in making Corporate aSocially Responsible (CSR). One of the primaryreasons is due to the idea of satisfying theconsumer which influences the brand loyalty.Therefore, a CSR orientation is an approach anda strategy for companies in the emergent sectorsto curtail the negative effects of their activities onnatural and environmental, cultural and socialsurroundings. Nowadays, consumers have

gained awareness and are vulnerable to diverseproblems. They are dealing with crisis in values,natural disasters, climatic changes and massivedifferences among regions but most of all, thefinancial and economic crisis in developedcountries. These are issues of the developingcountries so the companies need to play aconstructive role in the social order by initiatingCSR into firms’ strategy to achieve brand loyaltyof the consumers and a sustainable competitiveadvantage.

One of the most valuable assets thatcompanies own is the intangible possession ofbrands. In this context, brand loyalty is at the

* Lahore School of Economics, Lahore, Pakistan


heart of the marketing activities of firms. Withintensified fragmentation, sophistication andcompetition of markets traditional manufacturersof brands are forced to be more concerned withthe development and maintenance of long-termrelationship with their consumers and thereforeseeking to adopt relationship marketing.

Different operational definitions andframeworks are adopted for investigating theprocess of building brand-to-consumer relation-ships. The immense existing literature has focusedon the factors which impact brand loyalty and hasdeveloped and conceptual measure for dimen-sionality, patterns, and intensity. But appropriatestrategic actions in forming a company’sCorporate Social Responsibility image along withall the other components of brand managementlack in Pakistani companies.

METHODOLOGY

The sample size was of 307 respondents fromuniversities who were on campus and alsothrough online medium. Males and Femalesvarying from 18 to 26 years have been includedin this study and have the education status ofundergraduate to MBA graduates. SPS Softwareand AMOS Graphics were used to compute thevariables for SEM.

CONCLUSION

The study aims to investigate the impact of brandmanagement components along with corporatesocial responsibility on consumer brand loyalty.Even though the study supports the existingliterature to a large extent, there were also somesignificant relations discovered by the end of thestudy. Corporate social responsibility andcompany customer identification has a directpositive significance with brand loyalty.Nevertheless, other investigative variables werefound which had insignificant impact on thedependent variable. These results provide animperative step in the advancement of brand

loyalty management from both practical andtheoretical perspectives.

The findings of this research have importantinsinuations for the companies interested inbuilding strong and long term relationship withits customers. This research suggests thatconsumers tend to reward and support thosecompanies who are socially responsible andactively participate in making the world a betterplace. These consumers are loyal towards thesebrands and by strategically following therelationship brand management and itscomponents the company will enhance andsustain a corporate identity for their targetaudience.

REFERENCES

Chan, E.S.W. Implementing environmentalmanagement systems in small and medium-sized hotels: obstacles. Journal of Hospitality& Tourism Research, Vol. 35 (1), pp. 3–23, 2011.

Hong, I.B. and Cho, H. The impact of consumertrust on attitudinal loyalty and purchaseintentions in B2C e-marketplaces: Inter-mediary trust vs. seller trust. InternationalJournal of Information Management, Vol. 31 (5),pp. 469–479, 2011.

Martínez, P. and Rodríguez del Bosque, I. CSRand customer loyalty: The roles of trust,customer identification with the companyand satisfaction. International Journal ofHospitality Management, Vol. 35, pp. 89-99,2013.

Shah, R. and Goldstein, S.M.. Use of structuralequation modeling in operations manage-ment research: Looking back and forward.Journal of Operations Management, Vol. 24 (2),pp. 148-169, 2006.

Tsai, S.P. Fostering international brand loyaltythrough committed and attachedrelationships. International Business Review,Vol. 20 (5), pp. 521-534, 2011.

Aliya Bushra and Anam Rizwan


Investigating the Impact of Corporate Governanceon Earning Management in the Presence of

Firm Size: Evidence from Pakistan

Abrar Ahmad, Muhammad Tahir Anjum and Muhammad Azeem*

Abstract

This study investigates the relationship between earning management and corporategovernance in presence of firm size having sample size of 50 listed companies ofmanufacturing sector in stock market with time horizon of 2009 to 2013. Corporategovernance has been enumerated by the board size, audit committee independence andownership concentration taking multi-dimensional aspect of it. Here cash flow statementapproach using the Modified Jones Model has been exercised to measure the discretionaryaccruals. Ordinary Least Square (OLS) expressed the negative relationship of qualityof corporate governance with earning management and positive relationship with firmsize. Relationship of firm size and earning management is negative. So, small sized firmsare more involved in earning management and reason for this relationship is to absorbfluctuations maintaining the financial position.

Keywords: Corporate Governance, Earnings Management, Firm Size

* University of Sargodha, Gujranwala Campus, Pakistan

INTRODUCTION

It is imperious to have a solid understandingof earnings before plunging into compre-hensive discussion of earnings management.

In simple words, earnings are the life blood of acompany and everyone wants to boost its blood.The management of the different companies usesthe earning management to boost its blood. Theearning management can be controlled andmonitored through the effective corporategovernance implementation. So, the corporategovernance has the abundant impact on theearning management. Earning management andcorporate governance is gaining importance all

over the world. Managers may violate the timingand matching principles that result not onlymisstatements of earning but also create in theagency problems with the passage of time. Thewealth of the companies grossly suffers due tothis type of manipulation and robs the innocentstakeholders. Total assets have direct relationwith corporate governance as all resources aregenerated by sources. Debts and equity areimportant sources. Higher the debt to equityratio shows financial weakness and risk of thecompany. It also shows percentage of capitalemployed that is financed by debt and long-termliabilities. Mangers through the earningmanagement can affect these ratios and dress the


windows of their businesses to attract theinvestors. Share prices are, in fact, the presentvalue of future cash flows; future cash flows arethe dividends which of course are dependent onthe earnings of the company. Share prices of thecompanies with higher projected earnings arehigher as compared to the share prices of thecompanies with lower projected earnings. Theconcept of earnings management is veryimportant because it plays very vital role indetermining the stock’s prices. The cost ofengaging in earnings management will be higherfor large-sized firms than small-sized firms.Therefore, their concern about reputations mayprevent large-sized firms from manipulatingearnings. Finally, large-sized firms may be lesslikely to manage earnings relative to smallercounterparts because they are followed by morefinancial analysts (Kim, Liu & Rhee, 2003). Incontrast, large sized firms are more likely tomanage earnings than small-sized firms. First, asBarton and Simko (2002) indicate, large sizedfirms face more pressures to meet or beat theanalysts’ expectations. LA & DJ (2000) compileempirical evidence that large-sized firms do notreport accurate earnings after studying theirearnings growth for at least 14 quarters. Rangan(1998) also notes that the firms in his studymanipulating current accruals to overstateearnings in the year before seasoned equityofferings are older and larger. Second, large-sizedfirms have greater bargaining power withauditors. The larger the firm size, the morebargaining power they have in negotiations withauditors. Mark, John, & Robin, (2002) documentthat auditors are more likely to waive earningsmanagement attempts by large clients. Third,large-sized firms have more room to manoeuvregiven wide range of accounting treatmentsavailable. In all, the incentives and abilities tomanage earnings may vary among firms ofdifferent sizes. These competing views andevidence raise a question on the relation ofearnings management to firm size. Are large andmedium-sized firms more likely to manageearnings than small-sized firms after controllingfor various firm attributes that may affectearnings management practices? This questionmust be resolved empirically. In today’s businessworld the size of the firms, corporate governanceand earnings management have become

important. It is assumed that there is a strong andcritical relationship between the size of the firms,corporate governance and earnings management.The aim of this research is to quantify the aspectsthat are used by firms to manipulate theirearnings and also the characteristics of such firmsin terms of their size and corporate governance.In emerging economies like that of developingcountries it is observed that there is a deviationin trends of earnings. So to help academiciansand investors in predicting earnings manage-ment policy, this research reveals the effect ofcorporate governance on earning management.A comprehensive study of the topic led us toinvestigate what impact does the size (taken aslogarithm of total assets) of a firm have onearnings management and how the corporategovernance influences earnings management.Moreover, which of these two factors influencethe earnings management the most and how theEarning Management is affected by theCorporate Governance? Most of the research isto quantify the impact of the capital structure onearning management but in this researchsignificance of corporate governance has beenmeasured on earning management in thepresence of firm size. The basic objective is tocheck the impact of the firm size and CorporateGovernance on the earning management.

Data and Methodology

The sample consists of 50 listed companies of theKSE 100 index. The time horizon for the sampledata is from 2008 to 2012 out of which weexclude the following companies:

• Financial companies and the utilities(because the capital structure and the profitsof these companies are different)

Measurement of Quality of CorporateGovernance (QCG)

The proxies used in this paper for measuring thequality of corporate governance are BoardStructure, Ownership Structure and AuditCommittee Independence as these are in linewith the Klapper & Love (2002). So, the Qualityof Corporate Governance (QCG) has beenmeasured by the use of following equation:

Abrar Ahmad, Muhammad Tahir Anjum and Muhammad Azeem


QCG = f (BS, OS, ACI)BS= Board StructureOS=Ownership StructureACI=Audit Committee Independence

The criteria used for estimating thecorporate governance index

In this research paper we used the binary numbercodes “1” for yes or existence of the specifiedvariable in the organization that adds one pointto the corporate governance index. In the otherhand “0” is used for no or non-existence. The datafor nine variables is collected. Total score forcorporate governance index is on the scale 0 to 9.The organization showing the higher scoreindicates the healthier quality of corporategovernance Sawicki (2005). The following tableshows the detail of estimation for the differentvariables:

Measurement of Firm Size (FS)

Total assets are taken as the proxy for measuringthe firm size as Rahmani & Akbari (2013) has

uesd this as a proxy for measuring the firm size.

Measurement of Earning Management (EM)

Modified Jones Model is opted in this paper forcalculating the discretionary Accruals whichsignify the magnitude of the Earning Manage-ment. In this paper the Modified Jones cross-sectional model is opted for calculating theaccruals because in literature most of the studiesused and accepted this model to calculate theaccruals as the proxy for the earning managementpractices.

There are two different approaches tocalculate the Accruals

• Balance sheet approach• Cash flow statement approach

Balance sheet approach

According to this approach the accruals can beestimated with the help of the following equation:

TAt=CAt–Casht–CLt+DCLt–DEPt

Variables Estimation and Prediction

Board Structure One-third independence of the board, as measured by the number ofindependent directors divided by total number of directors.Chairman and CEO separation.Largest director’s shareholding (as measured using direct interest anddeemed interest divided by total issued shares) below 5% of issued capital.

Audit Committee Existence of an Audit Committee.Disclosure of frequency of Audit Committee meeting.Expertise of Audit Committee.Engagement of Big Six auditors.

Ownership Structure Existence of a Remuneration Committee.Existence of a Nomination Committee

Schematic Diagram of Theoretical Framework

Board Structure

Quality of Corporate Governance Ownership Structure

Audit Committee

Investigating the Impact of Corporate Governance on Earning Management


Where:

TAt = total accruals in year tCAt= change in current assets in year tCasht= the change in cash and cash

equivalents in year tCLt= the change in current liabilities in year tDCLt= the change in debt included in the

current liabilities in year tDEPt= depreciation and amortization expense

in year t

Cash flow statement approach

According to this approach the accruals can alsobe estimated with the help of the followingequation:

TAt = N.It – CFOt

Where:

TAt= Total accruals in year tN.It= Net income in year tCFOt= Cash flow from operating activities in

year t

Measurement of Discretionary Accruals (DA)

Different methods have been opted by thedifferent researchers for calculating thediscretionary accruals but in our paper theModified Cross Sectional Jones Model is optedbecause it is the latest and modified model forestimating the discretionary accruals. Accordingto Modified Cross Sectional Jones Model [1995]the discretionary accruals are estimated bydeducting non-discretionary accruals from totalaccruals so, these non-discretionary accruals areestimated by using the following equation:

1 REVt–RECt PPEtNDAt= α1(———)+α2(———————)+α3(———)+At–1 At–1 At–1

Where:

NDAt= Non-discretionary accruals in year tAt-1= Total assets at the end of year t-1REVt= Revenues in year t less revenue in

year t-1RECt= Net receivables in year t less net

receivable in year t-1PPEt= Gross property plant and equipment

at the end of year t

All of the variables have been scaled by laggedtotal assets.α1, α2, α3 are firm specific parameters is the residual, which represents the firmspecific discretionary portion of total accruals.

——————————————————————α1 α2 α3

——————————————————————0.53 0.09 0.18

——————————————————————

These above values of the co-efficient α1, α2 &α3 are used in the above equation to calculate thenon-discretionary accruals. These coefficients arefound out by regressing the receivables, revenuesand the property, plant & equipment on the totalaccruals. As the discretionary accruals are equalto the difference of the total accruals and the non-discretionary accruals so, the discretionaryaccruals can be calculated by the followingequation:-

DAt=TAt–NDAt

Where:

DAt= Discretionary accruals in year tTAt= Total accruals in year tNDAt= Non-discretionary accruals in year t

To test the hypothesis following multipleregression equation has been estimated

DA=β0+β1(FS)+β2(CGI)+μ

In this above model the discretionary accruals(DA) is the dependent variable and the firm size(FS) & the corporate governance index (CGI) arethe independent variables. The correlation testshave been performed in this analysis before theapplication of the ordinary least square (OLS) forchecking out the relationship between thevariables. The final outputs of these tests areshown in the following tables.

RESULTS

The results acquired in the form of correlationmatrix are as follows:

——————————————————————CGI DA Size

——————————————————————CGI 1 –0.32 0.276DA –0.32 1 –0.199Size 0.276 –0.199 1——————————————————————



Here is the description of each variable’scorrelation with other variables. Distinctlycorrelation between discretionary accruals andquality of corporate governance is negative whichshows that there is inverse relation between themand it justifies too. As the corporate governanceboosts, this means that employees to secure theinterest of stakeholders of firm are mounting, sothere should also be more security to interest ofstakeholders. If we focus on the magnitude ofrelation then we’ll come to know that strength isnot puny. As far as correlation betweendiscretionary accruals and size is concerned, thereis negative relation too. It means that small sizedfirms are more engaged in earning managementwhile large sized firms are less concerned.Keeping in mind the relation it is quiteunproblematic to understand that big firms areless connected with earning management as thereis additional capacity to absorb the fluctuationsbecause the large size of firms. But in case of smallsized firms there may not be as much competenceas that of large sized firms so there needs a moreearning management comparatively.

By applying the OLS model we found thefollowing results of co-efficient and significanceof each coefficient. In the model expressedabove, all figures are significant except one thecorporate governance quality whose co efficientshows that it is insignificant and its role is notas vital as the size of the firm has. Positive co-efficient confirms the relation of DA and CGI asdiscussed above while firm size is showingnegative significant relation with discretionaryaccruals. These results are in consensus of thecorrelation matrix results suggesting the sameoutput.

——————————————————————Model 1 Standardized Sig. of

Co-efficient Co-efficient——————————————————————Constant .012CGI –.025 .703Size –.206 .002——————————————————————

Discussing overall, the model is significant sothe contribution made by the independentvariables to dependent variables is satisfactory.But in Pakistan the rules and regulations are notas implemented as these should be. Corporategovernance code is not followed strictly due to

which company corporate governance role is notcoming out significantly.

——————————————————————Model 1 R2 Adj R2 F Sig. of

Statistics F Statistics——————————————————————

.040 .032 5.179 .006——————————————————————

Earning management may be of two types;positive as well as negative but which type ofearning management is needed depends uponthe situation. If company needs inflating theincome then positive earning management isrequired and vice versa. Here in this case thefirms, under study, are following the approach ofpositive one. Small sized firms observe morefluctuations in earning so those firms are moreneeded for the improvement of earning to showthe better financial position of firms.

CONCLUSION

The aim of this research is to quantify the aspectsthat are used by firms to manipulate their earningsand also the characteristics of such firms in termsof their size and corporate governance. Thesample consists of the 50 listed companies of KSE100 index. The time horizon for this study is from2008 to 2012. Summarizing the whole discussion,the Earning Management is more exaggerated bythe size of firms rather by their quality ofcorporate governance. By taking into account thedetails of co-efficient and correlation matrix andmodel significance, the crux is; model is signi-ficant. Among the model major contribution is ofsize of firms on earning management but innegative direction while minor or insignificantimpact is of corporate governance on earningmanagement, reason may be the weak implemen-tation of corporate governance practices inPakistan. In emerging economies it is observedthat there is deviation in trends of earnings. So tohelp academicians and investors in predictingearnings management policy, this research revealsthe effect of corporate governance on EarningManagement. Due to short period of time wechoose the sample of 50 listed companies and thetime horizon for the sample data of 5 years. Wealso skipped the organizations for which theproper data was not available and the utilities &financial sector. We sued the cash flow statement

Investigating the Impact of Corporate Governance on Earning Management


approach to estimate the discretionary accrualsbecause the required data for balance sheetapproach not available. So, the further researchcan be done by increasing the sample size and thetime horizon as well or by adding the some othervariables in the model.

REFERENCES

Aik Leng, A.C. The Impact of CorporateGovernance Practices on Firms’ FinancialPerformance. ASEAN Economic Bulletin, Vol.308-318 (03), pp. 308-318, 2004.

Bartov, E., Gul, F.A. and Tsui, J.S. Discre-tionary-Accruals Models and Audit Qualifi-cations.Financial Economics and Accounting, pp. 1-41,2000.

Collins and Hriber. Errors in Estimating Accruals:Implications for Empirical Research. SocialScience Research Network,pp. 1-39, 1999.

DeFond, M. and C, P. Smoothing Income inAnticipation of Future Earnings. Journal ofAccounting and Economics, Vol. 23, pp. 115-139, 1997.

Denis, Diane and McConnell, J. InternationalCorporate Governance. Journal of Financialand Quantitative Analysis, 2005.

Ibrahim, M.U. and Abdullah, S.R. The Impact ofCorporate Governance Disclosure on EarningsQuality in the Nigerian Banking Sector (Vol. 1),2004.

Islam, M.A., Ali, R. and Ahmad, A. Is ModifiedJones Model Effective in Detecting EarningsManagement?Evidence from A DevelopingEconomy (Vol. 3). International Journal ofEconomics and Finance, 2011.

Kim, Y., Liu, C. and Rhee, S.G. The Effect of FirmSize on Earnings Management. University ofHawaii, pp. 1-31, 2003.

Klapper, L.F. and Love, I. Corporate Gover-nance,Investor Protection and Performance inEmerging Markets. World Bank PolicyResearch Working Paper No. 2818, pp. 1-40,2002.

LA, M. and DJ, S. Earnings momentum andearnings management. Accounting Academics,Vol. 14 (2), pp. 235-250, 2000.

Mark, W.N., John, A.E. and Robin, L.T. Evidencefrom auditors about manager’s and auditor’searnings management Decisions. AccountingReview, Vol. 77, pp. 175-202, 2002.

Rahmani, S. and Akbari, M.A. Impact of FirmSize and Capital Structure. World of SciencesJournal, Vol. 1 (17), pp. 59-71, 2013.

Rangan, S. Earnings management and theperformance of seasoned equity offerings.Journal of Financial Economic, Vol. 50, pp. 101-122, 1998.

Sawicki, J. Corporate Governance and DividendPolicy in Southeast Asia Pre- and Post-Crisis.Nanyang Business School, pp. 1-34, 2005.

Shah, S.A., Butt, S.A. and Hasan, A. Corpo-rateGovernance and Earnings Management anEmpirical Evidence Form Pakistani ListedCompanies. European Journal of ScientificResearch, Vol. 26 (4), pp. 624-638, 2009.

Xie, B., W.N, D., and P.J, D. Earning Manage-mentand Corporate Governance: The Role of the Boardand the Audit Committee (Vol. 9). Journal ofCorporate Finance, 2003.

Z. Elias, R. Determinants of Earnings ManagementEthics among Accountants. Journal of BusinessEthics, Vol. 40 (1), pp. 33-45, 2002.



* Department of Management Studies, Pondicherry University, PondicherryIndi

Investors Preference Towards Different IndustriesBefore Making Merger-Based Investments

P. Praveen Kumar and R. Kasilingam*

Abstract

Merger refers to legal combination of two or more companies from related or unrelatedindustry. This study analyses investors’ preference towards different industries beforemaking merger-based investments. This study also tries to measure the influence ofprofile of investors on their preference towards different industries. Finally, this studymeasures the association between investors’ preference towards industry and selectionof companies. This present literature is descriptive in nature, based on primary data.Data has been obtained from 513 equity investors in Puducherry and Chennai. Pilotstudy has been conducted by administering an interview schedule to 59 respondents.This study finds that investors prefer to invest in finance related companies. Genderand age of the investors are exercising maximum influence on investors’ preferencetowards industry selection. This study also finds that there is a significant associationbetween investors’ preference of industry and selection of companies for making merger-based investments.

Keywords: Investors, Merger based investments.

INTRODUCTION

Indian corporates started involving themselvesin corporate restructuring at a rapid pace.However, objectives of resorting to corporate

restructuring may differ from company tocompany. Corporates might resort to financialrestructuring, market restructuring, technologyrestructuring or organizational restructuring.Financial restructuring refers to adjusting thecapital base by raising finance from the marketfor investing in new projects while marketrestructuring refers to executing adjustments inmarket segments. Technology restructuring

denotes variations in technology due to adoptionof new and innovative technologies whileorganizational restructuring signifies enhance-ment in competencies of personnel in businessenterprises.


Data have been collected from 513 equityinvestors by administering a well-structuredinterview schedule. Pilot study has also beenconducted by administering an interviewschedule to 59 respondents.


Investment on Merger Announcement

Investors have been required to indicate theirpreference to industries while deciding aboutmaking merger-based investments in a Likert’sfive-point scale and their responses have beendisplayed in Table 1.

It can be inferred from Table 1 that investorsare highly interested in investing in shares ofcompanies in the banking, insurance and otherfinancial intermediaries industries (mean of 4.03),followed by infrastructure (3.27), automobiles(3.25), consumer durables (3.1), other industries(3.1), electrical and electronics (2.97) andinformation technology (2.88). Investors showleast interest to invest in information technologycompanies striking merger deals.

Segmentation of Investors

The investors’ investment decision is immenselyinfluenced by profile of company and theindustry to which the company belongs.However, this decision may vary among the

Table 1. Mean Analysis and Rank Scores

Preferred Industry Mean Rank

Banking, Insurance and 4.03 1other financial intermediariesInfrastructure 3.27 2Consumer durables 3.1 4Information Technology 2.88 7Electrical and electronics 2.97 6Automobiles 3.25 3Others 3.1 4

investors and those having similar opinion maybe grouped under distinct groups using K-meanscluster analysis and the results of such analysishas been displayed in Table 2.

Table 2 displays mean scores, size of eachgroup and results of ANOVA. Cases refer to thenumber of investors constituting each of thegroup. The first cluster has been labelled as“Influence of finance company” because the meanin respect of banking, insurance and otherfinancial intermediaries industries for this clusteris in the region of five mark. This cluster consistsof 197 investors who are interested in investing onshares of finance companies. The second clusterhas been designated as “Influence of consumerdurables company” as the mean in respect ofconsumer durables industry for this cluster hastouched the four mark. This cluster engulfs 114investors who are interested in investing on sharesof consumer durables companies. The third clusterhas been branded as “Influence of all sectors” asthe mean in respect of majority of industries forthis cluster has exceeded the three mark. Thisgroup encompasses 202 investors who displayinterest in investing on shares of companies of anyindustry.

The F value in respect of banking, insuranceand other financial intermediaries is the highest(704.412), followed by automobiles (116.302),information technology (114.721), consumerdurables (113.916), others (54.655), electrical andelectronics (31.882) and infrastructure (0.764).Hence, banking, insurance and other financialintermediaries industries contributes more to thesegmentation process. However, all these Fvalues are significant at one per cent, suggesting

Table 2. Final Cluster Centers and ANOVA

Final Cluster Centers ANOVA

1 2 3 F Sig.

Banking, Insurance and other financial intermediaries 5 2 5 704.412 0.000Infrastructure 3 3 3 0.764 0.466Consumer durables 2 4 4 113.916 0.000Information Technology 2 2 4 114.721 0.000Electrical and electronics 2 3 3 31.882 0.000Automobiles 2 3 4 116.302 0.000Others 3 3 4 54.655 0.000Cases 197 114 202

P. Praveen Kumar and R. Kasilingam


Table 3. Eigen Value and Wilks’ Lambda

Function Eigen value Canonical Correlation Wilks’ Lambda Chi-square Sig.

1 3.237 0.874 0.087 1238.894 0.0002 1.718 0.795 0.368 506.886 0.000

Table 4. Structure Matrix

Function

1 2

Banking, Insurance and other 0.923* 0.048*financial intermediaries

Automobiles –0.043* 0.512*Information Technology 0.151* 0.468*Consumer durables –0.189* 0.439*Others 0.017* 0.352*Electrical and electronics –0.041* 0.264*Infrastructure –0.005* –0.041*

that all the items related to different industriescontribute to the segmentation of investors basedon their preference to the industry in decidingabout merger-based investments.

Reliability of Segmentation

Cluster Analysis has classified the investors intothree categories of influence of finance company,influence of consumer durables company andinfluence of all sectors. Discriminant analysis hasbeen conducted to check the reliability ofsegmentation process. The factors of banking,insurance and other financial intermediaries,infrastructure, consumer durables, informationtechnology, electrical and electronics, automobilesand others are considered as independentvariables while cluster membership scores ofinvestors’ preference towards industry has beentaken as grouping variable.

Table 3 displays the value of Eigen, canonicalcorrelation, wilks’ lambda and chi-square.Function one has the highest Eigen value of 3.237implying the maximum spread of group meansin this function. The Eigen value in respect offunction two is 1.718. A canonical correlationvalue of the first function is 0.874 while that ofthe second function is 0.795. This confirms theexistence of relationship between investors’preference towards industry while decidingabout merger-based investment and the twofunctions. Wilks’ lambda value of the firstfunction is 0.087 while that of the secondfunction is 0.368 which suggests the prevalenceof significant distance between the two functions.The values are significant at one per cent level,confirming good consistency of the segmentationprocess.

Table 4 displays the standardized beta scoreswhich convey the characteristics of population.Two functions generated are:

Z1=0.923* Banking, Insurance and otherfinancial intermediaries

Z2=0.512* Automobiles +0.468* InformationTechnology +0.439* Consumer durables +0.352*Others + 0.264* Electrical and electronics –0.041*Infrastructure

Figure 1 shows group centroids in respect ofthe three clusters all of which are located at

Fig. 1. Group Centroids

Investors Preference Towards Different Industries


distinct locations. This confirms that theinvestors have been arranged properly.

Table 5 highlights that 95.6 per cent ofinvestors have been correctly grouped under“influence of consumer durables company”while 95.4 per cent of the investors have beenproperly classified under “influence of financecompany” and 95 per cent of the investors havebeen properly classified under the “influence ofall sectors”. Hence, it can be concluded thatsegmentation of investors into three clusters havebeen executed with good degree of precision.

Relationship between Profile of Investorsand Preferred Industry

The relationship between profile of investors andtheir preference towards industry while decidingabout making merger-based investment has beenanalyzed using chi-square analysis and ANOVA.Table 6 portrays the results of chi-square analysis.

It can be inferred from Table 6 that six out of theten profile variables have significance value ofless than 0.05 suggesting the presence ofsignificant association between majority ofprofile variables of investors and their preferencetowards selecting industry for making merger-based investments.

The results of correspondence analysis havebeen compiled in Table 7. It can be inferred fromthe table that investors aged 30-50 years andthose with income of Rs. 15,001-30,000 areinterested in purchasing shares of financecompanies. Investors with income of Rs. 30,001-

Table 5. Extent of Correct Classification

Preferred Industry Predicted Group Membership Total

Influence of Influence of Influencefinance consumer of all

company durables sectorcompany

Count Influence of finance company 188 5 4 197Influence of consumer durables company 4 109 1 114Influence of all sector 5 5 192 202

% Influence of finance company 95.4 2.5 2.0 100.0Influence of consumer durables company 3.5 95.6 0.9 100.0Influence of all sectors 2.5 2.5 95.0 100.0

Table 6. Association between Personal Profileand Preferred Industry

Preferred Industry

Value Sig.

Gender 9.801 0.007Age 15.281 0.018Educational qualification 11.904 0.156Occupation 12.141 0.595Monthly income 16.797 0.032Family members 19.533 0.012Dependents 33.170 0.000Income earning members 6.738 0.346Family members in share 7.487 0.278

marketSavings 16.121 0.041

45,000 and those having more than five familymembers are interested to invest in shares ofconsumer durables companies. Finally, investorswith income of less than Rs. 15,000, those havingone dependent and those with savings of 21-25per cent are interested to invest in all types ofcompanies. The above discussion highlight thatincome of investors has the highest associationwith their preference towards the industry whiledeciding about making merger-basedinvestment. However, four variables lacksignificant association and these variables aretested using ANOVA and Table 8 displays theANOVA results.

Table 8 depicts that the profile variables ofeducational qualification, occupation and



Table 7. Association between Personal Profile and Preferred Industry

Influence of finance Influence of consumer Influence of allcompany durables company sectors

Age 30-50 years — —Monthly Income `15,001-30,000 `30,001-45,000 Less than `15,000Family Members — >5 —Dependents — — 1Savings — — 21-25%

Table 8. Relationship between Personal Profile and Preferred Industry

1F 2F 3F 4F 5F 6F 7F(Sig.) (Sig.) (Sig.) (Sig.) (Sig.) (Sig.) (Sig.)

Educational qualification 3.563 0.667 0.488 0.381 0.95 2.282 0.572(0.007) (0.615) (0.745) (0.822) (0.435) (0.06) (0.683)

Occupation 1.087 0.717 2.41 0.969 0.475 1.836 0.974(0.37) (0.658) (0.02) (0.453) (0.853) (0.078) (0.449)

Income earning members 3.149 0.172 0.574 0.631 0.826 3.18 0.989(0.025) (0.915) (0.632) (0.595) (0.48) (0.024) (0.398)

Family members in share market 1.012 0.915 1.767 0.301 1.162 1.467 0.525(0.387) (0.433) (0.153) (0.824) (0.324) (0.223) (0.666)

Where, 1- Banking, Insurance and Other Financial Intermediaries; 2- Infrastructure; 3- Consumer Durables;4- Information Technology; 5- Electrical and Electronics; 6- Automobiles; 7- Others

number of income earning members havesignificance value of less than 0.05. Educationqualifications of investors influences theirdecision to invest on shares of banking,insurance and other financial intermediariescompanies while occupation influences theirdecision to invest on shares of consumerdurables companies and number of incomeearning members influences their decision toinvest in shares of automobiles and banking,

insurance and other financial intermediariescompanies.

Table 9 displays that investors with loweducational qualification and having more thanthree income earning members are not investingin shares of finance company.

Table 10 reveals that investors with morethan three income earning members are investingin shares of automobile companies.

Table 9. Post Hoc Analysis

Educational Banking, Insurance Income Banking, InsuranceQualification and Other Financial Earning and Other Financial

Intermediaries Members Intermediaries

1 2 1 2

8th STD or less 2.25 — >3 3.09 —SSLC — 3.85 3 — 3.82HSC — 3.87 2 — 4.03Graduate — 4.01 1 — 4.14Professional — 4.26 — — —



Table 11. Association between Investment-Related Factors and Preferred Industry

Industry Preference

Value Sig.

Investment avenues 14.839 0.005Period of investments 13.450 0.036Equity investment avenues 9.860 0.275Money in equity 15.201 0.055

Table 10. Post Hoc Analysis

Income Earning Members Automobiles

1 2

3 2.92 —1 3.19 —2 3.36 3.36>3 — 3.91

Fig. 2. Association between Investment-Related Factors and Preferred Industry

Fig. 2(a): Investment Avenues &Preferred Industry

Fig. 2(b): Period of Investment &Preferred Industry

Table 11 displays that two investment-relatedfactors have significance value of less than 0.05.Hence, there is weak association betweeninvestment-related factors and investors’preference towards industry while decidingabout merger-based investments.

Figure 2 portrays that investors with mediumfinancial maturity are investing in shares of

consumer durables companies while investorswith high financial maturity prefer investing infinance companies. Investors with low financialmaturity and those having less than five years’experience in share market prefer to invest inshares of all types of industries. Hence, it can besaid that level of financial maturity amonginvestors is highly associated with theirpreference towards industry while decidingabout merger-based investments.

Table 12 reveals that significance values inrespect of equity investment avenues and moneyin equity are greater than 0.05, suggesting thatthere is no relationship between investorsinvestment-related factors and their preferencetowards industry while deciding about merger-based investments.

Influence of Profile of Investors onPreferred Industry

Results of chi-square test and ANOVA servetestimony to the presence of significant relation-ship between investors’ preference towardsindustry while deciding about making merger-based investments and 11 profile variables ofgender, age, educational qualification, occupa-tion, monthly income, number of family members,number of dependents, number of incomeearning members, savings, investment avenues



Table 12. Relationship between Investment-Related Factors and Preferred Industry

1F 2F 3F 4F 5F 6F 7F(Sig.) (Sig.) (Sig.) (Sig.) (Sig.) (Sig.) (Sig.)

Equity investment avenues 1.215 0.773 0.936 2.086 0.526 0.14 1.159(0.304) (0.543) (0.443) (0.081) (0.716) (0.967) (0.328)

Money in equity 0.875 0.44 0.48 1.933 1.096 0.488 0.644(0.479) (0.78) (0.751) (0.104) (0.358) (0.745) (0.631)

Where, 1- Banking, Insurance and Other Financial Intermediaries; 2- Infrastructure; 3- Consumer Durables;4- Information Technology; 5- Electrical and Electronics; 6- Automobiles; 7- Others

and period of investments. Canonical correlationis utilized to arrive at the most influencing profilevariable. Canonical correlation measuresrelationship between two sets. Cluster score hasbeen taken as set one and the 11 profile-relatedvariables have been considered as set two. Table13 portrays the results of canonical correlation.

Table 13 shows canonical correlation value of

25 per cent which is significant at one per centlevel. Hence, significant relationship prevailsbetween the two sets. To add up, gender and ageare the most influencing variables as thesignificance value in respect of these twovariables is less than 0.05. Furthermore, apersonal profile variable alone influencesinvestors’ preference of industry while makingmerger-based investment decisions.

Table 13. Canonical Correlation

Coef. Std. Err. t P>ltl [95% Conf. Interval]

u1indus –1.132857 .1973158 –5.74 0.000 –1.520505 –.7452087

v1gen –1.616224 .7898051 –2.05 0.041 –3.167882 –.0645665age .82564 .3336993 2.47 0.014 .1700516 1.481228eduq –.3017265 .2388987 –1.26 0.207 –.7710688 .1676158occu –.0869675 .1112407 –0.78 0.435 –.3055119 .1315769monin .2778182 .2587248 1.07 0.283 –.2304747 .7861111fm .2251316 .2063236 1.09 0.276 –.1802135 .6304767dep .0980012 .1851792 0.53 0.597 –.2658033 .4618056incmem –.0563397 .2884331 –0.20 0.845 –.6229977 .5103183sav .0244737 .1392204 0.18 0.861 –.2490399 .2979873inav .3454367 .2316502 1.49 0.137 –.1096651 .8005385per –.3550599 .2376956 –1.49 0.136 –.8220386 .1119188

(Standard errors estimated conditionally)

Canonical correlations: 0.2462 Tests of significance of all canonical correlations

Statistic df1 df2 F Prob>F

Wilks’ lambda .9394020 11 501 2.9380 0.0009 ePillai’s trace .0605978 11 501 2.9380 0.0009 eLawley-Hotelling trace .0645068 11 501 2.9380 0.0009 eRoy’s largest root .0645068 11 501 2.9380 0.0009 e



Association between Investors Preferencetowards Industry and Selection ofCompanies

The association between industry preferred byinvestors and their preference towards selectionof companies for making merger-basedinvestments has been measured using chi-squaretest. Cluster membership scores pertaining to thetwo constructs have been used for the purposeof chi-square test and the results have beendisplayed in Table 14.

It can be inferred from Table 14 that there is asignificant association between investors’preference of industry and selection of companiesfor making merger-based investments. The natureof this association is displayed in Figure 3.

Figure 3 displays investors who prefer financeindustry purchase shares of acquirer companieswhich strike merger deal with big domestic targetcompany. Investors who prefer to invest in all

Table 14. Association between Investors’Preference towards Industry and Selection ofCompanies

Preferred Industry

Value Sig.

Selection of companies 25.800 0.000

Fig. 3. Association between Investors’

sectors purchase all types of company shareswhile investors who prefer to invest in consumerdurables sector are not following any specificcriteria during making such investments.

CONCLUSION

Investors prefer to invest in finance relatedcompanies while they are reluctant to invest inshares of information technology companies.Investors who prefer finance related industriespurchase the shares of acquirer which strikemerger deal with big domestic target companywhile investors who prefer to invest in all sectorspurchase all types of company shares. Investorswho prefer to invest in consumer durables sectorare not following any specific criteria.

REFERENCES

Hyun, H.J. and Kim, H.H. The Determinants ofCross-border M&As: The Role of Institutionsand Financial Development in the GravityModel. World Economy, Vol. 33(2), pp. 292–310,2010.

Ismail, A. and Davidson, I. Further analysis ofmergers and shareholder wealth effectsin European banking. Applied FinancialEconomics, Vol. 15(1), pp. 13–30, 2005.

Kirchhoff, M. and Schiereck, D. Determinants ofM&A Success in the Pharmaceutical andBiotechnological Industry. The IUP Journal ofBusiness Strategy, Vol. 8(1), pp. 25-50, 2005.

Palia, D. The Managerial, Regulatory, andFinancial Determinants of Bank MergerPremiums. The Journal of Industrial Economics,Vol. XLI(1), pp. 91-102, 1993.

Shukla, A. and Gekara, M.G. Effects of Multi-national Mergers and Acquisitions on Share-holders’ Wealth and Corporate Performance.The IUP Journal of Accounting Research &Audit Practices, Vol. 9(1&2), pp. 44-62, 2010.

Singh, F. and Mogla, M. Profitability Analysis ofAcquiring Companies. The IUP Journal ofApplied Finance, Vol. 16(5), pp. 72-83, 2010.

Vu, D.A., Shi, Y. and Hanby, T. Strategic frame-workfor brand integration in horizontal mergersand acquisitions. Journal of Technology Manage-ment in China, Vol. 4(1), pp. 26–52, 2009.



Relationship of Mindfulness andTransformational Leadership with Affective

Commitment: Mediating Role of LMX

Saliha Gul Abbasi and Arshad Zaheer*

Abstract

This study analyzes the impact of mindfulness of administrators and managers ingovernment sector on employee affective commitment through leader-member exchangerelationship. To enable this proportionate stratified random sampling method was used tocollect data using structured questionnaire. Sample size was 309 supervisor-subordinatedyads of government employees. Data was analyzed using techniques like multiple linearregressions through SPSS. It was found that independent variables explained significantvariation in mediating variable Leader Member Exchange (LMX) and dependent variableaffective commitment. Indirect effects of LMX were non-significant in case oftransformational leadership, mindfulness and affective commitment. Study suggests thatif transformational leaders are mindful then a quality relationship is cultivated withsubordinates which in turn will result in retaining more committed employees.

Keywords: Mindfulness, Transformational Leadership, LMX, Affective commitment.

* Faculty of Business Administration, Air University, Islamabad, Pakistan

INTRODUCTION

Rapid change in the globalized world isbringing organizations to face manychallenges as pace of change is making it

ever difficult to concentrate, scattering theattention of people in this era where knowledgesharing, learning and effective leadership requirepeople in organizations to be ever smart anddynamic.

A plethora of research explored the impactof different leadership styles on employeesestablishing a number of relationships. The linkof transformational leadership has been looked

with positive employee outcomes but little isknown if there are some other characteristics thatmay affect the behaviours. A comprehensivereview of literature from psychology, sociologyand behavioural sciences led Ray, Baker andPlowman (2011) to conclude that an individual’smindfulness can bring positive behaviouralchanges among its followers. It has beenobserved that mindfulness from leader’s pers-pective and how the relationship between leaderand his/her followers affect the link betweenmindful leaders and employee-affective organi-zation commitment and burnout.


Fig 1. Theoretical Framework of the Study

TransformationalLeadership

Mindfulness

LeaderMember

Exchange

AffectiveCommitment>>>

It has been theorized as moment-to-moment,non-judgmental and non-reactive awareness.Thus, mindfulness is prompt and thoughtfulresponse base on background clues.

Transformational leadership has beenassociated with a number of positive outcomesbut it has never been examined along withmindfulness to see if mindfulness develop betterbehavioural outcome for employees.

Mindful leadership is an area of study atHarvard (Ozaralli, 2003). As forecasted by WorldHealth Organization, mental health problemswill take away the greatest share of healthresources by 2030. People undergoing anxietyand depression can get the greatest benefit frommindfulness training programs. Results of somestudies may help us to conclude that lessemotionally exhausted employees are also morecommitted at the same time.

The phenomenon of mindfulness is beingintroduced as a new area in behavioural sciences.Little is known about the mindful behaviour ofleaders specifically how it affects the employee’sattitudes of commitment and burnout amongothers. This is a theoretical oversight in theknowledge base of leadership. So, the firstpurpose of this study is to examine the extent ofimpact of mindful leader behaviour on employeeorganization commitment and burnout. Inaddition, the quality of relationship betweenleader and his/her followers affects the employeebehaviours in distinguishing ways. Drawing uponLeader Member Exchange (LMX) theory, thisstudy examines the intervening effect of LMX onthe relationship between leader mindfulness andfollowers’ organization commitment and burnout.

Theoretical Foundations of the Model

Mindfulness, meditation and insight have beenfound to be positively associated with problem-solving ability. It is related with highly ethicalbehaviour. Mindfulness promotes self-awarenessthat further helps to minimize immoral behaviour.Studies reveal that in case of people being awareof them; self-regulated behaviour fostersleadership development. Thus, mindful leaderswill try to develop high quality workingrelationship with followers and their subordinateswill be more respectful and loyal towards them.

A transformational leader enhances sub-ordinate satisfaction. Qualities of LMX relation-ship helps followers enjoy the freedom atworkplace. As a result, they are given better jobassignments and more support, get moreopportunities to work with their leader andexperience more trust in the leadership.

Strong leaders identify with their organiza-tion the more their followers identify with theorganization. Turnover intentions and affectivecommitment have a strong negative associationwith transformational leadership.

Integrating the research on mindfulness, LMX,and affective commitment, it is contended thatleader plays instrumental role in socializationprocess, mentoring, motivating and supportingtheir followers. LMX has an intervening roleoperating as a mechanism between mindfulnessand employee outcomes of burnout and affectivecommitment.

Significant and positive associations havebeen found between LMX and employee attitu-dinal outcomes such as affective commitment.Low level of affective commitment is foundamong contingent employees as compared topermanent employees.

Organizations are identified with their leaders.When employees are attached to leaders, itnaturally explains that they are committed to theorganization. It has also been obseved that humanresources and transformational leadership arepositively associated with each other.

Commitment is independent of personalmotivation and interests. It implies extremeprofessional loyalty and depth of identification.Being concerned with development and growthof followers makes transformational leadershipdistinct from others. Thus, it can be contendedthat LMX mediates the relationship betweenmindfulness and employee affective commitment,as well as the relationship between transfor-mational leadership and employee affectivecommitment.

Saliha Gul Abbasi and Arshad Zaheer


METHODOLOGY

Scales used to measure the relationshipsproposed in this study are as follows:

All items were measured on a five-pointLikert type scale from 1 ‘Strongly Disagree’ to 5‘Strongly Agree’.

Methods

The study was conducted in natural worksettings with minimal researcher interference andis a one-shot study. Unit of analysis was amanager-subordinate dyad. Target populationincluded government employees working onadministrative and managerial positions.

Government employees are selected as targetpopulation because administrators face thechallenge of designing conscious methods toorganize. It involves creating a culture thatencourages deep thinking based on concreteinformation. Thus, managers and administratorshave such a nature of job that requires them to bemore vigilant and more aware of what is goingaround them as compared to other employeeswho carry out routine tasks performed on auto-pilot approach. This study utilized proportionatestratified random sampling as there are identi-fiable sub groups of population. Size of usablesurvey was 309 supervisor-subordinate dyads.

RESULTS

Demographic characteristics highlight that88.85% of respondents are male, 64% of managersand 48% subordinates are in age bracket of 36-45 years with 5-10 years of job experience and54% are masters degree holders among managersand subordinates respectively.

Independent sample t-test was conducted forgender and one way ANOVA was conducted forother demographic variables to identify thecontrol variables. Control variables for LMX wereage and gender of managers and gender ofsubordinates. Control variables for affectivecommitment were gender of managers, sub-ordinates and qualification of subordinates.

CONCLUSION

The results of this study support the hypothesis.

This study shows that transformationalleadership and mindfulness have a significantand positive relationship with LMX. Astatistically significant and negative impact oftransformational leadership and mindfulness onaffective commitment of employees is found.

Mindfulness and transformational leadershipof manager develops the quality relationshipbetween a manager and his/her followers. Thisrelationship increases affective commitmentamong followers. The results of this studyindicate that model proposed has been fullyconfirmed in the case of TL through LMX. ThusLMX mediated fully the relationship between TLand dependent variable affective commitment.Similarly, in case of mindfulness, relationship ofmindfulness with AC was fully mediated.

Results indicate that mindfulness of managersleads to development of quality LMX relationshipbetween manager and subordinates. This furtherdevelops the feeling of affective commitmentamong employees. Direct effect of mindfulnessand transformational leadership becomesinsignificant in presence of quality LMX.

Variance explained by LMX in affectivecommitment is 8%. It can be concluded that highquality of LMX relationship develops employeeaffective commitment. Mindfulness andtransformational leadership style is significantlyand positively related to LMX in governmentsector. Dulebohn (2011) also suggest this in caseof transformational leadership. Vogus andSutchcliffe (2012) and Ray et al. (2011) havesimilar experiences in case of mindfulness. TLand mindfulness explained 11.1% and 10.8% ofvariation in LMX respectively. Therefore, it canbe concluded that both transformationalleadership and mindfulness of a leader play arole in developing a quality relationship withtheir subordinates. Almost similar variation inLMX by the two predictors indicates that beingaware of the surroundings is as much importantfor a leader and manager as following anacceptable leadership style.

REFERENCES

Avolio, B.J., Zhu, W., Koh, W. and Bhatia, P.“Transformational leadership and organiza-tional commitment: Mediating role of psy-

Relationship of Mindfulness and Transformational Leadership


chological empowerment and moderatingrole of structural distance”, Journal ofOrganizational Behavior, Vol. 25, No. 8,pp. 951-968, 2004.

Briscoe, J.P. and Finkelstein, L.M., “The newcareer and organizational commitment: Doboundary less and protean attitudes make adifference?”, Career Development International,Vol. 14, No. 3, pp. 242-260, 2009.

Dulebohn, J.H., Bommer, W.H., Liden, R.C.,Brouer R.L. and Ferris, G.R., “A Meta-Analysis of antecedents and consequences ofleader-member exchange: Integrating thepast with an eye toward the future”, Journalof Manage-ment, Vol. 38, No 2, pp. 1715-1759,2012.

Erdogan, B., “Leader-member exchange differentia-tion fairness: Evidence for a new construct”,Retrieved from ProQuest Dissertations andTheses Database, 2002.

Erkutlu, H., “The impact of transformationalleadership on organizational and leadershipeffectiveness: The Turkish case”, Journal ofManagement Development, Vol. 27, No. 7,pp. 708–726, 2008.

Judge, T.A. and Piccolo, R.F., “Transformationaland transactional leadership: A meta-analytictest of their relative validity”, Journal ofApplied Psychology, Vol. 89, pp. 755-68, 2004.

Jun R., Zhihui H., Jing L., Gao Xia W., XiaopingY., Zhi G.D., Yi Bin W. and Fei L., “Meditationpromotes insightful problem-solving bykeeping people in a mindful and alertconscious state”, Science China Life Sciences,Vol. 54, No. 10, pp. 961-965, 2011.

Levinthal, D. and Rerup, C., “Crossing anapparent chasm: Bridging mindful and less-mindful perspectives on organizationallearning”, Organization Science, Vol. 17, No. 4,pp. 502-513, 2006.

Özaralli, N., “Effects of transformationalleadership on empowerment and teameffectiveness”, Leadership & OrganizationDevelopment Journal, Vol. 24, No. 6, pp. 335-344, 2003.

Ruedy, N.E. and Schweitzer, M.E., “In themoment: The effect of mindfulness on ethicaldecision making”, Journal of Business Ethics,Vol. 95, pp. 73-87, 2010.

Shapiro, S.L., Brown, K.W. and Biegel, G.M.,“Teaching self-care to caregivers: Effects ofmindfulness-based stress reduction on themental health of therapists in training”,Training and Education in ProfessionalPsychology, Vol. 1, No. 2, pp.105–115, 2007.

Saliha Gul Abbasi and Arshad Zaheer


* Anand Institute of Management, Anand, India

An Empirical Study on Financial Inclusionand Exclusion with Respect to Banking Services

in Selected Villages of AnandDistrict in Gujarat, India

Suchi K. Patel*

ABSTRACT

Inclusive growth is possible only through proper mechanism. Financial inclusion is aninnovative concept which makes alternative techniques to promote the banking habitamong rural people who are often illiterate. Such households have low income and oftenlack access to bank and have to spend time and money to avail banking services, be itopening an account or availing a loan facility. In this paper we analyze the income-related inequalities, differences in the use of banking services by male and female, lackof awareness about banking services among rural people, reasons for not availing bankingservices, and by which source these people (who are financially excluded in selectedvillages of Anand) meet their sudden financial need.

Key words: Financial Inclusion, Financial Exclusion, Banking Services

INTRODUCTION

Financial inclusion or inclusive financing isthe delivery of financial services at afford-able costs to sections of disadvantaged and

low-income segments of society, in contrast tofinancial exclusion where these services are notavailable or affordable. An estimated 3 billionworking adults globally have no access to thetypes of formal financial services delivered byregulated financial institutions. In Sub-SaharanAfrica only 24% of adults have a bank accounteven though Africa’s formal financial sector hasgrown in recent years. It is argued that asbanking services are for the nature of public

good, the availability of banking and paymentservices to the entire population without discri-mination is the prime objective of financialinclusion public policy.

The term “financial inclusion” has gainedimportance since the early 2000s, a result offindings about financial exclusion and its directcorrelation to poverty. The United Nationsdefines the goals of financial inclusion as follows:

• Access at a reasonable cost for all householdsto a full range of financial services, includingsavings or deposit services, payment andtransfer services, credit and insurance;


• Sound and safe institutions governed by clearregulation and keeping up professionalstandards;

• Financial and institutional sustainability, toensure continuity and certainty of investment;and

• Competition to ensure choice andaffordability for clients

Financial exclusion can be defined as theunavailability of banking services to people withlow or no income. It is believed to be one factorpreventing poor people to live in poverty. Simplefinancial tools such as a credit card and a bankaccount for pay have become prerequisites formany activities of daily living. Lack of access tothese tools and services and lack of use of theserepresent a serious obstacle to economic andsocial integration of a person.

Generally speaking, people with low income,less education, part of an ethnic minority or withmigrant background and either very old or veryyoung are more likely to be financially excludedthan others. Women are also twice as likely tofind themselves completely excluded fromfinancial services than men. By household type,people who are completely financially excludedare more likely to be found within householdswith no wage earner.

RESULT

The result indicates that 43% respondents fellinto the age group of 26-35, proportion of maleand female respondents being the same, 50%respondents held education as HSC and below,33% respondents have less than Rs. 50000 and33% respondents have Rs. 50000-150000 annualincome.

The study shows that out of 5 selectedvillages, four villages have bank facility in which59% respondents are availing banking servicesand 41% of respondents are financially excludedfrom banking services. From the financiallyincluded respondents 66.10% of the respondentsuse banking services from their local area bankbranch. Due to the lack of education they are notthat much aware regarding the banking systemand are finding the banking services as a verytime consuming process. Through quantitativeanalysis the study poses that during uncertaincircum-stances the major sources financiallyexcluded people. For meeting their financialneeds they take help from their friends andrelatives apart from that they take help frommoneylenders and sometimes they mightmortgage their capital assets for the said reason.

CONCLUSION

From this study researcher found that the peopleare aware about the basic banking services likedeposit, loans, fixed deposit, ATM service. Thepeople who are included are availed of thebanking service for saving their surplus fund andfor getting benefit of debit card services. Thereasons for not availing are that due to the lackof education they are not that much awareregarding the banking system and are finding thebanking services as a very time consumingprocess with high opening and maintenancecharges. People meet their sudden financialneeds with the help of friends or relatives,money-lenders, and by mortgaging their assets.Male-headed households are more included infinancial services than female-headedhouseholds.

Suchi K. Patel


Relationship Among Employee Empowerment,Job Satisfaction and Organisational Commitment:

An Empirical Study

Kranti Walia and Akanksha Arora*

Abstract

This study investigates the empowerment concept, job satisfaction and organizationalcommitment in the IT industry. Empowerment heightens employees’ sense of personalcontrol and motivates them to engage in work which in turn results in positive managerialand organizational outcomes. Job satisfaction and organizational commitment have bothshown to be important outcomes of psychological empowerment. The primary objective ofthis study is to gain an understanding of the relationship of employee empowerment withjob satisfaction and organizational commitment amongst employees in multi-nationalorganizations.

Key words: Empowerment, Job Satisfaction, Organizational Commitment

INTRODUCTION

GLobalization has put pressure on companies tofundamentally rethink and redesign their existingorganizational processes, to increase production,speed and quality, while cutting costs andeliminating layers. Organizations are finding theneed to change the way they are doing theirbusiness. These may include the development ofglobal market places, rapid innovation in worktechnologies, shifting work force and customerdemographics, and increasing demand for qualityand flexibility in products and service. In reactionto the global challenge, numerous bigorganizations delayered, devolved decision-making, promoted multi-skilling, encouragedteamwork, and introduced a range of initiativesin order to empower employees.

Employee empowerment, job satisfaction andorganizational commitment are importantconcepts to consider when dealing with thechanges in the world of work. Employee em-powerment refers to the feeling of empowermentamong employees. Empowerment heightensemployees’ sense of personal control andmotivates them to engage in work which in turnresults in positive managerial and organizationaloutcomes. Lots of studies mentioned that jobsatisfaction and organizational commitment havebeen found as the important outcomes ofemployee empowerment. Employee empower-ment has received wide recognition as animportant subject in management circles mainlybecause it is seen as one of the fundamentalelements of managerial and organizationaleffectiveness that increases when power and

* NIT Kurukshetra


control are shared in an organization. Theempowerment of employees is essential to theconstant change and learning that characterizetoday’s global business environment. Lashley(1999) states that employee empowerment hasbeen hailed as a management technique whichcan be applied universally across all organi-zations as a means of dealing with the needs ofmodern global business. Empowerment leads tothe potential benefits such as increased commit-ment, better decisions, improved quality, moreinnovation, and increased job satisfaction. Thebenefits of employee empowerment can be seenin both the organization and the individual. Someof the benefits of empowerment prog-rammes forthe individual include confidence about theirability to perform their work well, perceivedcontrol in terms of a sense of competence and self-determination, a clear understanding of their rolein an organization, lower absenteeism andincreased turnover, a sense of ownership, takingresponsibility, higher levels of motivation,commitment, performance and job satisfaction.There are various approaches to empowerment,namely, an act (structural approach), apsychological state of mind (motivationalapproach) or an energizing aspect throughleadership (leadership approach). The presentstudy, however, will focus on empowerment fromthe psychological pers-pective. It presents anempirical research on employee empowerment inIT industry and explores the impact ofempowerment on job satisfaction andorganizational commitment. It also establishes arelationship between job satisfaction andorganizational commitment.

EMPOWERMENT

According to Lashley (1999), empowerment is aprocess that provides employees with autonomythrough sharing of correct information and theprovision of control circumstances that effect jobperformance of the organization, by rewardingemployees for contributions made and with thepower to make influential decisions being vestedin employees. Psychological empowerment has, inparticular, been defined as an individual’sexperience of intrinsic motivation that is based oncognitions about him or herself in relation to hisor her work role. Vogt and Murrell (1990) defineempowerment as a positive use of power to create

more power, which has a positive energizing effecton the organization.

According to Zimmerman (1995), psycho-logical empowerment as a construct integratesperceptions of personal control, a proactiveapproach to life and a critical understanding of thesocio-political environment.

JOB SATISFACTION

A majority of authors defined job satisfaction interms of feelings, attitudes and beliefs. Johns(1992) opined that job satisfaction is a collectionof attitudes that workers have about their jobs.According to Landy and Conte (2007), jobsatisfaction is a positive emotional state resultingfrom the appraisal of one’s job. According toRobbins (2003), the individuals who have high jobsatisfaction will exhibit positive attitudes towardstheir jobs whilst, at the same time, as individualswith low satisfaction will display negativeattitudes toward their jobs. Udechukwu (2009)stated that it is the extent to which individuals like(are satisfied with) or dislike (are dissatisfied) withtheir jobs. Salami (2001) views job satisfaction asa personal feeling of contentment which anemployee has and exhibits towards his or herwork situation.

ORGANIZATIONAL COMMITMENT

Miller and Lee (2001) postulate that organiza-tional commitment is characterized by anemployee’s acceptance of organizational goals andtheir willingness to exert effort on behalf of theorganization. According to Levy (2003),organizational commitment can be defined as thestrength of an individual’s identification with, andinvolvement in the organization. Researchersusually describe organizational commitment as anemployee’s psychological attachment to theorganization. Allen and Meyer (1990) defineorganizational commitment as the psychologicallink between the employee and the organizationthat makes it less likely for an employee to wantto leave voluntarily. They also defineorganizational commitment as “the employee’sfeeling of obligation to stay with theorganization”. Becker, Randal and Riegel (1995)define organizational commitment in threedimensions, namely:

Kranti Walia and Akanksha Arora


Miller and Lee (2001) postulate that organiza-tional commitment is characterized by anemployee’s acceptance of organizational goals andtheir willingness to exert effort on behalf of theorganization. According to Levy (2003),organizational commitment can be defined as thestrength of an individual’s identification with, andinvolvement in the organization. Researchersusually describe organizational commitment as anemployee’s psychological attachment to theorganization. Allen and Meyer (1990) defineorganizational commitment as the psychologicallink between the employee and the organizationthat makes it less likely for an employee to wantto leave voluntarily. They also define organiza-tional commitment as “the employee’s feeling ofobligation to stay with the organization.” Becker,Randal and Riegel (1995) define organizationalcommitment in three dimensions, namely:

• A strong desire to remain a member of theparticular organization

• A willingness to exert high levels of effortson behalf of the organization

• A belief in and acceptability of the values andgoals of the organization

LITERATURE REVIEW

Numerous researchers have reported a positiverelationship between job satisfaction andorganizational commitment. Popoola investigatedorganizational commitment, job satisfaction andturnover intentions amongst records manage-ment personnel in Nigeria. The researcherexpected no significant relationship between jobsatisfaction and organizational commitment. Thenull hypothesis was however rejected. The findingsuggests that the higher the job satisfaction ofrecords management employees, the more likelythey would be organizationally committed andvice-versa. Hartline and Ferrell (1996) conducteda study of 279 hotel units, the findings revealedthat empowerment, under the correct conditions,increased job satisfaction and service quality. Theresearchers posit that it is logical that providingcustomer-contact employees with the discretion inserving customers would result in many positiveinfluences on their responses and the serviceencounter. So, a hypothesis is framed to test therelationship between empowerment, satisfactionand commitment.

• Hypothesis 1: There is a significant relation-ship between empowerment, job satisfactionand organizational commitment.

• Hypothesis 2: Employees who feel em-powered are likely to exhibit job satisfaction.

There have been mixed views for therelationship between gender and empowerment,job satisfaction and commitment. According toDimitriades and Kufidu (2004), the relationshipbetween gender and empowerment has beenidentified as an area with diverse findings.However, Kotze (2007) on the other hand, positsthat “the relationship between gender andempowerment has been an under-researchedtopic.” Gurses and Demiray (2009) studied assample of n = 134 employees of a TV ProductionCentre to assess organizational commitment andfound a significant relationship between genderand organizational commitment. The researchersexplain the significant relations as a result offemales being hesitant to consider new jobopportunities due to family responsibilities like,children and marriage. Mathieu and Zajac (1990)used a meta-analysis and found that women tendto be more committed than men however; themagnitude of the effect was small. An explana-tion for this finding was that women have toovercome more barriers than men to membershipof organizations. Patah (2009) investigated theinfluence of employee empowerment on overalljob satisfaction amongst n=210 front officereceptionists in Kuala Lumpur’s-star hotels. Theyhypothesized that employees’ overall job satis-faction differ significantly based on theirdemographic and work profile information. Thefindings indicated that there were no significantdifference between males and females.

Koberg (1999) studied the consequences ofemployee empowerment amongst 612 employeesin a hospital setting and found that employeeswith greater organizational tenure are more likelyto experience feelings of empowerment. Similarly,Ozaralli (2003) found that employees who havea longer organizational tenure with their employerfeel more empowered than those with shorterorganizational tenure and suggested that thisincrease in empowerment related to tenure wasdue to an increase in experience. Busch andBush’s (1978) view is that in the instances wheregender differences and job satisfaction have been

Relationship Among Employee Empowerment, Job Satisfaction


noted, these differences were probably morerelated to the employee’s role in the specific jobrather than his or her gender. In a meta-analysisby Mathieu and Zajac (1990) the findings showedthat age and organizational tenure are positivelyrelated to organizational commitment. Severalother studies have confirmed that the length ofservice is positively associated to the level ofinternalization of organizational values whichresults in greater commitment from theindividual. Schneider (1987) supports a positiverelationship between tenure and job satisfactionsuggesting that employees who fit in anorganization are more likely to be satisfied andhave longer organizational tenure. Cano andMiller (1992), on the other hand, found noassociation between years of experience andoverall job satisfaction amongst agriculturaleducation teachers. Hence, two more hypothesishave been framed to find out a relationship all thethree constructs with tenure and age as importantdemographic characterstics.

• Hypothesis 3: There is a significant differencein empowerment based on biographicalcharacteristics (namely, tenure and gender).

• Hypothesis 4: There is a significant differencebetween job satisfaction and organizationalcommitment on biographical characteristics(namely, tenure and gender).


This study tries to find out the level of empower-ment and its relation with job satisfaction andorganizational commitment. For this purpose thefollowing objectives have been framed.

• To determine employees’ level of employeeempowerment, job satisfaction and organiza-tional commitment in multinational organiza-tions of IT industry.

• To determine the relationship betweenemployee empowerment, job satisfaction andorganizational commitment.

• To determine the differences in empower-ment, organizational commitment and jobsatisfaction and biographical characteristics(namely gender, and tenure).


Research Design

Explorator-cum-descriptive research design wasused for the present study. The primary data wascollected through the use of online survey andquestionnaire techniques.

• Primary Data: the data was collected byconducting online survey.

• Population: The survey was conducted on theemployees of MNCs in IT industry atBangalore.

• Sample: Two hundred employees were givenquestionnaire out of which 172 respondedthus N=172. The population targeted for thisstudy included permanent employees,employed in all departments of variousmultinational companies in IT industry atBangalore.

DESIGN OF QUESTIONNAIRE

The questionnaire was designed based onliterature review, the aim of study and thehypothesis. The questionnaire contained foursections. Every section had some questions orstatements and the respondents were asked to ratethe statements, on a 7-point Likert scale, thedegree of agreeing or disagreeing. Each statementattempts to extract the employees’ feelingstowards organizational policies, goals and values,their willingness go the extra mile, and whetherthey are proud to be associated with theorganization. These four sections have beenadopted and therefore framed accordingly.

1. A self-developed section of the questionnairewas used to acquire demographic informationfrom the sample. Participants were requestedto provide information with regard to theirgender, age, job grade and years of service inthe organization.

2. The Measuring Empowerment Questionnaire(8 items) developed by Hayes (1994) was usedto measure the psychological empower-mentof the respondents. The Cronbach alphareliability coefficient for the empowermentis .811.

3. The Job Description Index was developed byHackman and Oldham (1975) and it consists



Table 1. Profile of respondent (N=172)

Characteristics N Percentage

GenderMale 100 58Female 72 42

TenureLess than an year 37 221-2 years 52 303-5 years 54 315-10 years 18 11More than 10 years 11 6

of 15 items. The JDI was designed to measurefive facets of job satisfaction, namely,satisfaction with work itself, satisfaction withpay, satisfaction with opportunities forpromotion, satisfaction with supervision, andsatisfaction with co-workers. The Cronbachalpha reliability coefficient for the JDI is .886.

4. The Organizational Commitment Question-naire (OCQ) was developed by Allen andMayer (1991) and used to elicit data onorganizational commitment. It consists of 8items and its cronbach alpha coefficient is0.899.

PROFILE OF THE RESPONDENTS

with the statement. The responses gatheredduring the study have been used as the data forthe study. Correlation was applied on the data forexploring the level of association amongst the“Empowerment, Organizational Commitmentand Job Satisfaction.”

The result indicated that there is a significantand direct positive relationship between jobsatisfaction and empowerment (r = 0.479, p<0.01).There is also a statistically significant positiverelationship between empowerment andorganizational commitment (r = 0.531, p<0.01).The strongest positive relationship is, however,between job satisfaction and organizationalcommitment (r = 0.556, p<0.01). The resultsprovide evidence that the greater the jobsatisfaction, the higher is an employee’sorganizational commitment. Moreover, employeeswho feel empowered were likely to experiencehigher levels of job satisfaction and organizationalcommitment. Hence, hypotheses 1 and 2 areaccepted.

Table 3 depicts gender differences inempowerment, job satisfaction and organizationalcommitment. The results indicate that there wereno statistically significant differences inempowerment based on gender (t = -.422, p>0.05).There are also no statistically significantdifferences in organizational commitment (t =1.792, p>0.05) and job satisfaction (t=1.155, p>0.05)based on respondents’ gender. Thus hypothesis3 and 4 are rejected with respect to gender.

Table 4 provides the results for the ANOVAdepicting differences in empowerment, jobsatisfaction and organizational commitment based

Table 2. Correlation between empowerment, job satisfaction and organizational commitment

Empowerment Organizational JobCommitment Satisfaction

Empowerment Pearson Correlation 1 .531 .479Sig. (2-tailed) .000 .000

Organizational Pearson Correlation .531 1 .556Commitment Sig. (2-tailed) .000 .000

Job Satisfaction Pearson Correlation .479 .556 1Sig. (2-tailed) .000 .000

Correlation at significant level p<0.01 for 2-tailed

Data Analysis and Interpretation

Respondents were required to rate each statementusing the 7-point scale. A rating of 7 indicates thatthe respondent agrees fully with the statement;and 1 indicates that the respondent disagrees fully



on the biographical variable of tenure inorganization. There were statistically significantdifferences in psychological empowerment basedon the number of years in the organization (F =14.728, p<0.05). There were also statisticallysignificant differences in organizationalcommitment based on tenure in organization (F= 7.202, p<0.05). There were statistically significantdifferences in job satisfaction based on tenure inorganization (F = 6.313, p<0.05) of the employeesof various IT companies. Thus hypothesis 3 and4 are accepted with respect to tenure. The resultsderived from this study indicate a significantstatistical difference in empowerment based onthe number of years in the organization. It is alsoevident that there is significant difference betweenjob satisfaction and organizational commitmenton tenure of the employees of various MNCs ofIT industry at Bangalore.

CONCLUSION

The aim of this research was primarily to

determine the relationship between empower-ment, job satisfaction and organizationalcommitment amongst employees in IT industry atBangalore. In this study several determinantswhich are responsible for the empowerment, jobsatisfaction and organizational commitment arereviewed and hence used as effective variables forthe study. The results from this study indicate asignificant relationship between empowerment,job satisfaction and organizational commitment inthe employees of a multinational organization.

The following empirical findings emergedfrom the examination of the stated hypotheses:

• There is a significant relationship betweenempowerment, job satisfaction and organiza-tional commitment.

• There is a significant difference in empower-ment based on biographical characteristics,namely, tenure.

• However no differences were observed formale and female respondents.

This study concludes that empoweringemployees is a critical component of anorganization to survive in the new, highlycompetitive global economy. Empowering ofemployees in a service industry like IT influencesthem to accept greater responsibility and exercisemore control over the way they perform their jobs.If we perform an effective empowerment theemployees are expected to deliver higher qualityof service being highly satisfied and committed totheir organization. The principles of thismanagement tool i.e., empowerment are

Table 3. Independent Samples t-test to determine gender differences in job satisfaction,empowerment and organizational commitment

Levene’s Test for t-test for Signifi-Equality of Variances Equality cance

of Means

F Sig. T

Empowerment Equal variances assumed 1.684 .196 –.422 NoEqual variances not assumed –.499

Job Satisfaction Equal variances assumed .004 .953 1.155 NoEqual variances not assumed 1.143

Organizational Equal variances assumed .400 .528 1.792 NoCommitment Equal variances not assumed 1.802

Table 4. ANOVA illustrating differences inempowerment, job satisfaction andorganizational commitment based on tenure

F Significance

Empowerment 14.728 Significant

Job Satisfaction 6.313 Significant

Organizational 7.202 SignificantCommitment



implemented in theory, but more difficult toimplement in practice. Both management andemployees share the responsibility for making itwork. To develop a culture of empowerment thereshould be involvement of employees in definingthe fundamental values, mission, and goals oforganizations. The involvement of employeeshelps them to know how their work contributesto the success of the organization. Furthermore,results indicate that employees at the multi-national organization are relatively satisfied withthe nature of the work that they perform, with thesupervision that they receive, as well as with theirco-workers. Moreover, satisfaction involves thework environment, and commitment involvesemotional commitment to the “family” of theorganization. Giving your staff a sense of belongingto the organization (by shared values or rituals)would make them feel emotionally attached and“part of the family” which could be possiblethrough empowerment. Managers can increaseorganizational commitment through communi-cating that they value employees’ contributionand that they care about employees’ well-being.

Based on the findings of the current researchrecommendations are put forth for future research.Future research should use a larger sample withequal representation of tenure and gender. Dupli-cation of the current research could be performedto identify similarities and differences with thepresent findings. Future research could incorpo-rate a qualitative approach in addition to a quanti-tative focus. A qualitative approach (for example,interviews) might provide a better understandingof whether employees are empowered.

LIMITATIONS

Firstly, the ability to generalize of the findings isrestricted because a convenience sample was usedfor the study. Secondly, the findings cannot begeneralized to other industries as it was conduc-ted in IT industry. Also, the study was conductedin the Bangalore context, hence, it cannot begeneralized to its national and internationalcounterpart. Thirdly, all information generated forthe study was on the basis of participants’ self-reports. Therefore, an element of bias may haveaffected the results. Also, some respondents mighthave completed the instrument to get it done,whereas others might have shown more interest.

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