XKDR Newsletter - Issue 4
• When is the OTR fee effective? • Financial Distress Prediction Models • Problems in highway procurement • Lecture series on government contracting.
When Is The Order To Trade Ratio Fee Effective?
Regulators use measures such as a fee on high order to trade ratio (OTR) to slow down high-frequency trading. A new paper by Nidhi Aggarwal, Venkatesh Panchapagesan, and Susan Thomas, Journal of Financial Markets, (Forthcoming), examines two instances when the OTR fee was imposed (by NSE and SEBI) on trading at the NSE. They use a difference-in-difference regression framework to understand the causal impact of the OTR fee.
Key findings:
The fee was effective in changing trading behavior when it was binding.
Market liquidity of both the treated Single Stock Futures (SSF) and spot was impacted by the OTR fee when it was imposed by NSE.
There was a limited impact of the fee on market liquidity when it was imposed by SEBI.
The fee decreased OTR and improved market quality when it was imposed on all orders, while it had little effect when it was imposed selectively on some orders.
Fifty Years Since Altman (1968): Performance Of Financial Distress Prediction Models
Using bankruptcy filings under the new Insolvency and Bankruptcy Code (2016), the authors, Surbhi Bhatia and Manish Singh investigate the effect of firm characteristics and balance sheet variables on the forecast of one-year-ahead default for Indian manufacturing firms.
Key findings:
All the five ratios considered important by Altman (1968) still hold relevance for the prediction of default, no matter the technique applied for variable selection.
The cash to current liability (a liquidity measure) is an additional robust and significant predictor of default.
Identifying roadblocks in highway contracting: lessons from NHAI litigation
Using a novel data-set from three different sources, Charmi Mehta and Susan Thomas identify the causes of disputes involving the NHAI. They classify the procurement life cycle into 4 phases - contract design, contract award, contract management, and contract closure and measure the share of each of the phases in litigation.
Key findings:
NHAI accounts for almost 40% of the cases that the Union Government is a party to.
The hot spot in litigation is the post-award or the contract management phase. Over 65% of the cases are concentrated in this phase.
There is a large volume of arbitration-proceedings related disputes, indicating the limitations of using ADR mechanisms in India.
Lecture series on Government Contracting in India
XKDR Forum conducted a 6-series lecture program at the Indian School of Public Policy (ISPP) in the field of government contracting in India. The following are the broad contents of the lectures:
Government contracting as a foundational process of the state;
How government contracting is done in India, today;
Problems in government contracting;
Success stories in government contracting;
Root cause analysis: why do government contracts fare poorly;
A path to contracting better.
Click here to read more of our work in the field of government contracting.