ISSN No. 0975-7708 SAMIKSHA

The Research Journal of United Institute of Management, Allahabad, U.P., India

Volume II No. 2 July - Dec 2011

SAMIKSHA

United Institute of ManagementAllahabad

ISSN No. 0975-7708

Bi – Annual Journal

An Empirical Study of Organizational Climate with Reference to Employee’s MotivationProf. S. K. Singh, Vivek Tiwari

Construction of Equity Portfolio of Banking Sector with reference to The Sharpe Index ModelP. Varadharajan, Dr. P Vikkraman

Factors influencing Seller Communication StyleVinay Kumar Chaganti, Dr. K. S. S. Rama Raju, Divya Kumar

A Study of The Marketing Practices of Farmers at Uzhavar SandhaiDr. T. Ramasamy

360-Degree Feedback Performance AppraisalProf. Amit Kr. Jain, Prof. Shrankhla Jain

Role of Microfinace in Development of Indian EconomyProf. (Dr.) Amit K. Srivastava, Dr. Gyan Prakash Upadhyay

Stress-Job satisfaction Relationship: Impact of Personality Variable: An Empirical study on Private Sector ManagersDr Shalini Srivastava

Performance Evaluation of Mutual Funds on Tax Saving Schemes In IndiaS. Durga

Global trend in consolidation of Stock Exchanges:An analysis of NYSE Euronext Inc.Dr. Shweta Anand

Rural Consumer’s Buying Behavior towards Insurance PolicyDr. Maithili R.P. Singh, Dr. Sanjeev Kumar, Jagdeep Kumar

EDITORIAL BOARD

Printed and Published by Dr. Jagdish Gulati on behalf of the United Institute of Management, UPSIDC Industrial Area, Naini, Allahabad (U.P.) India. Printed by Shantanu Publishers, Mumfordganj, Allahabad, 211002.

Email- [email protected], [email protected]

Editor: Prof. T.B. Singh

Volume II, No. 2, July-Dec 2011United Institute of Management, Allahabad

Copyright © UIM, Allahabad

SAMIKSHA

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EDITOR IN CHIEFProf. T.B. Singh

PrincipalUIM - Allahabad

Bi – Annual Journal

CHIEF PATRONMr. Girdhar Gopal Gulati

ChairmanUnited Group of Institutions

PATRONDr. Jagdish Gulati

PresidentUnited Group of Institutions

EDITORIAL REVIEW BOARD

Mr. Gaurav GulatiVice-President, UGI Allahabad

Mr. Vikas MehrotraAsst. Prof. (HR & Supply Chain Mgmt.)

Dr. Rahul RajanAsst. Prof (Accounting & Finance)

Dr. Vishnu Prakash MishraAsst. Prof (Marketing & I.T.)

Mr. Amitabh SrivastavaAsst. Prof (Operation Research)

Mr. Arindam BanrjeeLecturer (Accounting & Finance)

Mr. Prakash KundnaniLecturer (Accounting & Finance)

Mr. Om Prakash VishwakarmaLecturer (Marketing)

Ms. Sarika YadavLecturer (Strategic Management)

Mr. Rohit Kumar VishwakarmaLecturer (Marketing)

ADVISORY BOARD

Prof. S.K. SinghHead & Dean, FMS, BHU

Prof. A.K. TripathiProfessor, Computer ScienceInstitute of Technology, BHU

Prof. K.M. SharmaFormer Director, MONIRBA,University of Allahabad

Prof. A.S. SahayProfessor of Eminence, BIMTECH

Mr. M.P. GargExecutive DirectorRecron Synthetic Ltd., Allahabad

Prof. B.N. Asthana Former Vice ChancellorKanpur University

Mr. Naresh AgrawalChairman, Sunstar Overseas Ltd.

Mr. A.K. JainChairman & Managing DirectorBPCl, Naini, Allahabad

SAMIKSHAJournal of UIM, Allahabad

From the Editorial Board

ducation has become fundamental right of the people. Rights are always

accompanied by duties. When a common man starts understanding this, Eonly then India can become a super power. Learning is a basic tool for being

educated, hence consistent efforts will always be ensured to develop effective

learning process. We are always in search of excellence.

We are privileged to present before you the new issue of ‘SAMIKSHA’ which

contains a rich blend of research and case papers. The Journal focuses attention on

new ideas, creativity, innovation, and experience by academicians and

professionals in multidimensional streams of management and information

technology.

The Editorial Board is committed to re-establish a landslide say of the Indian Ethos

within the managerial discipline worldwide. We further seek a similar patronage of

the Advisory Board in actualizing the goals set before ‘SAMIKSHA’.

I would like to express my indebtedness to all the contributors to the present issue of

‘SAMIKSHA’ and hope they will continue their relationship with us. I am also

grateful to the eminent reviewing panel for selecting such quality papers for

inclusion in the Journal.

Our special thanks to the Patron who has been an encouraging source and

strength.

We shall be highly obliged if the readers send us their valuable

suggestions, observations, and comments to improve our future

endeavors.

Prof. T.B. Singh

Editor-in-Chief

An Empirical Study of Organizational Climate with Reference to

Employee’s Motivation 01

Prof. S. K. Singh, Vivek Tiwari

Construction of Equity Portfolio of Banking Sector with reference to

The Sharpe Index Model 11

P. Varadharajan, Dr. P Vikkraman

Factors influencing Seller Communication Style 17

Vinay Kumar Chaganti, Dr. K. S. S. Rama Raju, Divya Kumar

A Study of The Marketing Practices of Farmers at Uzhavar Sandhai 22

Dr. T. Ramasamy

360-Degree Feedback Performance Appraisal 28

Prof. Amit Kr. Jain, Prof. Shrankhla Jain

Role of Microfinace in Development of Indian Economy 36

Prof. (Dr.) Amit K. Srivastava, Dr. Gyan Prakash Upadhyay

Stress-Job satisfaction Relationship: Impact of Personality Variable:

An Empirical study on Private Sector Managers 45

Dr Shalini Srivastava

Performance Evaluation of Mutual Funds on Tax Saving Schemes In India 52

S. Durga

Global trend in consolidation of Stock Exchanges:

An analysis of NYSE Euronext Inc. 57

Dr. Shweta Anand

Rural Consumer’s Buying Behavior towards Insurance Policy 61

Dr. Maithili R.P. Singh, Dr. Sanjeev Kumar, Jagdeep Kumar

Volume II, No. 2, July-Dec 2011

SAMIKSHA

Contents

*Head/Dean, Faculty of Management Studies, Banaras Hindu University. Email-id: [email protected].

**Research Scholar, Faculty of Management Studies, Banaras Hindu University. Email-id: [email protected].

INTRODUCTION

Management plays an important role in shaping the

climate of an organization, which in turn helps to keep the

employees motivated. It does so by determining

organizational goals, laying down organizational structure

and pattern of communication and decision making processes

and also shaping of the organizational norms and values.

Managements control over these components means that

management has the ability to affect changes in the climate

through adjustments in any of the components. Management

must take the initiative in improving the subordinate-manager

relationship and thus the organizational climate.

G. James Francis and Gene Milibourn (1988) opined that

‘Climate for an organization is somewhat like personality for a

person and includes relatively constant variables in a work

environment (Guion, 1973; Steers And Porter, 1979). Just as

every individual has a personality that makes each person

unique, each organization has an organizational climate that

clearly distinguishes its personality from other organizations.

Organizational climate conveys the impressions people have

of the organizational internal environment within which they

work. It may refer to the extent to which the people are treated

as “human beings” rather than cogs in a machine (Joe Kelly,

1998).

For an organization to function properly it should

continuously get the resources (human, Informational,

material and financial) required by it. The human element is

the most critical one, because it is the one which is directly

linked with deriving the other resources for the organization

(O. Nicolescu, I. Verboncu, 1999). This shows how important it

becomes to keep the employees motivated for maintaining a

healthy organizational climate. Organizational climate seems

to be having a positive impact on the motivation and

performance level of the employees (George Litwin and Robert

Stringer, 1968). According to Stringer (1974), climate is the

perception about the corporate environment that the people

carry in their minds and it is demonstrated to influence their

motivation and behavior.

The present study deals with the study of organizational

climate with reference to motivation. The study was conducted

in the HR department of the NTPC, a Maharatna company

and one of the public sector giants of India. This paper tries to

find out the basic features of motives prevailing in the

organizational climate of the organization and their

contribution in its success. Data of both types i.e., primary and

secondary has been used for the study. Secondary data has been

collected through company’s HR Policy Manual and its

website (www.ntpc.co.in), while the Primary data has been

collected from 135 executives belonging to different

departments, executive levels and age groups through a

standard questionnaire. Respondents were asked individually

to rank-order the six statements within each separate category

according to their perception of how much each statement is

like the situation in their organization. After receiving the

responses from the respondents the researcher discovers which

motives are indicated by the responses. He then sums the ranks

indicated by the respondents and finally calculates the MAO-

C index number. This index no. has been used for further

statistical analysis to arrive at the conclusions and findings.

The results show that in all cases the Achievement Motive

comes out to be the dominant motive, while, Dependency and

Expert Influence are the favorites as back-up. In the light of the

results, it may be inferred that providing some degree of

autonomy and making the job more challenging will further

motivate the employees.

Keywords: Organizational Climate, Motivation,

External Influence, Dependency, Achievement, Control,

Affiliation, Extension etc.

An Empirical Study of Organizational Climatewith Reference to Employee’s Motivation Prof. S. K. Singh*

Vivek Tiwari**

REVIEW OF LITERATURE

The concept of Organizational Climate has been the

subject of many studies and research endeavors in the past.

Some of the findings of other researchers which seem to be

related to present study are being presented here.

Literature in organizational climate credits the first

systematic analysis of this problem to Chris Argyris (1958). In

his attempt to systematically describe the factors which

comprise organizational climate in a study of organizational

relationships among staff members of a bank, Argyris saw a

conflict between the individual, who seeks activity and

independence through psychological development, and the

bureaucratic, formalized organization which keeps the

individual in an infantile state of passive dependence. Argyris

suggests that it is important to find ways to manage this

inevitable conflict and keep it within tolerable bounds. He

further contends that an interpersonal atmosphere of truth,

openness and low threat needs to be created. Without such an

atmosphere, people feel they must attempt to hide conflict,

which makes the problem that much more difficult to identify

and deal with.

Katz and Kahn (1966), in their book, social psychology of

organizations state that organizational climate is developed by

the organizations. They say it reflects the struggles, both

internal and external, the type of people who compose the

organizations, the work process, the means of communication

and the exercise of authority within the individual

organization.

Friedlander and Margulis (1969) define climate as a

dynamic phenomenon, which may release, channel, facilitate

or constrain the organization’s technical and human resources.

It can be viewed as a moderating variable between the

organizations’ input like capital, resources, equipments and

products and the outcomes like profit, quality, satisfaction and

productivity (Ekvall, 1983).

Different theories about the development of

organizational climate exist. Schneider and Reichers (1983)

published an influential theory about how climate arises. In

their opinion three sources are essential, which are:

(a) The common exposure of organizational members to

the same objective structural characteristics,

(b) Attraction, selection and attrition of organizational

members so that a homogenous staff develops and

(c) Social interaction leading to shared understanding of

meanings (Schneider and Reichers, 1983)

According to Schneider (1987) organizations choose those

individuals as members who are compatible with the working

environment and fit to the organization’s personality.

Mismatch will lead to resignation and dismissal, thus in the

end homogeneity in the staff exists.

Anderson and West (1989) support this approach and state

that shared climate arises when:

(a) individuals interact,

(b) common goals exists and

(c) tasks are interdependent (Anderson and West, 1989)

Organizational climate has been defined as the way in

which organizational members perceive and characterize their

environment in an attitudinal and value-based manner (Moran

and Volkwein, 1992). Organizational climate has been asserted

as an important and influential aspect of satisfaction and

retention, as well as institutional effectiveness and success in

an organization. As per Moran and Volkwein (1992),

Organizational Climate is defined as "a relatively enduring

characteristic of an organization which distinguishes it from

other organization, hence,

(a) Embodies members’ collective perceptions about

their organization with respect to such dimensions

as autonomy, trust, cohesiveness, support,

recognition, innovation and fairness;

(b) Produced by member interaction;

(c) Serves as a basis for interpreting the situation;

(d) Reflects the prevalent norms and attitudes of the

organization's culture; and

(e) Acts as a source of influence for shaping behavior."

Toby Marshall Egan, Baiyin Yang, and Kenneth R. Bartlett

(2004) examined the effects of organizational learning culture

and job satisfaction on motivation to transfer learning and

turnover intention. This study examined the relationship of

organizational learning culture, job satisfaction, and

organizational outcome variables with a sample of information

technology (IT) employees in the United States. It found that

learning organizational culture is associated with IT employee

job satisfaction and motivation to transfer learning. Turnover

intention was found to be negatively influenced by

organizational learning culture and job satisfaction.

Mihail Aurel Þîtu and George Balan (2009) in their study

carried out at an industrial organization which produces

electricity, regarding the influence of organizational climate on

the organization management. They found that there is a

strong connection, a mutual determination between the

general management of the organization and the state of the

organizational climate. On the other hand, the employees

notice both positive and negative aspects in connection with

the organization of their work, interpersonal relationships,

management styles and the motivational system in their

organization. Most of them tend to perceive the organization as

a whole in a positive way, but there are also employees who

notice certain deficiencies.

Imran Rabia et al. (2010) examined the predicting role of

organizational climate (competing values model) in innovative

work behavior (IWB). Additionally, the study examined the

effect of organizational size on IWB. The results revealed

significant positive impact of organizational climate measure

and rational goal model on IWB. Moreover, the results did not

show significant role of organizational size in IWB.

In a study done by Sanguansak Bhaesajsanguan (2010) to

find the relationships among organizational climate, job

02 SAMIKSHA - Volume II, No. 2, July-December 2011

the scales of measurement as there are various scales available

according to various theories. According to Litwin and

Stringer an organization’s climate has seven dimensions.

Zammuto and Krakower (1991) measured climate using seven

different dimensions, while koys and Decotiis (1991) gave

eight dimensions. Considering on all the dimensions a total of

12 relevant dimensions of organizational climate were taken

for the present study and each dimension has been

accompanied with six motives. Respondents worked

individually to rank-order the six statements within each

separate category according to their perception of how much

each statement is like the situation in their organization.

DATA COLLECTION

Both primary and secondary data have been used:

(a) Primary data has been collected through a

questionnaire which consists of 12 questions and

circulated among executives (E1-E9) of NTPC Ltd

chosen at random from corporate office, SCOPE,

Badarpur Plant, Dadri Plant and PMI.

(b) Secondary data has been collected through

company’s HR Policy Manual and its website

(www.ntpc.co.in).

SAMPLE

The sample includes 135 employees from different

Departments and different Executive Levels (E1-E9). The

sample includes 30 executives from Human Resource

Department, 31 from Finance and 74 from Operations.

Majority of the employees are from the Operations because the

main function of the organization is to produce power so it is

important to identify the dominant motive prevalent among

the Operations personnel.

Of the entire sample 63 people belong to 36-45 age group,

36 belong to 25-35 age group while 36 belong to 45 above age

group. Among the executive levels the E1-E3 level is

represented by 40 people, E4-E6 is represented by 65 and

remaining 30 are from E7 and above. The executive levels are as

follows: E1-Asstt. Officer, E2-Officers, E3-Sr. Officer, E4-

Department Manager, E5-Mnager, E6-Sr. Manager, E7-DGM,

E7A-AGM, E8-GM, E9-Exectutive director.

SAMPLE PROFILE

satisfaction and organizational commitment in the Thai

telecommunication industry found that the behavior of

technicians in private telecommunications company in

Thailand had organizational climate go hand in for a positive

relationship with job satisfaction. It also disclosed that

organizational climate is a positive relationship with

organizational commitment through job satisfaction. The

results from this study provide significance knowledge for top

executives and human resource departments to execute and

enhance The Organizational Climate, Organizational

Commitment, and Job Satisfaction in Telecommunications

business sector in the future.

RESEARCH METHODOLOGY

Statement of the problem:

The review of literature presented above shows the

importance of maintaining a good organizational climate and

what all positive impacts it can have on various factors

responsible for the smooth functioning of an organization. As it

has already been discussed that organizational climate

represents the personality of an organization G. James Francis

and Gene Milibourn (1988), which seems to have a positive

impact on the motivational level and the performance of the

employees (George Litwin and Robert Stringer, 1968). This

show how critical is the organizational climate for an

organization and hence also justifies that it is an important

factor to be studied from organizational as well as researcher’s

point of view.

This study is a small step in trying to understand the

relevance of organizational climate and motivation in an

organization.

OBJECTIVE

The present research aims at exploring the Organizational

Climate of an industrial set up with reference to Motivation of

the employees. The objective of the study has been given

below:

• To understand the basic features of motives

prevailing in the organizational climate of NTPC Ltd

and their contribution in the success of NTPC Ltd.

VARIABLES

There are six motives that are particularly relevant for

Organizational Climate:

1. Achievement

2. Influence

3. Control

4. Extension

5. Dependency

6. Affiliation

The climate is divided into 12 parts so as to be able to

measure each part separately. This helps in measuring the

different components individually and collectively. This will

also help in comparing the organizational climate existing at

various organizations provided that organizations have used

Managing Changes Through Continuous Upward Improvements 03

Table 1: Age-wise category ofSample Respondents

Age (Years) No. of Employees %age

25-35 36 26.5

36-45 63 47

45 above 36 26.5

Table 1 clearly indicates that maximum no. of the

employees fall in the age group of 36-45 i.e., 47%. Also,

employees above 45 are 26.5%, which further indicates that

majority of the employee base consists of experienced

employees and this combined figure sums up to 73.5%. The

remaining 26.5% of the employees belong to the 25-35 years age

group.

and f). Each of these categories corresponds to one of the 12

climate dimensions and each of the six statements represents

one of the six motives. Respondents work individually to rank-

order the six statements within each separate category

according to their perception of how much each statement is

like the situation in their organization. Its reliability has been

checked through test-retest method and validity through

Factor Analysis.

DATA ANALYSIS, INTERPRETATIONAND FINDINGS

The data collected was tabulated and analyzed by using a

step-wise systematic method as elaborated in the Annexure 1

and Annexure 2. Firstly, the scoring key (shown in Annexure 1)

was referred for each respondent, to discover which motives

were indicated by the responses. Secondly, the ranking of

motives were transferred to the final matrix appended

(Annexure 2), for each respective employee. Thereafter, the

numbers in each vertical column of the matrix were added and

the totals were written in the appropriate blanks: Each of these

totals represented the score for the related motive or

motivational climate. Finally, the MAO-C index number was

calculated through the following formula:

Index = (S - 12) 100 / 60

Finally, each respondent’s index number was totaled for

each motive and then averaged for an overall organizational

index of each motive. The reason this index no. was used, was

to show the relative strength of the climate with regard to

motives; the cutoff point was taken to be 50. If the index

number for a particular motive was found to be greater than 50,

the climate was considered to be relatively strong for that

motive; if the index number was found to be less than 50 then

climate was considered to be relatively week for that motive.

The completed matrix provides scores for all six motives

assessed by MAO-C. The highest of these scores represents the

perceived dominant within an organization. The general

connections between dominant motives and particular types of

organizations are shown below in table 4:

04

Table 2: Department-wise category ofSample Respondents

Department No. of Employees %age

HR 30 22

Finance 31 23

Operations 74 55

It can be easily seen from the table 2 that majority of the

respondents were from the operations group i.e., 55%. It was

done intentionally, because the main function of the

organization is to produce power so it is important to identify

the dominant motive prevalent among the Operations

personnel. The remaining percentage of respondents was

almost equally distributed among the people from the HR and

Finance Departments.

Table 3: Executive Level-wise category ofSample Respondents

Executive Level No. of Employees %age

E1-E3 40 30

E4-E6 65 48

E7 and above 30 22

Table 3 depicts that 48% of the employees were form the

E4-E6 group and 30% from E1-E3 group and the top level

executives i.e., E7 and above consisted of 22% of the

respondents. This shows that the sample consists of a good

ratio of executives from all the levels.

MEASURING INSTRUMENT

Motivational Analysis of Organizational Climate (MAO-

C) designed by Dr. Udai Pareek has been use to study

organizational climate, with special regard to motivation. The

instrument employs 12 dimensions of Organizational Climate

(Orientation, Interpersonal Relationship, Supervision,

Problem Management, Management of Mistakes, Conflict

Management, Communication, Decision Making, Trust,

Management of Rewards, Risk Taking, Innovation and

Change) and Six Motives (Achievement, Expert Influence,

Extension, Control, Dependency and Affiliation). It consists of

12 categories each of which includes six statements (a, b, c, d, e,

Table 4: Relationship between Motiveswith types of Organization

Motive Type of Organization

Achievement (A) Industrial And Business

Organization

Expert influence (B) University department and

scientific organizations

Control (D) Bureaucracies such as

government departments

and agencies

Dependency (E) Traditional or Autocratic

Organizations

Extension (C) Working for society as a

whole

Affiliation (F) Community-service

organizations

SAMIKSHA - Volume II, No. 2, July-December 2011

As the graph 1 depicts, in the HR department the

dominant motive is Achievement while the back-up motive is

Expert Influence. Similar is the case with operation’s people.

In the finance department, dominant motive is the same as in

the other two departments, but the back-up motive here is

Dependency. It is clear from the graph, that on achievement

05

DEPT. FREQ. MOTIVES

A B C D E F DOMINANT BACK-UP

HR 30 58 57 48 39 54 43 A B

FINANCE 31 62 54 45 39 57 45 A E

OPERATIONS 74 59 57 51 36 53 44 A B

Table 5: MAO-C for Different Departments

Graph 1: MAO-C for Different Departments

Motivational Analysis - Department Wise

58 5748

39

5443

6254

4539

57

45

59 5751

36

5344

0

10

20

30

40

50

60

70

A B C D E F

Motives

Scores HR

FINANCE

OPERATIONS

motive all the three departments have crossed the cut-off value

of 50 and the case is same for expert influence as well, but in the

case of extension motive only operations department has been

able to clear the cut-off mark. We can similarly read the values

easily from the graph for other motives as well.

Table 6: MAO-C for Different Executive Levels (E1-E8)

EXECUTIVE

LEVELS

FREQ. MOTIVES


E1-E3 40 58 55 53 34 57 44 A E

E4-E6 65 59 56 46 40 54 43 A B

E7-ABOVE 30 64 57 50 33 52 44 A B

An Empirical Study of Organizational Climate with Reference to Employee’s Motivation

relatively week. In the executive level E4-E6, climate for

achievement, expert influence and dependency is relatively

strong and for extension, control and affiliation is relatively

week. In the level E7 and above climate for achievement, expert

influence and dependency is relatively strong and for that of

control and affiliation is week. Here the climate for extension is

exactly on the cut-off mark and hence there is an uncertainty.

06

Graph 2: MAO-C for Different Executive Levels (E1-E8)

MAO-C at different Executive Levels

5855 53

34

57

44

5956

4640

54

43

6457

50

33

52

44

0

10

20

30

40

50

60

70

A B C D E F

Motives

Score

s E1-E3

E4-E6

E7-ABOVE

From the graph 2 it is clear that the levels from E1-E3 have

the dominant motive as Achievement and back-up as

Dependency. In the level E4-E6, the dominant motive is again

achievement but the back-up is Expert influence. Similar is the

situation for the group E7 and above. In the executive level E1-

E3, climate for achievement, expert influence, extension and

dependency is quite strong but for control and affiliation is

Table 7: MAO-C for different Age-Groups

AGE

GROUPS

FREQ. MOTIVES


25-35 36 57 53 52 37 56 42 A E

35-45 63 58 57 46 40 52 44 A B

45-ABOVE 36 66 56 51 31 53 44 A B

Graph 3: MAO-C for different Age-Groups

Achievement and the Back-Up is Expert Influence. Similar is

the case in the 45 above group.

If we talk of age groups, then in the 25-35 age group the

Dominant Motive is Achievement and the Back-Up is

Dependency. In the age group 36-45, the Dominant Motive is


It can be easily depicted from the graph 4 that out of total

sample of 135 executives, majority of them perceive that the

dominant and back-up motive prevailing in this large

organization are Achievement and Expert Influence

respectively. The strength of Dependency is also very high,

and the strength of Extension is exactly at the cut-off level i.e.,

50. The climate for Control and Affiliation is relatively week.

CONCLUSION

If we first talk of departments, then, In the HR department

the dominant motive is Achievement while the back-up

motive is Expert Influence. Similar is the case with operation’s

people. In the finance department, dominant motive is the

same as in the other two departments, but the back-up motive

here is Dependency. We can say that respondent from the HR

and Operations Department seems to be quite professional,

progressive and supportive to each other. If we take a look at

the situation in the finance department which shows

dependency as back-up motive, which indicates a bit of

autocratic kind of leadership style adopted in this particular

department.

If we talk of different executive levels, then respondents

from E1-E3 have the dominant motive as Achievement and

back-up as Dependency. In the level E4-E6, the dominant

motive is again achievement but the back-up is Expert

influence. Similar is the situation for the group E7 and above.

This means that at almost all the levels, the executives like their

work and they are performing well. Its only in the low level

management that there is a bit of dependency on others for

their work, which shows a lack of experience.

If we talk of age groups, then in the 25-35 age group, the

Dominant Motive is Achievement and the Back-Up is

07

Table 8: MAO-C at NTPC Ltd.

Graph 4: MAO-C at NTPC

Dependency. In the age group 36-45, the Dominant Motive is

Achievement and the Back-Up is Expert Influence. Similar is

the case in the 45 above group. It means that all the age groups

show a very positive sign and a keen interest in their work and

organization, except for one concern and that is the

dependency in the respondents in the age group of 25-35,

which may be because of less experience.

In the end if we sum up all and take a look at the overall

analysis of the organizational climate we find it to be very

positive and encouraging for the organization as It looks to be

achievement oriented and as an organization where employees

are motivated to work together and support each other which

is a sign of a progressive organization. It can also be inferred

from the above findings that providing some kind of autonomy

and making the jobs more challenging (since achievement

motive is the dominant in almost all the categories) will further

motivate the employees.

The data also highlights certain strengths and weaknesses

of the climate of NTPC Ltd on the basis of categorization done

in table 4. Some of the major strength and weaknesses are

highlighted below:

STRENGHTS

• High concern for excellence in performance. This can

be inferred from the fact that achievement is the most

dominant motive in almost all the different categories

(Age, Executive Level and Departments)

• Continuous development of work force. Since, the

motive expert influence has also scored heavily in all

the groups, this shows that the senior persons or the

experts play a vital and constructive role in the

development of the workforce of the organization

SAMPLE

SIZE

MOTIVES


135 60 56 50 38 54 44 A B

6056

50

38

54

44

0

10

20

30

40

50

60

VALUES

A B C D E F

MOTIVES

MOTIVATIONAL ANALYSIS OF ORGANIZATIONAL

CLIMATE AT NTPC LTD.


• No place for displaying personal power. It can be

inferred from Graph 2 that dependency as a back-up

motive indicates that organization set-up does not

provides opportunity for displaying personal power.

• A strong desire for making an impact on others for the

well-being of the organization. Again this can be

inferred from the ranking of the respondents which

indicated clearly that expert influence is one of their

favorites.

WEAKNESSES

• Under-utilization of the decision making power. As

Dependency motive is quite prevalent in all the

categories as a back-up motive.

• Rigid hierarchy level. This can also be inferred from

the presence of dependency motive as back-up at all

the levels.

REFERENCES

• Argyris C. Personality Fundamentals for Executives, New

Haven: Labor and Management Centre, Yale University, 1958.

• Atkinson tom and Frechette Henry (2009), Creating a Positive

Organizational Climate in a Negative Economic One;

Improving Organizational Climate to Transform Performance.

http://www.trainingindustry.com/media/2505214/creatingpos

itiveorgclimate_us_aug09.pdf (accessed on 10 July 2011).

• Bhaesajsanguan Sanguansak (2010), the relationships among

organizational climate, job satisfaction and organizational

commitment in the Thai telecommunication industry.

< h t t p : / / w w w . g - c a s a . c o m / c o n f e r e n c e s / s i n g a p o r e /

papers_in_pdf/wed/Sangu.pdf > (accessed on 12 Sep. 2011).

• Ekvall (1983). Climate, Structure and Innovativeness of

Organizations. The Swedish Council for management and

organizational behavior

• Egan Toby Marshall, Yang Baiyin, Bartlett Kenneth R. (2004),

the effect of organizational learning culture and job Satisfaction

on motivation to Transfer learning and Turnover intention,

human resource development quarterly, vol. 15, no. 3, 2004

• Francis G. James (1988), Adventures in leadership: the

challenges of managing people, Journal of Arboriculture 1 4(1):

January 1988.

• Friedlander, F and N. Margulis. (1969), multiple impact of

organizational climate and individual value system upon job

satisfaction Personal psychology 22: pp 171-183.

• G. Jerald and Baron Robert A.(2009), Behavior in

Organizations, Work-Related Attitudes; Prejudice, Job

Satisfaction and Organizational Commitment, PHI, 9th edi.

P.221-224

• Imran Rabia et al. (2010), organizational climate as a predictor

of innovative work behavior, African journal of business

management Vol. 4 (15). Page 3337-3343, 4 November 2010.

http://uaar.academia.edu/AfsheenFatima/Papers/578645/Orga

nizational_climate_as_a_predictor_of_innovative_work_behav

ior (accessed on 20 Sep. 2011)

• James and James (1989). Integrating work environment

perceptions: Explorations into measurement of meaning.

Journal of Applied Psychology

• Jones and James (1979), Psychological Climate: Dimensions and

relationship of individual and aggregated work environment

perceptions. Organizational Behavior and Human Perceptions.

Jr. of abnormal and social psycho. 67, 1963

• Kahn, R.L. & Katz D., (1978), the social psychology of

organizations (2nd ed.), New York, John Wiley.

• Kelly Joe and Kelly Louise (1998), an existential-systems

approach to managing organizations, Greenwood Publishing

group Inc.

http://books.google.co.in/books?id=3i6xwrNPi6EC&pg=PA15

&lpg=PA15&dq=joe+kelly+on+organizational+behaviour&so

u r c e = b l & o t s = H b S 5 6 v Y Y P o & s i g = -

Ydnt8WY_2Gmyt_dvY59_1igrM&hl=en&ei=zTGEToyFKM

TqrAfQhbThDA&sa=X&oi=book_result&ct=result&resnum

=3&ved=0CCkQ6AEwAg#v=onepage&q&f=fase (accessed on

25 July 2011)

• Locke and Latham (2002). Building a practically useful theory of

goal setting and task motivation. Journal of social psychology, P.

17-24.

• Moran, E & Volkwein J, 1992, the cultural approach to the

formation of organizational climate, Human Relations, 45, 19-

47.

• O. Nicolescu, I. Verboncu, Management, revised 3rdedition,

Economic Publishing House , Bucharest, 1999

• Schneider, B. (1990). Organizational Climate and Culture. San

Francisco, C. A.: Jossey – Bass.

• Stringer Robert, leadership and organizational climate. Prentice

hall. 2001.

• Titu M. et al, Study Regarding The Influence Of Organizational

Climate On The management of most organizations,

Proceedings of the International MultiConference of Engineers

and Computer Scientists 2009 Vol II IMECS 2009, March 18 -

20, 2009, Hong Kong\

http://www.iaeng.org/publication/IMECS2009/IMECS2009_

pp1757-1760.pdf (accessed on 30, sep. 2011)


09

Annexure 1

The Scoring Key

S.No. Dimensions of

organizational

commitment

Motives

Achievement Expert

influence

Extension Control Dependency Affiliation

1 Orientation 3 6 2 4 1 5

2 Interpersonal

Relationship

4 1 6 3 5 2

3 Supervision 4 5 3 1 2 6

4 Problem

Management

1 2 4 6 5 3

5 Management of

Mistakes

4 6 3 2 5 1

6 Conflict

Management

1 6 5 4 3 2

7 Communication 4 3 5 6 1 2

8 Decision

Making

3 5 6 4 2 1

9 Trust 6 4 5 1 3 2

10 Management of

Rewards

1 2 4 5 3 6

11 Risk Taking 6 3 5 2 4 1

12 Innovation and

Change

5 1 4 2 3 6


10

Annexure 2

Final Matrix

S.No. Dimensions of

organizational

commitment

Motives

Achievement

(A)

Expert

influence

(B)

Extension

(C)

Control

(D)

Dependency

(E)

Affiliation

(F)

Domi-

nant

Back-

up

1 Orientation

2 Interpersonal

Relationship

3 Supervision

4 Problem

Management

5 Management of

Mistakes

6 Conflict

Management

7 Communication

8 Decision

Making

9 Trust

10 Management of

Rewards

11 Risk Taking

12 Innovation and

Change

Total Score Overa

ll

Overa

ll MAO-C Index


*Assistant Professor & Coordinator-EMBA, PSG Institute of Management, Coimbatore, Tamilnadu. E-mail: [email protected]

**Assistant Professor, Anna University, Coimbatore, Tamilnadu. E-mail: [email protected]

INTRODUCTION

The growth in the Indian Banking Industry has been more

qualitative than quantitative and it is expected to remain the

same in the coming years. As far as the present scenario is

concerned the Banking Industry in India is going through a

transitional phase. This research concentrates only on the

banking industry and it aims at providing suggestions for

investors for investments in bank stocks. 15 companies from

the banking industry were chosen for this study. These banks

were chosen based on their market capitalization rate from

S&P CNX 500 index.

An investor can choose to invest in the securities of banks.

Based on the performance of the stocks he can construct his

portfolio. Commonly there are two approaches in the

construction of portfolio of securities viz. traditional approach

and Markowitz efficient frontier approach. In the traditional

approach, investor’s needs in terms of income and capital

appreciation are evaluated and appropriate securities are

selected to meet the need of the investor. The Markowitz model

is adequate and conceptually sound in analysing the risk and

return of the portfolio. The problem with Markowitz model is

that a number of co-variances have to be estimated. Sharpe has

developed a simplified model to analyze the portfolio.

Moreover the performance of the stocks chosen can be

analysed and the investor can choose the portfolio of stocks

that which gives him more return and lesser risk. In Sharpe

index model, the optimum portfolio can be constructed with

the help of return, beta, excess beta ratio and cut off rate. The

portfolio chosen can be continuously analysed for performance

and the portfolio can be revised by adding stocks that perform

well and removing stocks that do not perform well over a

period of time.

Statement of Problem

The investor always likes to purchase a combination of

stocks that provide higher return and has lowest risk. He

always wants to maintain a satisfactory return to risk ratio. An

investor must carefully choose those stocks which yield him

Portfolio is a combination of securities such as stocks,

bonds and money market instruments. The investor always

likes to purchase a combination of stocks that provide higher

return and has lowest risk. He always wants to maintain a

satisfactory return to risk ratio. Sharpe index model of portfolio

construction is an easy and simple model to construct

portfolios with the help of excess beta ratio and cut off rate. The

growth in the Indian Banking Industry has been more


same in the coming years. This concentrates only on banking

industry and selection of portfolio of bank stocks. This research

on Construction of Portfolio of Stocks with reference to Sharpe

index model, is limited to only 15 banking companies listed in

NSE. There have been sharp differences in the performance of

the banking industry in the last five years. Though the

recession has brought out significant decline in the trends, the

rate of growth is remarkable. Portfolios, which are

combinations of securities, tend to spread risk over many

securities and thus help to reduce the overall risk involved. The

existence of a cut-off rate is also extremely useful because most

new securities that have an excess return-to beta ratio above

the cut-off rate can be included in the optimal portfolio. Thus

this study helps the investors to minimize their overall risk and

maximize the return of their investment over any period of

time.

Keywords: Stock, Sharpe, Beta, Market variance,

Residual Variance, Index and stock price

Construction of Equity Portfolio of Banking Sectorwith reference to The Sharpe Index Model P. Varadharajan*

Dr. P Vikkraman**

good return at lower risk. The banking industry is burgeoning.

The growth in the Indian Banking Industry has been more


same in the coming years. As far as the present scenario is

concerned investors who invest in bank stocks can earn good

returns. Sharpe index model helps an investor to effectively

construct a portfolio with much ease. In Sharpe index model,

the optimum portfolio can be constructed with the help of

return, beta, excess beta ratio and cut off rate. The portfolio

chosen can be continuously analysed for performance and the

portfolio can be revised by adding stocks that perform well and

removing stocks that do not perform well over a period of time.

Significance the Study

• The Sharpe ratio helps to characterize how well the

return of an asset compensates the investor for the

risk taken.

• Any movement in security prices could be

understood with the help of index movement.

• Sharpe Index model helps in diversification of

investments by spreading risk over many stocks. A

diversification of securities gives the assurance of

obtaining the anticipated return on the portfolio.

• In a diversified portfolio, some securities may not

perform as expected, but others may exceed the

expectation and making the actual return of the

portfolio reasonably close to the anticipated one.

• Keeping a portfolio of single security may lead to a

greater likelihood of the actual return more or less

different from that of the expected return. Hence, it is

better to diversify securities in a portfolio.

Objectives of the study

Primary Objective

• To construct a portfolio of stocks with the selected

companies using Sharpe Single Index Model, that

maximizes the return and minimizes the risk

associated with the individual stocks.

Secondary Objectives

• To analyze the variability of returns associated with

the security more formally.

• To understand the role of beta and standard deviation

in measuring the relevant risk of security.

• To know the proportions to invest in each security,

with the cut-off point, through Sharpe index model.

Scope of the Study

• To compare the performances of 15 selected

companies of the banking sector.

• The application of the Sharpe Index model to perform

risk and return analysis.

• Availability of information to the investors about the

risk and return associated with each of the selected

companies.

Limitations of the study

• The study is limited to only 15 companies from the

banking sector, hence cannot be generalized for the

entire stocks available for trading.

• The time duration of the study is limited which is

about 1 months

• The data remain restricted to the past five years (2005-

2006 to 2009-2010).

Theoretical Framework

Giordano Pola and Gianni Pola (2009), In this paper the

authors propose one approach to optimal portfolio

construction based on recent results on stochastic reachability,

which overcome some of the limits of current approaches.

Given a sequence of target sets that the investors would like

their portfolio to stay within, the optimal portfolio allocation is

synthesized in order to maximize the joint probability for the

portfolio value to fulfil the target sets requirements. A case

study in the US market is given which shows benefits from the

proposed methodology in portfolio construction. A

comparison with traditional approaches is also included in the

paper. Deimante Teresiene and Paulius Paskevicius (2009),

In this paper, the authors have concluded that the main

attention should be paid to portfolio monitoring and updating

the status of instruments and investor‘s needs. Constructions

of different portfolios and calculations of maximum returns

and risk have showed that the best investment for a one year

period was investing in gold and commodities. But such a

portfolio is not suitable for a long time and especially when the

situation of stock markets will be getting better. So the key of

profit from investing is a good monitoring of economics and

the region markets psychology. Superfluous events may well

influence the price, if believed by other participants to do so; it

means that crowd psychology becomes an important

determinant of prices. Usually analysts exclude the factors

such as derivatives, excessive pay for bank officers, poor

government regulation and a lack of transparency about

investments so that risk was not correctly assessed. Gupta, K.

Locke, S. and Scrimgeour, F. (2009), This paper reports on an

investigation of various techniques to optimise momentum

returns from share trading. The aim is to determine whether

one method is clearly superior to other algorithms in

maximising the momentum returns for the synthesised

portfolios over a period of time. The analysis includes varying

lengths of time periods with the longest data set pertaining to

the United States, covering the period 1973-2007 and the

shortest is India ranging from 1993 to 2007. The five countries

under investigation are Canada, India, Japan, United

Kingdom, and the United States. The practical importance of

the research relates to the potential to increase profits from

trading using a momentum strategy through superior

information processing which in turn will generate greater

returns for specified risk levels.

Asmita Chitnis (2010), This paper attempts to construct

two optimal portfolios from two different samples using

Sharpe’s Single Index Model of Capital Asset Pricing and

further to compare the performance of these two portfolios by

Sharpe’s Ratio. Stocks listed on the National Stock Exchange

constitute the population. Two samples each comprising of 26

stocks (most of them being large caps) have been selected.


be based on the analysis of risk and return associated with each

stock. This paper highlights the creation of optimum portfolio

with the help of calculated return and risks for 25 different

stocks and securities of different listed companies. This paper

also highlights the willingness of the investors to take risks and

also the returns that are expected by them. The returns

expected by different investors and the level of risk they are

willing to take differs from one investor to another investor.

Research Methodology

This is a descriptive study on the construction of portfolio

of stocks with reference to Sharpe’s single index model. This

research is aimed at analyzing the risk and return associated

with different stocks and constructing an optimal portfolio of

stocks that maximizes the overall profit of the investment. The

study is conducted with the past five years data from 2005-2006

to 2009-2010. The study uses the secondary data collected from

various sources such as NSE website and the RBI website. All

the stocks that are listed in the National Stock Exchange

comprise the population of the study. The sampling technique

adopted is ‘purposive sampling’.

Tools for Analysis

Return

Risk - the variability of returns associated with a given asset is

termed as risk.

Beta Coefficient

Correlation - A statistical measure of the relationship between

any two series of numbers representing data of any kind is

known as correlation.

Risk-free Rate of Return (RF) - Risk-free rate of return is the

required return on a risk free asset, typically a three month

treasury bill.

Where, R = the expected return on stock ii

R = the return on a riskless assetf

â = the expected change in the rate of return on stock i

associated with one unit change in the market return.

Where, = variance of the market index

Using Sharpe’s Single Index Model a unique cut off point is

defined and the optimal portfolio of stocks having excess of

their expected return over risk-free rate of return greater than

this cut-off point is generated for both the samples separately.

Percentage of investment in the respective portfolios is further

decided by the standard procedure outlined by Sharpe’s

Model. Finally, performance of these two optimal portfolios is

evaluated by Sharpe’s Ratio. Gerald Kohers, Ninon Kohers,

Theodor Kohers (2006) in the paper “The risk and return

characteristics of developed and emerging stock markets: the

recent evidence” suggests that the higher volatility typically

associated with emerging stock market returns translates into

higher expected returns in those markets. This study compares

the risk and return profile of emerging and developed stock

markets over the period from 1988 through April 2003. The

results show that the risk associated with emerging markets, as

measured by the standard deviation of returns, is higher than

the risk in developed markets in most periods. Also, the returns

in emerging markets have been higher than those in developed

markets for most of the time frames examined. The findings

suggest that risk-averse investors seeking higher returns in

emerging markets have been compensated for assuming the

higher risk associated with these markets.

Jeroen Derwall (2009) in the paper “Portfolio

concentration and the fundamental law of active

management” shows that the observed relation between

portfolio concentration and performance is mostly driven by

the breadth of the underlying fund strategies; not just by fund

managers’ willingness to take big bets. The results indicate that

when investors strive to select the best performing funds, they

should not only consider fund managers’ tracking error levels.

It is of greater importance that they take into account the extent

to which fund managers carefully allocate their risk budget

across multiple investment strategies and have concentrated

holdings in multiple market segments simultaneously. Anna

Morrell (2010) in the paper “The Art and Science of Portfolio

Construction” illustrates that people have portfolios that are

just collections of haphazardly acquired shares. As with asset

allocation, so with portfolio construction, people need to sit

down first and do some thinking. With regards to risk, it has to

be moderately high for a person to consider getting involved in

equity investment, but they are willing to take larger risks.

That's a balance between how many stocks one can research

and keep on top of, and how many stocks one need to achieve

the benefit of diversification reducing the overall risk. Harald

Lohre, Thorsten Neumann and Thomas Winterfeldt, (2007)

Portfolio construction seeks an optimal trade-off between a

portfolio’s mean return and its associated risk. Given that risk

may not be properly described by return volatility we examine

alternative measures that account for the asymmetric nature of

risk. These optimization tasks are successful for most of the

investigated measures when assuming perfect foresight of

expected returns. While the latter assumption is a strong one

we also show that our findings still hold when using more

naive return estimates. The reductions in downside risk are

most convincing for semi-variance, semi-deviation; maximum

drawdown and loss penalty while value at risk and measures

related to skewness appear rather useless for portfolio

construction purposes. Syed A. Basher and Perry Sadorsky

(2007) in the paper “Portfolio construction based on risk and

return” suggests the selection of securities and stocks should

13

Construction of Equity Portfolio of Banking Sector with reference to The Sharpe Index Model

variance of a stock’s movement that is not associated

with the movement of market index i.e. stock’s unsystematic

risk.

Where, = the cut-off point.

Analysis and Discussions

15 companies from the banking industry were chosen for

this study. These banks were chosen based on their market

capitalization rate from S&P CNX 500 index. They are,

• Indian Overseas Bank (IOB)

• City Union bank (CUB)

• Allahabad Bank (ALBK)

• ING Vysya Bank (ING)

• Karur Vysya Bank (KVB)

• Kotak Mahindra Bank

• Orient Bank of commerce

• Union Bank of India

• Syndicate Bank

• State Bank of India (SBI)

• Bank of Baroda

• Canara Bank

• Andhra bank

• Axis Bank

• HDFC bank

Excess Return to Bata Ratio

14

STOCKS

RANK

SBI 35.4 0.09 57.4 327.44 1

Baroda 13.5 0.09 10.36 84.11 2

Union Bank 12.3 0.08 10.24 79.62 3

Axis 19.2 0.27 10.95 49.14 4

Canara 10.3 0.13 9.67 33.61 5

ING Vysya 8.8 0.22 8.58 13.04 6

HDFC 13.4 0.84 6.4 8.89 7

Albk 7.6 0.25 7.56 6.68 8

IOB 7.6 0.25 7.56 3.97 9

Kotak 8.5 0.91 8.7 2.82 10

KVB 6.6 0.32 7.84 2.09 11

Syndicate 7.9 1.01 8.82 1.95 12

CUB 7.2 0.66 16.8 1.92 13

Orient 5.7 0.16 9.12 -1.43 14

Andhra 4.5 0.16 7.3 -8.93 15

Table 1.1: Calculation of Excess Return to Beta Ratio

Cut-off PointTable 1.2 : Calculation of Cut-off Point

STOCKS

SBI 327.44 0.046207 0.046207 0.000141115 0.000141115 0.1625

Baroda

84.11 0.065763 0.11197 0.000781853 0.000922968 0.3928

Union Bank 79.62 0.049766 0.161735 0.000625 0.001547968 0.5662

Axis 49.14 0.327205 0.488941 0.006657534 0.008205503 1.6727

Canara 33.61 0.058749 0.54769 0.001747673 0.009953176 1.8626

ING Vysya 13.04 0.07359 0.621279 0.005641026 0.015594201 2.0731

HDFC 8.89 0.980438 1.601717 0.11025 0.125844201 3.9072


The highest value of C is taken as the cut-off point i.e. C*. i

Here the cut-off rate is C*= 3.96. Thus the stocks with C greater i

than C* can be included in the portfolio.

Construction of optimal portfolio

From the C values, the investment is made in the i

following stocks:

15

From the above table, it can be inferred that maximum

investment of 33.68% has to be invested in Axis bank ltd. The

two banks Bank of Baroda and Union Bank of India pave way

for around 21% and 17.9% respectively. 15.3% of the

investment has to be made in SBI ltd and the least of around 12

% is preferred for Canara bank Ltd.

Table 1.3: Stocks to be Included in the Portfolio

Albk 6.68 0.055225 1.656942 0.008267196 0.134111397 3.9620

IOB 3.97 0.068097 1.725039 0.017126214 0.151237611 3.9626

Kotak 2.82 0.268816 1.993855 0.095183908 0.246421519 3.7583

KVB 2.09 0.027347 2.021202 0.013061224 0.259482743 3.7183

Syndicate 1.95 0.22559 2.246791 0.115657596 0.37514034 3.4081

CUB 1.92 0.049893 2.296684 0.025928571 0.401068911 3.3520

Orient -1.43 -0.00404 2.292649 0.002807018 0.403875929 3.3325

Andhra -8.93 -0.03134 2.261307 0.003506849 0.407382778 3.2702

STOCKS CUT-OFF POINT

SBI 0.1625

Bank of Baroda 0.3928

Union Bank of India 0.5662

Axis Bank 1.6727

Canara Bank 1.8626

Proportion of Investment

Table 1.4: Calculation of Proportion of Funds to be invested in Each Stock

STOCKS

SBI 0.507201476 0.153354

Bank of Baroda 0.696270728 0.2105197

Union Bank of India 0.591112391 0.1787248

Axis Bank 1.114163856 0.3368711

Canara Bank 0.398641177 0.1205305

In the table, Z shows the relative investment in each stock. i

X indicate the weights on each security and they sum up to one.i

Portfolio of Stocks

Table 1.5: Portfolio of Stocks

COMPANY PROPORTION OF

INVESTMENT (%)

SBI 15.33

Bank of Baroda 21.05

Union Bank of India 17.87

Axis Bank 33.68

Canara Bank 12.05

Chart No 2: Chart representing percentageof investment in each stock

Findings

• In the study, all the stocks included in the portfolio

have higher â and yield higher returns.

• The excess return to beta ratio of all the steel

companies included in the study is positive except for

Orient bank of Commerce and Andhra bank.

Construction of Equity Portfolio of Banking Sector with reference to The Sharpe Index Model

16

• The stocks with systematic risk â greater than 1 are

riskier since, for 1 % change in market return, the

change in stock return is greater than 1%.

• All the stocks included in the portfolio have lower â

value compared to other stocks.

• The risk associated with the individual stocks is not

the same for all the years. It differs from time to time.

• The greatest proportion of investment of about 33.7%

is made in Axis bank Ltd. which has a lower beta

value of 0.09 among the other stocks included in the

portfolio.

• The optimum portfolio thus constructed is

moderately diversified as securities in the portfolio

represent different companies of the banking sector.

Suggestions

• The maximum proportion of about 33.7% of the total

investment has to be made in the stocks of Axis bank

Ltd.

• About 21.1% of the total investment has to be invested

in the stocks of Bank of Baroda Ltd.

• 17.9% and 15.3% of the total investment have to be

invested in the stocks of Union bank of India Ltd and

State bank of India Ltd.

• The lower proportion of investment of about 12% has

to be invested in Canara Bank Ltd.

• The stocks have to be continuously analyzed and the

portfolio has to be updated periodically.

Conclusion

This research on Construction of Portfolio of Stocks is

limited to only 15 banking companies listed in NSE. There have

been sharp differences in the performance of the banking

industry in the last five years. Though the recession has

brought out significant decline in the trends, the rate of growth

is remarkable. Individual securities, as we have seen, have risk-

return characteristics of their own. Portfolios, which are

combinations of securities, tend to spread risk over many

securities and thus help to reduce the overall risk involved.

This method of construction of optimal portfolio is very

effective and convenient as revision of the optimal portfolio

can be an ongoing exercise. The existence of a cut-off rate is also

extremely useful because most new securities that have an

excess return-to beta ratio above the cut-off rate can be

included in the optimal portfolio. Thus this research helps the

investors to minimize their overall risk and maximize the

return of their investment over any period of time.

References

Books• Fischer, Jordan (2009) Security analysis and portfolio

management, Sixth edition, New Delhi – Pearson Prentice Hall.

• Pandian, Punithavathy (2007) Security analysis and portfolio

management, Fifth edition, Banglore – Vikas Publishing House

• Campbell, David (2005) Portfolio Management, Third edition,

New Delhi – Tata Mc Graw Hill

Research articles• Gerald Kohers, Ninon Kohers, Theodor Kohers (2006) The risk

and return characteristics of developed and emerging stock

markets: the recent evidence, Applied economics letter, Pg 737 –

743.

• Jeroen Derwall (2009) Portfolio concentration and the

fundamental law of active management, Tilburg newsletter, Pg

235-252.

• Anna Morrell (2010) The Art and Science of Portfolio

Construction, Schulich University newsletter, Pg 373-382.

• Giordano Pola and Gianni Pola (2009), A Stochastic

reachability approach to portfolio construction in finance

industry, Business Intelligence newsletter, Pg 154-170.

• Syed A. Basher and Perry Sadorsky (2007) Portfolio

construction based on risk and return, Security analysis

journal, Pg 282-298.

• Deimante Teresiene and Paulius Paskevicius (2009) Portfolio

construction and management during the period of financial

crisis, Analyst, Pg 224-240.

• Gupta, K. Locke, S. and Scrimgeour, F. (2009), Can Momentum

Returns be Optimised, Business Intelligence, Pg 301-319.

• Asmita Chitnis (2010), Performance Evaluation of Two

Optimal Portfolios by Sharpe’s Ratio, Analyst, Pg 197-215.

• Harald Lohre, Thorsten Neumann and Thomas Winterfeldt,

(2007), Portfolio construction with Downside Risk, Pg 311-328.

Websites• www.google.com

• www.managementparadise.com

• www.proquest.com

• ebsco


*Assistant Professor, School of Management, MVGR College of Engineering. E-mail: [email protected]

**Professor, School of Management, MVGR College of Engineering

***PG Scholar, GITAM University

INTRODUCTION

In a boundary spanning role, salesmen represent an

organizational face to the customers. Thus, sales interactions

are critical to success of any business, for that is where the fate

of organizational bottom-line is drawn. With that premise,

historically, there was an increased emphasis laid on studying

the role of salesman and the ways in which that role can

influence customers’ perceptions about the organization and

its products and/or services. Simply put, fields such as

consumer behaviour are not just trying to learn how the

consumers behave, but also are trying to learn how to feed into

the organizational systems to deliver what the consumer

wants. The role of salesmen becomes pivotal in such feeds. Run

into any organization today, it will not be surprising to find

that sophistication is what catches the attention of customers.

And the fact that every executive of an organization tries to sell

is unignorable. Consider the case of organizations like ICICI

Bank, Big Bazar and the likes-everybody in the organization

tries to sell. Executives are there for selling and serving the

customers. They are trained to do that; and ‘training’ is just one

feed into the system.

Theories aside! A brief look into time reveals that a retail

outlet in a residential colony was more popular just two

decades back, unlike the popularity of shopping malls today.

The secret of success of a retail outlet was in how the retailer

builds his relationships with customers, while malls have a

different formula all together having salesmen merely as

information disseminators, in most cases. This caught the

attention of the authors, and had set a broad theme for a

research pursuit. There are various questions that spring up in

the mind when one thinks of the change in the role of a

salesman as a communicator. First of all, we sought an

understanding of the communication styles of salesmen in an

organized retailing unit. Our learning were not confirmatory,

but was in line with earlier studies-salesmen used precise,

open, and impression leaving communication styles. These are

what one expects from salesmen in any retail setting, and so

was the case with organized retail setting. That did not come as

a surprise, but for the fact that results across various studies

remained consistent over different cultures, and times. Also,

In one of the earlier studies, sellers’ communication style

was observed as precise and open. That finding was consistent

with earlier literature. A more interesting observation was the

finding’s consistency across cultures and countries! Another

observation was that higher education did not necessarily

mean a different communication style. This is then a counter-

intuitive finding, in that, the influence of interactants and

their education seem ignorable compared to--what we now

assume--the influence that one’s job role may have on

communication style; thus warranting further study. One

class of management students were asked to imagine

themselves being salesmen and participate in a survey for the

communication styles they might prefer to use in that job.

Another class was given the same instruction, and

additionally a salary cap for the job of a salesman was given

before they were surveyed. The communication styles of

students from both classes is studied to see if there is any

significant difference that can then be attributed to the ‘salary

cap’ clause. Also, the communication styles of students from

both classes is compared to the sellers’ communication style as

found in earlier studies to find if education and experience play

a role in the differences in communication style, if any. The

study is expected to yield clarity in where further research can

be focused.

Keywords: Communication Style, Literature Review,

Empirical Study, Sales Interactions

Factors influencing SellerCommunication Style

Vinay Kumar Chaganti*Dr. K. S. S. Rama Raju**

Divya Kumar***

the gender of the consumers did not seem to influence the

communication style of these salesmen. This observation had a

bearing on our understanding of the sales interaction. Unlike

an expected case where every interactant affects how other

interactant reacts-and hence builds the interaction-it seemed as

if consumers did not really have any influence on how the

salesmen were going about their job. This gave way to our

second question. What other factors apart from a consumer can

bring out such communication styles in salesmen? Perusal

through communication theory suggests that if not the

interactant, the purpose of interaction might have a significant

influence on the communication style choice. Since the purpose

of interaction of salesmen is rather well-defined, it was

hypothesized then that the very job role might lead to such a

communication style. This paper tested that idea.

Literature Review

The proposed study draws from two streams of literature:

seller-buyer interactions and communication style. These two

streams are not exclusive of each other; however, they have

grown in different directions. Where they converge is in

studying the choice of communication style employed by seller

and how that influences buyers’ buying decision.

Seller-buyer interactions have been studied for a longer

period compared to communication style. Sheth (1976) is

credited to have made first observations in a converging area

such as what this paper proposes. He defined communication

style as "format, ritual or mannerism which the buyer and

seller adopt in their interaction". He presumed style as three

dimensional: task-oriented, interaction-oriented, and self-

oriented. Salesmen would invariably use one of these three

styles; eventually influencing buyers’ decision. One problem

with this theory was an inherent assumption that salesmen can

consistently use any chosen communication style through the

interaction, beginning to end. Later work by Cappella (1984)

showed evidence that interactions are partly automated and

are partly deliberate. Automated part of any interaction may be

seen as: one, the influence of interaction on how interactants

build it further, and two, the influence of biological

constitution of beings on their communication. Sheth’s ideas

could not accommodate this development.

Noonan (1985) defined style as a predictable pattern of

behaviour. This definition seems to draw from Norton’s (1978)

initial conceptualization of communication style, where the

premise was that communicative behaviours of an individual

sufficiently correlate to an extent of studying it as a construct.

The change in perspective from Sheth’s conceptualization to

Noonan’s brought in two changes. Firstly, buyer-seller

interaction studies from a communication style perspective

were now backed up by well-founded theory in Norton’s;

secondly, the theory could be advanced to studying the

interaction at a dyadic level with focus on relationships more

than the sales person. The change had also accommodated the

Cappella’s ideas about interactions, since Noonan spoke about

a pattern of behaviour rather than a choice of style.

Williams & Spiro (1985) have studied communication

styles in salesperson-customer dyad. Though they used

Sheth’s ideas as foundation for their study, they were the first

ones to build an instrument to assess communication styles of

sales personnel, and assess how communication style of sales

personnel affected the sales outcomes. Their study reported

findings that were to establish a stream of specialised study.

Findings in other studies reported by Spitzberg & Cupach

(1984), that successful sales people are competent

communicators who have the knowledge, skill, and

motivation to interact effectively and appropriately, have also

contributed to a heightened increase in this area for research.

There are four studies which generally seem to represent

the range of efforts in this stream post all the earlier

developments. First of all, Miles, Arnold & Nash (1990) studied

seller’s communication style as an adaptive function of buyer’s

communication style; and suggested it is important to study

communication styles given their effect on dyadic

relationships. Second, Notarantonio & Cohen (1990) tried to

determine if any particular style of communication made the

sales performance more effective. In the pursuit, they studied

the influence of ‘open’ and ‘dominant’ communication styles

on judgments and perceptions on sales effectiveness. Their

results showed that the combinations of communication styles

had a significant influence on (1) perceptions of the product

being sold, (2) interaction between sales person and customer,

(3) probability of purchase of the product, and (4) perceptions

of the sales person being depicted in the tape. Low dominant-

low open and high dominant-high open communication styles

were not favoured, while the rest of the two combinations were

perceived to be more subtle and effective in sales performance.

Later Dion & Notarantonio (1992) studied the relationship

between communication style and sales performance of real-

estate agents. They used Norton’s Communication Style

Measure (generally referred to as CSM). Results indicated that

‘precise’ style of communication had a strong association with

sales performance. In another sub-study, they video-taped

buyer-seller conversations and identified that a combination of

‘precise’ and ‘friendly’ communication styles lead to a definite

improvement in sales performance. And fourthly, Comstock &

Higgins (1997) tried to answer to most basic question in this

growing line of research: should the sales person adapt to

buyer’s communication style? They conducted two studies to

answer this question. First study tried to assess the types of

relational messages buyers would prefer in direct sales

interaction, and it was found that trustful and task-relevant

messages are what buyers tended to appreciate most. The

second study tried to identify if sellers are aware of buyers’

preferences for relational messages. The findings indicate that

sellers perceived dominance and formality as buyers’ least

preferred relational messages. These findings tend to be

directing towards preferred sales person communication

styles. The study used Norton’s CSM, but rebuilt richer

communication style profiles suitable for the study. They came

up with styles namely cooperative, apprehensive, social and

competitive. Study concluded with a suggestion that

apprehensive, social and competitive sellers may need more

communication training.


Data Presentation

Tables 1 and 2 present the Model summary and ANOVA

for one group of students to whom the salary cap constraint

was supplied. There are six communication styles this group of

students chose, and they include dramatic, contentious,

animated, friendly, open, and precise.

Research Design, Sample, Measuresand Methodology

There is sufficient evidence that study of communication

styles in a sales interaction delivers findings that can be used to

influence the bottom-line. Earlier in this paper, the objective of

this effort was stated: it is to test if the job role of salesmen

influences their communication style. Broadly, there are two

factors apart from consumers that can influence such choice:

education and experience. Education can be defined in terms of

the qualification, and experience may be defined as the tenure

of serving in a specific job role. It is important to separate the

affects of education from the affects of experience. To do this by

a regression analysis from one population of working salesmen

was one option. However, we chose to have students pursuing

their masters in business administration with marketing

specialization as one sample, to represent the educated but not

experienced group. And another sample was picked up from

working retail salesmen to represent experienced group. Care

was taken to ensure that the education levels of working

salesmen who took part in the study were comparable with one

another’s, so that the affect of education may be treated

nullified.

Modified Norton’s CSM was used for data collection. The

instrument is used to study the communication style choices

that one would employ in a given setting. With 51-items, it has

questions representing 10-independent communication style

constructs, and 1-dependent variable describing one’s self-

perceived communicator image (Details in Appendix I).

Preferred communication styles are ascertained through a

step-wise regression with communicator image as the

dependent variable.

Study one

Totally, 117 students took part in the study. The students

were split into two groups (58 and 59 each) before the survey.

Both the groups were asked to assume that they were to work

like a retail salesmen in an organized sector before they

responded to how they might choose to interact with their

customers. However, one group was supplied with a ‘salary

cap constraint’, i.e., they were like the other group in all aspects

of imagining their job role and making choices, but

additionally, they were informed that of all their imagination,

salary is one point that was controlled. Comparison of these

two groups (using a t-test) was to give us insights into how the

salary cap constraint might influence the choice of

communication style. Also, it would give us insights into the

choices that this educated but not experience group makes

about their communication style.

Study two

Data was collected from 70-retail salesmen in an organized

FMCG sector about their preferred communication styles.

Choices made by the students’ group and this sample of

salesmen were compared to study similarities and differences.

This should give us how education and experience might

influence communication style choices.

19

Table 1: Model Summary

Model R

R

Square Adjusted

R Square

Std. Error

of the

Estimate

Salary Restricted OR

Unrestricted =

Restricted (Selected)

1 .882a .778 .774 .15801

2 .917b .841 .835 .13487

3 .944c .891 .885 .11279

4 .957d .915 .909 .10024

5 .968e .937 .931 .08754

6 .971f .942 .936 .08428

a. Predictors: (Constant), Dramatic

b. Predictors: (Constant), Dramatic, Contentious

c. Predictors: (Constant), Dramatic, Contentious, Animated

d. Predictors: (Constant), Dramatic, Contentious, Animated, Friendly

e. Predictors: (Constant), Dramatic, Contentious, Animated,

Friendly, Open f. Predictors: (Constant), Dramatic, Contentious, Animated,

Friendly, Open, Precise

Table 2: ANOVAg,h

Model Sum of

Squares df

Mean

Square F

Sig.

1

Regression

4.978

1

4.978

199.381

.000a

Residual

1.423

57

.025

2 Regression

5.383

2

2.691

147.964

.000b

Residual 1.019 56 .018

3 Regression 5.702 3 1.901 149.389 .000c

Residual .700 55 .013

4 Regression 5.859 4 1.465 145.760 .000d

Residual .543 54 .010

5 Regression 5.995 5 1.199 156.459 .000e

Residual .406 53 .008

6

Regression 6.032 6 1.005 141.531 .000f

Residual .369 52 .007


b. Predictors: (Constant), Dramatic, Contentious

c. Predictors: (Constant), Dramatic, Contentious, Animated

d. Predictors: (Constant), Dramatic, Contentious, Animated,

Friendly e. Predictors: (Constant), Dramatic, Contentious, Animated,

Friendly, Open

Factors influencing Seller Communication Style

f. Predictors: (Constant), Dramatic, Contentious, Animated,

Friendly, Open, Precise

g. Dependent Variable: Self-Perceived Communicator Image

h. Selecting only cases for which Salary Restricted OR

Unrestricted = Restricted


for the other group of students who were not constrained in

imagining their role as salesmen. There are five

communication styles this group of students chose, and they

include dramatic, impression-leaving, animated, friendly, and

open.


for the group of experienced retail workmen who were

currently in that role. There are three communication styles

this group preferred, and they include open, precise, and

impression-leaving.

20


R

R

Square

Adjusted

R Square

Std. Error

of the

EstimateModel

Salary Restricted OR

Unrestricted = Not

Restricted (Selected)

1

.543a

.295

.282

.26785

2

.636b

.404

.382

.24842

3 .783c .614 .592 .20192

4 .862d .744 .724 .16601

5 .891e .794 .775 .15006

a. Predictors: (Constant), Dramatic b. Predictors: (Constant), Dramatic, ImpressionLeaving

c. Predictors: (Constant), Dramatic, ImpressionLeaving, Open d. Predictors: (Constant), Dramatic, ImpressionLeaving, Open,

Friendly

e. Predictors: (Constant), Dramatic, ImpressionLeaving, Open,

Friendly, Animated

Table 4: ANOVAf,g

Model Sum of

Squares df

Mean

Square F Sig.

1 Regression 1.679 1 1.679 23.402 .000a

Residual 4.018 56 .072

2 Regression 2.302 2 1.151 18.653 .000b

Residual 3.394 55 .062

3

Regression 3.495 3 1.165 28.573 .000c

Residual 2.202 54 .041

4 Regression 4.236 4 1.059 38.425 .000d

Residual 1.461 53 .028

5 Regression 4.526 5 .905 40.196 .000e

Residual 1.171 52 .023


b. Predictors: (Constant), Dramatic, Impression Leaving

c. Predictors: (Constant), Dramatic, Impression Leaving, Open

d. Predictors: (Constant), Dramatic, ImpressionLeaving,

Open, Friendly

e. Predictors: (Constant), Dramatic, Impression Leaving,

Open, Friendly, Animated

f. Dependent Variable: Self-Perceived Communicator

Image

g. Selecting only cases for which Salary Restricted OR

Unrestricted = Not Restricted


R

R

Square

Adjusted

R Square

Std. Error

of the

EstimateModel

Salary Restricted

OR Unrestricted =

Not Applicable

(Selected)

1 .757a .573 .566 .38355

2 .808b .652 .642 .34858

3 .843c .711 .697 .32041

a. Predictors: (Constant), ImpressionLeaving

b. Predictors: (Constant), ImpressionLeaving, Precise

c. Predictors: (Constant), ImpressionLeaving, Precise, Open

Table 6: ANOVAd,e

Model Sum of

Squares df

Mean

Square F Sig.

1 Regression 13.411 1 13.411 91.161 .000a

Residual 10.004 68 .147

2 Regression 15.274 2 7.637 62.851 .000b

Residual 8.141 67 .122

3 Regression 16.639 3 5.546 54.026 .000c

Residual 6.776 66 .103

a. Predictors: (Constant), ImpressionLeaving

b. Predictors: (Constant), ImpressionLeaving, Precise

c. Predictors: (Constant), ImpressionLeaving, Precise, Open

d. Dependent Variable: Self-Perceived Communicator Image e. Selecting only cases for which Salary Restricted OR

Unrestricted = Not Applicable


First observation that strikes hard is the number of

communication styles that students thought was important for

a sales interaction. One group chose five and the other six,

compared to three communication styles which evolved for the

working group. This, to an extent, indicates a lack of

knowledge about the job role and what it demands. We do not

intend to suggest that a masters’ student should be trained for

one specific type of communication style. However, this just

explicates the imagination deficit in these students. To know

what communication style suits best to a context is necessary

for those occupying executive positions in the industry. This

just shows the need for training on communication styles more

than communication skills. Having said that, there is another

way of looking at the findings. One could argue that the choices

of students were wise and more useful in a sales interaction-

which we do not deny. If one were to identify the utility of one

communication style in producing an intended outcome, then

we might have a prescription of communication styles suitable

for every context. That would be something in the line of the

efforts put in by Dion & Notarantonio. For example, a friendly

communication style has shown results in increased sales;

‘friendly’ was not a choice of working retail salesmen in this

study, while it was a students’ choice. This indicates a need for

training the salesmen to gear up better; like a feed into the

organization discussed in the beginning of the paper.

Another difference to be marked in the observations is the

choice of contentious communication style by the students

supplied with salary constraint, unlike impression leaving

style chosen by others who were free to imagine the role. For

now, though we do not draw a causal connection, we assume-

21

Observations and Conclusions: and reasonably we think-that salary constraint has influenced

such a change. Salary, one of the prime sources of motivation in

any job; when it does not meet expectations causes a conflict

and a reduced job satisfaction. Such conflict might provoke a

more straight-forward communication than encourage subtle

communication. This finding points towards the use of

different structures of payment methods, and how they can

motivate salesmen to perform better, which is another stream

of research all together. What we did in this study is to use a

primitive method of fixing up one figure to the job role that is

not a reflection of what happens in most cases today. That

however strengthens our hypothesis that job related factors

and job role might influence communication style, more than

interactants.

References

• Sheth, J. N ”The future of buyer behaviour theory” In J. N. Sheth

(ed.) Models of Buyer Behaviour (1974). New York: Harper &

Row.

• Comstock, J., & Higgins, G “Appropriate Relational Messages

in Direct Selling Interaction: Should Salespeople Adapt to

Buyers' Communicator Style” Journal of Business

Communication, 34(4) (1997), pp. 401-418.

• Williams, K. C., & Spiro, R. L. “Communication Style in the

Salesperson-Customer Dyad. Journal of Marketing Research”

Vol. 22, No. 4 (1985), pp. 434-442.

• Noonan, B. “Nothing happens unless someone buys something:

Identifying and responding to your buyer’s communication

style” Health Marketing Quarterly, Vol. 3 (1985), pp. 27-35.

• Miles, M. P., Arnold, D. R., & Nash, H. R. “Adaptive

Communication: The Adaptation of the Seller's Interpersonal

Style to the Stage of the Dyad's Relationship and the Buyer's

Communication Style” Journal of Personal Selling and Sales

Management, Vol. 10 (1990), pp.21-27.

• Notarantonio, E. M., & Cohen, J. L. “The effects of open and

dominant communication styles on perceptions of the sales

interaction” Journal of Business Communication, 27 (1990),

pp.171-184.

• Sprowl, J. P., Carveth, R., & Senk, M. “The Effect of

Compliance-Gaining Strategy Choice and Communicator Style

on Sales Success” Journal of Business Communication, 19(4)

(1994), pp.291-310.

• Dion, A. P., & Notarantonio, E. M. “Salesperson

Communication Style: The Neglected Dimension in Sales

Performance” Journal of Business Communication, 29(1)

(1992), pp. 63-77.

• Norton, R. W. “Foundation of a communicator style construct”

Human Communication Research, Vol. 4, No. 2 (1978), pp.99-

112.

• Evans, Franklin B. “Selling as a dyadic relationship: A new

approach” American Behavioral Scientist, 6 (1963), pp.76-79.

Table 7: Indicating the details of communicationstyles exhibited by different study groups

Group Choice of Communication

styles

Students supplied

with salary constraint

Dramatic, Contentious,

Animated, Friendly, Open,

Precise

Students who were

free to imagine the

role

Dramatic, Impression

Leaving, Open, Friendly,

Animated

Working Retail

Salesmen

Open, Precise, Impression

Leaving

Factors influencing Seller Communication Style

*Associate Professor, Principal Investigator, UGC Major Research Project, Department of Business Administration,

Government Arts College, Paramakudi, Ramanathapuram District, Tamil Nadu. Email: [email protected]

INTRODUCTION

Indian agriculture has a strong development base. The

first five- year plan gives much importance to the agriculture

since our economy is fully based on the development of

agriculture. The agriculture gives much employment also.

Mostly the rural people are engaging in the agricultural

activities. Such people are called as farmers. The farmers are

cultivating many items of food grains, pulses and vegetables.

The present study is confined to the vegetables and its

marketing.

Importance of The Study

Food is essential to human being. Nobody has life without

food. The human beings are consuming food along with

vegetables. The consumption of food is very difficult without

having vegetables. Hence, the vegetables are taken into

account to conduct a study. India is a second largest country

producing vegetables next to China and contributing 14.45

percent of the total world production of vegetables. At present,

it is estimated that the vegetable production is 109-112 mn

tones. More ever, it is projected that the vegetables will be

required about 124-130 mn tones by 2011. Hence, a study is

conducted to know the marketing practices with regard to

vegetables especially by the farmers i.e. they are actual

produces of vegetables.

Statement of The Problem

The farmers despite facing many difficulties produce the

vegetables. Even though, the farmers are unable to fix the price

for their produce. In the case of trading concern and

manufacturing organization, the merchants and

manufacturers are able to fix the selling price of their products.

But, this type of practice is not possible to the farmers i.e. the

actual producers of vegetables. As a human being, everyone

should understand this situation and come forward to give

some liberty to the farmers. Over the period of time, Uzhavar

Sandhai concept was developed and established all over Tamil

Nadu. The prime objective of establishing Uzhavar Sandhai is

protecting the farmers from the exploitation of middleman,

Uzhavar Sandhai is a place where the farmers are selling

their agricultural produce directly to the end users i.e.

consumers. The customers/consumers are getting the goods at

cheap rate and freshly. The farmers may or may not be

educated. Moreover, they do not know the marketing strategies

and management practices also. But, they are selling their

produce just like a businessman. Government of Tamil Nadu

took steps for the benefit of the farmers in such a way that the

full benefits of selling of the agricultural produce only available

to the farmers. The middlemen commission is also eliminated.

Under this background, a field study was conducted at

Paramakudi in Ramanathapuram District, Tamil Nadu. A

special questionnaire was prepared by the researcher himself to

collect the data from the farmers turned marketers as

respondents. Convenient sampling technique was adopted to

select the respondents and the interested persons are

interviewed for the purpose of data collection. The collected

data were tabulated and apply percentage analysis, chi-square

test and correlation analysis. Some of the fruitful suggestions

are given on the basis of the findings of the study and the

experience of the researcher.

Keywords: Uzhavar Sandhai, Farmer, Agricultural

produce, Middlemen commission, Vegetables, Cultivation,

Food grains and Pulses)

A Study of The Marketing Practicesof Farmers at Uzhavar Sandhai Dr. T. Ramasamy*

commission agents, brokers and traders of food grains and

vegetables. Even in the Uzhavar Sandhai also, the farmers are

not permitted to fix the selling price. Only the Government

Department Officials are fixing the selling price after

consulting the farmers. Even though, the interest of the farmers

is protected to some extent. In this situation, the present study

is conducted to highlight the marketing practices of farmers at

Uzhavar Sandhai. Many shops are located in Uzhavar Sandhai

that will be allotted to the farmers on the basis of first come first

served. The weighing machine is installed in every shop but

weighing stones are given to farmers for their use at the time of

allocating the shop.

Scope of The Study

Most of the farmers are having less education. More over,

they are engaging in the agricultural activities out of their own

experience and information what they have received. There is a

proverb in English i.e. Old wood burns best. It means that

nothing is equal to the experience. Hence, the practical

experiences of farmers are highlighted through this study. The

researcher feels that the practical experience of one farmer is

highly useful to others. Hence the researcher has selected this

topic and conducted from the point of view of farmers.

Area of The Study

The present study is conducted in Paramakudi Uzhavar

Sandhai. The Paramakudi is situated in 75 kms away from

Madurai towards Rameswaram in the National Highways.

The Paramakudi is situated on the riverbed of Vaigai. The

farmers who are doing cultivation around Paramakudi

selected Uzhavar Sandhai to sell their agricultural produce

especially vegetables. The respondents are very close to

Paramakudi. The following are some of the name of resident of

respondents i.e. Munaiventri, Melaikudi, Kamuthakudi,

Ariyanenthal, Perumal koil, Pampoor, Andakudi, Abiramam,

Manja l Pa t t inam, E lentha ikulam, Bothuvakudi ,

Emaneswaram and the like.

Objectives of The Study

The present field study has the following objectives.

1. To know the marketing practices of respondents with

regard to vegetables.

2. To study the factors that influencing the respondents

to cultivate the vegetables and sell the same at

Uzhavar Sandhai.

3. To know the varieties of vegetables cultivated by

respondents.

4. To offer best marketing practices on the basis of

experiences of respondents.

Methodology

The researcher had collected data from the farmers

who are doing cultivation of vegetables and sell the same at

Paramakudi Uzhavar Sandhai. The primary data was collected

from the farmers through a structured interview schedule. The

researcher himself prepared the interview schedule. The

interview schedule was pre-tested for which the questions

were translated into Tamil. Tamil is the regional language. The

interview schedule was systematically arranged and finalized

on the basis of comments given by the farmers.

Sampling

In order to select the samples, first, the researcher

approaches the Government Department Officials to know the

number of farmers selecting the Paramakudi Uzhavar Sandhai

to sell their agricultural produce. One-week information was

collected and decides the sample size as 62. Some farmers are

selling food grains and pulses along with vegetables. The

researcher selects the farmers as respondents who are selling

vegetables with or without food grains and pulses.

Hypotheses

The following null hypotheses have been framed to find

the significant relationship between two variables.

1. There is no significant relationship between the level

of monthly income and customer canvassing

practices of respondents.

2. There is no significant relationship between gender of

the respondents and their knowledge about rules and

regulations of Uzhavar Sandhai.

Statistical Tools

The application of statistical tools is essential for proper

analysis and interpretation of primary data. Simple

percentages, cross tabulation, chi-square test and Karl Person’s

coefficient of correlation are used in this study. Findings of the

study are getting much importance through the application of

statistical tools.

Limitation of The Study

The followings are the limitations of the present study.

i. The responses of respondents are fully taken into

account to know the ground reality of the study area.

The bias of respondents may mislead the findings of

the study.

ii. The researcher on the basis of answers given by the

respondents filled up the interview schedule. The

misunderstanding of researcher may mislead the

findings of the study.

iii. Paramakudi is located in Ramanathapuram District

of TamilNadu. This area is drought hit. Hence,

findings of this study cannot be applied in other areas

even within Tamil Nadu.

Analysis and Interpretation

The collected primary data was analyzed and interpreted

in the following manner. The age group and period of doing

cultivation by the respondents is given in Table1.

23A Study of The Marketing Practices of Farmers at Uzhavar Sandhai

The martial status and pricing strategies of respondents

are presented in Table 3.

Table 1 shows that the age group and period of doing

cultivation by respondents. It is understood that the

respondents are getting dissatisfaction on the cultivation. Only

15 respondents are doing cultivation from 10 to 15 years. But,

nine respondents are alone doing cultivation more than 20

years. There is a declining trend of engaging on the cultivation

activities by the respondents. Moreover, 30 respondents are

coming under the age of up to 30 years but only 19 respondents

are coming above 45 years. It is once again proved that the

respondents give up the cultivation activities during their old

age.

The gender of the respondents and types of problem faced

by the respondents are shown in Table2.

24

Table 1: Age Group and Period of doingCultivation by The Espondents

Period of Doing Cultivation

(Years)

Age Group

Total Upto 30

30- 45 Above

45

Below 5 4 2 5 11

5 to 10 6 2 5 13

10 to 15 7 4 4 15

15 to 20 6 5 3 14

More than 20 7 0 2 9

Total 30 13 19 62

Source: Primary Data

Table 2: Gender of The Respondents andTypes of Problems Faced by The Respondents

Types of Problem Gender

Total Male Female

Demand Low Price 16 13 29

Demand Extra 6 5 11

Damaging the Vegetables

5 4 9

Transport 5 8 13

Total 32 30 62


Table 2 shows that the gender of the respondents and

types of problems faced by the respondents. It is inferred that

nearly 50% of the male respondents are facing the problem of

demanding low price. The reason is that majority of the

Uzhavar Sandhai buyers are female members. Generally,

females are buying any product only on bargaining basis and

demanding low price. While comparing male respondents,

more female respondents are facing transport problem. Female

respondents are unable to bring their vegetables to Uzhavar

Sandhai due to lack of transport. Moreover, adequate bus

facilities are not available to female respondents.

Table 3: Martial Status andPricing Strategies of Respondents

Martial Status

Pricing Strategies

Total Uniform

Price

Variable

Price

Married 41 13 54

Unmarried 2 6 8

Total 43 19 62


Table 3 shows that martial status and pricing strategies of

respondents. It is concluded that majority of the married

respondents are following uniform price while selling

vegetables to consumers. But, majority of the unmarried

respondents are following variable price. The reason is that the

unmarried respondents are considering time and wastages of

vegetables. Hence, they have decided to quick disposable of

vegetables for which they are adopting variable price.

The varieties of vegetables cultivated and sold by the

respondents are given in Table 4.

Table 4: Varieties of Vegetables Cultivatedand Sold by The Respondents

S. No Vegetables No. of

Respondents Percentage

1 Angular 19 22.09

2 Lady's Finger 17 19.77

3 Bottle gourd 8 9.30

4 Brinjal 20 23.26

5 Cabbage 9 10.47

6 Pumpkin 6 6.97

7 Bitter Gourd 7 8.14

Total 86 100


Table 4 shows that the varieties of vegetables cultivated

and sold by the respondents. It is understood that majority of

the respondents (23%) are cultivating Brinjal and sell the same

at Paramakudi Uzhavar Sandhai. The reason is that Brinjal is

highly used in the sampar preparation and mixed with meals

for consumption. The prime aim of respondents is earning the

amount very quickly. Some respondents are culitivating more

than single vegetable in their land

The factors influencing the respondents for vegetable

cultivation are shown in Table 5.


Table 5 shows that the factors influencing the respondents

for vegetables cultivation. Soil condition is the main factor

responsible for vegetable cultivation. Hence, it is inferred that

the soil condition cannot be changed by anybody. Everyone

should adjust according to the soil condition. If not so, the

respondents cannot earn anything from the specified soil.

More return is another factor that influences 18 (22.22%)

respondents to cultivate vegetables. It is understood that

everybody prefers more return out of cultivation. Here, 18

respondents are influenced by more return and they are

cultivating and sell the vegetables at Paramakudi Uzhavar

Sandhai.

Testing of Hypotheses

The framed hypotheses have been tested with the help of

chi-square test. In order to find the significant relationship

between the level of monthly income of the respondents and

customer canvassing practice of respondents, null hypothesis

has been framed and tested with the help of chi-square test. The

level of monthly income of the respondents and customer

canvassing practices of respondents are shown in Table 6.

Null Hypothesis: There is no significant relationship

between the level of monthly income and customer canvassing

practices of the respondents

Alternate Hypothesis: There is a significant relationship

between the level of monthly income and customer canvassing

practices of the respondents

Degrees of Freedom : 6

Level of Significance : 5%

Calculated Value : 7.33

Table Value : 12.59

Inference: Since the calculated value of chi-square is less

than the table value, the null hypothesis is accepted. It means

that there is no significant relationship between the level of

monthly income and customer canvassing practices of the

respondents. Hence, it is understood that Uzhavar Sandhai

buyers i.e. consumers are not influenced by the canvassing

practices of the respondents. If the vegetables are kept

according to the expectation of consumers, the consumers have

decided to buy the vegetables. Moreover, the consumers are

watching over the quality of vegetables and the price fixed for

them.

The gender of the respondents and knowledge about rules

and regulations of Uzhavar Sandhai to the respondents is

given in Table 7.

25

Table 5: The Factors InfluencingThe Respondents for Vegetable Cultivation

S.

No Factors

No. of

Respondents Percentage

1 Quick Return 12 14.82

2 More Return 18 22.22

3 Soil Condition 29 35.80

4 Climate 11 13.58

5 Scarcity of Water 6 7.41

6 Less Expenses 3 3.70

7 Less Labour 2 2.47

Total 81 100.00


Table 6: Level of Monthly Income of TheRespondents and Customer Canvassing

Practices of Respondents

Customer

Canvassing

Practices

Level of Monthly Income

Total Low Medium High

Oral Invitation 5 17 14 36

Give Samples 5 2 4 11

Explain Benefits 1 1 3 5

Display of

Vegetables 2 3 5 10

Total 13 23 26 62


Table 7: Gender of The Respondents and Knowledge about Rules and Regulations

of Uzhavar Sandhai to The Respondents

Gender

Knowledge about Rules

and Regulations of

Uzhavar Sandhai Total

Yes No

Male 24 8 32

Female 26 4 30

Total 50 12 62


Null Hypothesis: There is no significant relationship

between gender of the respondents and knowledge about rules

and regulations of Uzhavar Sandhai.

Alternate Hypothesis: There is a significant relationship

between gender of the respondents and knowledge about rules

and regulations of Uzhavar Sandhai.

Degrees of Freedom : 1

Level of Significance : 5%

Calculated Value : 1. 36

Table Value : 3.84

Inference: Since the calculated value of chi-square is less

than the table value, the null hypothesis is accepted. It means

that there is no significant relationship between gender of the

respondents and knowledge about rules and regulations of

A Study of The Marketing Practices of Farmers at Uzhavar Sandhai

Uzhavar Sandhai. It is understood that both male and female

are having equal knowledge over the rules and regulations of

Uzhavar Sandhai.

Karl Pearson’s Coefficient of Correlation

All the farmers are not selecting the Uzhavar Sandhai for

selling their vegetables. Only a few of them have selected the

Uzhavar Sandhai. The reason is that only a few people are

having the talent of attracting others through their speech.

Hence, there may be a relationship between the method of

attracting the consumer and selecting the Uzhavar Sandhai for

selling their vegetables. Therefore, the researcher applies Karl

Pearson’s Coefficient of Correlation to find the prevailing

relationship between the method of attracting the consumers

and the reasons for selecting the Uzhavar Sandhai for selling

vegetables. The researcher asked the respondents to give ranks

for method of attracting the consumers and reasons for

selecting the Uzhavar Sandhai for selling vegetables. On the

basis of ranks given by the respondents, score values are

calculated to apply the Karl Pearson’s Coefficient of

Correlation. The Table 8 shows that the score values of method

of attracting consumers and reasons for selecting Uzhavar

Sandhai for selling vegetables.

26

Findings

The followings are the findings of the study.

• There is a declining trend of engaging on the cultivation

activities by the respondents.

• Nearly 50% of the male respondents are facing the

problem of demanding low price. More female

respondents are facing the transport problem.

• Majority of the married respondents are following

uniform price while selling vegetables to consumers.

• Majority of the respondents (23%) are cultivating Brinjal

and sell the same at Paramakudi Uzhavar sandhai.

• Soil condition is the main factor influencing respondents

to cultivate vegetables.

• There is no significant relationship between the level of

monthly income and customer canvassing practices of the

respondents

• There is no significant relationship gender of the

respondents and knowledge about rules and regulations

of Uzhavar Sandhai

• There is a negative correlation between the method of

attracting consumers and the reasons for selecting the

Uzhavar Sandhai for selling vegetables by the

respondents.

Suggestions

The following suggestions are given on the basis of

findings of the study and experience of the researcher.

• Marketing is an art. Hence, Government Department

Officials should prepare a soft skill development

programme for the farmers and implement the same with

the approval of State Government.

• The soil test can be conducted freely to the farmers who are

selecting the Uzhavar Sandhai to sell their vegetables.

• The farmers are permitted to fix the price themselves

without intervention of Government Department

Officials.

• Transport facility should be arranged to bring the

vegetables to the Uzhavar Sandhai in time. If not so, the

vegetables will be wasted.

• Go down facility should be created within the Uzhavar

Sandhai itself. If so, vegetables are kept in good condition

throughout the day. Moreover, the vegetables can be sold

as fresh in the very next day also.

Table 8: Score Values of Method of AttractingConsumers and Reasons for Selecting

Uzhavar Sandhai For Selling Vegetables

S. No

Method of Attracting Consumer

Reasons for Selecting Uzhavar Sandhai to Sell

Vegetables

1 Display 6 More Profit 16

2 Offer 16 Quick Money 125

3 Neatness 120 Utilize

Opportunity 30

4 Less Weight

and More Goods

33

Cheating of Intermediaries 60

5

Proper

Handling of Vegetables

52

Quick Sales

4


r = -0.32

There is a negative correlation between the method of

attracting consumers and the reasons for selecting the Uzhavar

Sandhai for selling vegetables.

Inference: It is proved that the selected respondents, who

have opted Uzhavar Sandhai to sell their vegetables, are not

able to attract the consumers. The consumers are urban area

people. The respondents are rural area people. The rural area

people are not able to understand the expectation and

psychology of urban area people i.e. consumers.


Conclusion

The establishment of Uzhavar Sandhai provides a place

for selling agricultural produce by the farmers directly to the

consumers. In this way, Uzhavar Sandhai is functioning as a

bridge between the farmers and consumers. Everybody

understood that the farmers are freely marketing their

vegetables without middleman involvement and

interruptions. Hence, the researcher is happy if the concerned

authorities consider the above listed suggestions for

betterment of farmers. If so, certainly, the farmers can get high

satisfaction and their interests are properly safeguard.

Moreover, vegetables can be available to consumers at very

cheaper rate with more varieties and quantity.

References

• Acharya.S.S and Agarwal.N.I. Agricultural Marketing in

India, Oxford and IBH Publishing Co. Pvt. Ltd. New Delhi,

1999

• Beri.G.C. Marketing Research, Tata McGraw Hill Publishing

Company, New Delhi, 2005

• Srinivas, Nidhi Nath, The Village People, The Economic Times,

January 14, 2004

• Parthasarathy and Vimala, The Changing face of Indian

Retailing, Marketing Mastermind, April 2004

• Marketing Management, Arun Kumar, N.Meenakshi, Vikas

Publishing House Ltd, 2006

27A Study of The Marketing Practices of Farmers at Uzhavar Sandhai

*Head - Department Of Management, Ideal Institute of Technology, Ghaziabad.

**Department Of Management, Ideal Institute of Technology, Ghaziabad.

INTRODUCTION

The Wilson Fire and Rescue Services, like most other fire

departments, have always utilized the traditional single-

source performance appraisal assessment completed by the

supervisor. Although the forms have changed periodically

over the years, the theories, principals and implementation

have remained the same.

The Wilson Fire and Rescue Services (WF/RS) believes

that in an age where hierarchy is being replaced by teamwork,

participative leadership, empowering employees, improving

customer service and re-engineering have made traditional

single-source assessments illogical and impractical. We feel the

need to look at other alternatives that will support and enhance

personnel development and growth of our organization.

Since the elimination of our shift commander positions,

we have not been able to properly evaluate our officers and

personnel in the utilization of the Incident Command System

during emergency operations.

In a time when hierarchy is being replaced by teamwork,

participative leadership, empowering employees, improving

customer service and re-engineering, employers need to look at

other alternatives that will support and enhance personnel

development. Organizations are asking personnel for more

productivity with less resource. Layers of management are

being reduced causing increased workloads and supervisors

are managing larger work groups with larger spans of control.

The traditional tops down supervisor-only evaluation

systems are no longer practical. Supervisors with increased

workloads and a large number of reporting relationships lack

the opportunity to observe and provide fair, accurate, credible

and motivating performance appraisals.

The purpose of this research project was to gather

information that would assist in the development of a fair,

accurate, honest and objective performance appraisal system.

This research project utilizes an evaluative research

methodology. The following questions were answered while

completing this project.

1. What is a 360-degree feedback performance appraisal?

2. Should 360-degree feedback be used for development or for

management decisions such as raises and promotion also?

3. What are the advantages and disadvantages of 360-degree

feedback?

4. Should the raters providing feedback be anonymous?

The procedures included an extensive literature review of

three research papers located at the National Fire Academy and

several books by noted authors on the subject of multiple source

performance appraisals. An inter-department survey was

conducted to determine how personnel felt about our current

performance appraisal system and the possibility of a multi-

source performance appraisal. Telephone conversations were

conducted with the authors of two of the research papers used

for this project.

360-Degree FeedbackPerformance Appraisal Prof. Amit Kr. Jain*

Prof. Shrankhla Jain**

The results of this research project confirmed that most

organizations are using the traditional supervisor-to-

subordinate appraisal. It also concludes that multi assessors

increase validity and that subordinates and peers are in a better

position to provide accurate feedback to their supervisors and

co-workers. The survey concluded that personnel are

dissatisfied with the traditional performance appraisal and are

willing to evaluate their superiors, peers and subordinates.

The recommendation is that personnel growth and

development will be more probable with the adoption of 360-

degree feedback performance appraisal.

The WF/RS leadership team was introduced to a

performance appraisal system called

360-degree feedback during one of its staff advance

meetings. The qualities seemed to fit into our scheme and we

wanted to research the system in more depth.

The purpose of this project was to research and provide

the information available to assist the departments’ employee

evaluation review committee to develop an evaluation that

would produce a fair, accurate and non opinionated

performance appraisal of our employees during normal and

emergency operations.

This paper uses an evaluative research methodology. The

questions to be answered were:

1. What is a 360-degree feedback performance appraisal?

2. Should 360-degree feedback be used only for development

or for management decisions such as raises and

promotions also?

3. What are the advantages and disadvantages of 360-degree

feedback?


Background and Significance

The Wilson Fire and Rescue Services went through

reorganization in 1993. The finished product resulted in

adding two deputy chiefs, one over operations and one over

support services. Five battalion chiefs were also promoted to

head fire prevention, training and three shift commanders.

In 1994 the City of Wilson underwent personnel cutbacks.

The WF/RS lost seven positions one in which was a deputy

chief.

In 1996, the remaining deputy chief left the department for

a fire chief’s position in another city. Also, one of the shift

commanders retired.

Due to budget restraints and cutbacks, we felt we needed

to re-engineer our organization. We were faced with being

more productive with less resource. As fire department leaders

we need to periodically examine our management structure.

The management structure should be altered to fit the service

needs of the customer and the management needs of the

employee.

The alternative selected was to make the four remaining

battalion chiefs division heads and place them on a forty (40)

hour work week. At the present time the department has a

division chief over fire prevention, one over support services

(administration) and one over operations. The vacant deputy

and battalion chief positions were eliminated.

The reorganization also eliminated the shift commanders

on all three shifts. More authority, responsibility and

accountability were delegated to the company officer level. By

doing so, our organization has reduced hierarchy by removing

layers of management and putting more emphasis on

empowerment, teamwork, continuous learning, individual

development and self responsibility.

The operations chief has complete management and

responsibility over operations from eight a.m. to five p.m. A

division chief is on stand-by after 5:00 p.m. which is rotated

between the division chiefs one week a month.

The operations chief is responsible, with input from the

other division chiefs, for the performance appraisal of fifteen

(15) company level officers. By working an eight to five work

schedule and doing mostly administrative duties it has

diminished the quality time he has to spend with his officers

which inhibits his ability to provide a fair an accurate

evaluation.

Before being eliminated, the battalion chiefs (shift

commanders) use to respond on most emergency calls

providing ample opportunity to evaluate their officers on the

emergency scene in firefighting strategy, tactics and their

ability to execute proper procedures utilizing the Incident

Command System. Since the reorganization, the division chief

of operations is limited to the amount of emergency calls he

responds on. This has a positive side by providing the

company officer with more empowerment to make decisions

and manage the emergency operations. It as also limited the

operation chief’s ability to observe their skills, growth and

ability. At present, the division chief is dispatched on the

following:

• Church fires School fires Warehouse fires

• Structural collapse/Cave-in confined space

• Mass casualty reports

• Airplane crash

• Train wrecks

• Blowing gas incidents Hazardous material Mutual aid

alarms

• All second alarms

• When requested by incident commander

The emergencies listed above make up less than 5% of the

emergency response calls by the WF/RS. In response to the

company officer who has inherited more responsibility,

authority and an increased workload, the supervisor may not

have sufficient opportunity to observe employee performance.

It is imperative that someone be in a position to observe,

evaluate and point out an employee’s strengths, weaknesses

and needs for his future growth and development.

This research project relates directly to the subject matter

covered in the course Executive Analysis Of Fire Service

Operations In Emergency Management. The concept is based

on the Incident Command System (ICS). 360- degree feedback

will improve our emergency operations, ICS and community

risk assessment which requires teamwork and focus from all

levels of the organization.

The author of this paper feels that 360-degree feedback is a

tool that can be used to give all personnel a fair and accurate

performance appraisal in all aspects of the job. Peers and

subordinates will be providing feedback and evaluating the

29360-Degree Feedback Performance Appraisal

The 360-degree feedback appraisal, also known as multi-

source assessment or full circle feedback, gathers evaluation

data from all of those who work most closely with the person

being evaluated, regardless of position. The collective

intelligence these people provide gives the appraisee a clear

understanding of personal strengths as well as areas that need

further development (Edwards & Ewen, 1996). A prime

advantage is that 360 provides a more comprehensive view of

employee performance. Not only does this method provide

feedback from a variety of viewpoints, it also minimizes the

bias problems that are inherent to evaluations. The more

appraisers an employee has, the more likely the biases of the

raters will tend to cancel one another out, and the more their

perspectives will combine to give a complete, accurate and

honest picture.

In the research paper Subordinate Appraisal Of

Supervisors An Improvement In Appraisal Technique (Simms,

1996) recommended an action plan be developed to implement

a subordinate appraisal system in the Texarkana, Texas Fire

Department. The results of his study indicated that

subordinate appraisal of supervisors could be a viable

accepted system that could improve the overall performance

appraisal process.

David Lobdell in his research project Selecting An

Appropriate Performance Appraisal Program For Spokane

Valley Fire Department, (1997) recommended that 360 degree

appraisal was the most beneficial for a fire department in

today’s work environment. Four basic methods were

identified in his research: (1) the conventional top down, (2) the

peer rating, (3) the bottom up where employees rate their

supervisors, (4) the 360 degree evaluation which he states is a

combination of the other three.

Lobdell recommended that the evaluation be

implemented carefully and that they should be used only for

employee self evaluation and development. The individual

ratings should be kept confidential and should be fairly short.

He recommended that training must be conducted for both

giving and receiving feedback before the program is

implemented, and the program should be evaluated

periodically and modified to meet the changing needs of the

organization.

He recommended the evaluation be fairly short and that it

should be able to be completed in about thirty (30) minutes. The

performance on which the employee is being rated should be

clearly understood and related to the position held. There

should be a minimum of five to six evaluators to protect

anonymity and provide sufficient perspective. The immediate

supervisor of the appraisee should receive the completed

evaluations. He should tabulate them onto a clean form with

the comments interpreted or paraphrased to assure anonymity

before discussing the composite rating with the employee

being evaluated.

Research obtained by Roberto Rivera’s research project

Performance Appraisals A Change From Single Source To

Multi Source Evaluations (1996) indicated that multi source

officers. This will only improve our Incident Command System

which requires knowing strengths and weaknesses of all

participants.

Literature Review

The literature review was to explore a new performance

appraisal model that turns the appraisal process upside down

known as 360-degree feedback. Hopefully it will provide

quality information that can be utilized by The Wilson Fire and

Rescue Services Employee Evaluation Review Committee to

create and implement a new performance appraisal model for

employee assessment and performance improvement. If

implemented, its intended purpose will greatly enhance

personnel development and maximize the utilization by

department personnel of our Incident Command System.

Any company that’s going to make it in the 1990’s and

beyond has got to find a way to engage the mind of every single

employee. If you’re not thinking all the time about making

every person more valuable, you don’t have a chance. What’s

the alternative? Wasted minds? Uninvolved people? A labor

force that’s angry or bored? That doesn’t make sense.

360-Degree feedback is aimed at improving performance

by providing a better awareness of strengths and weaknesses.

The employee receives feedback, in anonymous form, on

performance ratings from peers, superiors and subordinates

(Kaplan & Palus, 1994).

Feedback from multiple sources, such as superiors, peers,

subordinates and others has a more powerful impact on people

than information from a single source, such as their immediate

supervisor. Employees view performance information from

multiple sources as fair, accurate, credible and motivating.

They are more likely to be motivated to change their work

habits to obtain the esteem of their co-workers than the respect

of their supervisors (Edwards & Ewin, 1996).

The supervisor-only performance appraisal is subjective

and relies on the supervisor’s judgment. They are time-

consuming and are generally disliked by those who give and

receive them. They are typically given once a year assessing the

employees work performance from a subjective point of view

and providing management information for decisions on pay

and promotions (Edwards & Ewen, 1996).

360 Degree Feedback improves the quality of performance

measures by using multi- raters providing a more balanced

and comprehensive view. The information is more reliable,

valid and credible because the providers interact regularly

with the employee at work (Edwards & Ewen, 1996).

Many organizations have found that single source

appraisals provide inflated evaluations, giving nearly all

ratee’s high performance ratings. This process creates an

environment in which employees feel entitled to regular raises

and promotions without providing them the information

needed for development. Managers find it difficult to provide

specific and critical feedback so they tend to shy away from

addressing performance problems.


assessments are the wave of the future. The purpose of his

research project was to evaluate existing performance

appraisals in the fire service and determine their effectiveness.

The El Paso Fire Departments current performance appraisal

system was examined and compared to those revealed in his

research. The results of his research lead to choosing 360-

degree feedback as a replacement for El Paso Fire Departments

performance appraisals.

A telephone interview was conducted with Deputy Chief

Roberto Rivera of El Paso Fire Department and with Assistant

Chief David Lobdell of The Spokane Valley Fire Department to

find out if they had implemented the 360-degree feedback

appraisal system in their departments. Both had recommended

360 in their research projects.

A survey was planned to find out how many fire

departments were using multi source appraisals. The survey

was abandoned due to research obtained from the three

research projects mentioned, through their recent surveys,

revealed that most fire departments are still using the

traditional one-on-one, top down performance appraisals.

Summary

In summary, the wealth of information in the literature

review has stimulated the possibility and the advantages of a

360-degree feedback performance appraisal system. All the

information reviewed has been favorable and positive of 360-

degree feedback. Roberto Rivera had implemented the system,

on a trial basis to portions of his department. The results were

positive and well received by both officers and subordinates.

David Lobdell and Rivera had both recommended it for their

departments.

Many sources were studied but are not listed in the

reference section due to being redundant in their information.

They all seem to agree with each other and favor that 360-

degree feedback is the wave of the future. The only point there

is disagreement on is whether 360 should be used for

development only or should it be used for management

decisions such as pay raises and promotions also.

The information in this research paper will be provided to

The Wilson Fire and Rescue Services Employee Evaluation

Review Committee to examine and consider as one alternative

to our present system.

Procedures

The procedures used in this research project was to

exercise an extensive literature research to obtain as much

information as possible on the most recent type of performance

appraisal being utilized today. It was mostly directed at

exploring information and research pertaining to 360-degree

feedback. The author was searching for other fire departments

that were using the 360-degree feedback system to find out

how successful it was for their organization and any problems

they had encountered.

Three research papers found at the Learning Resource

Center at The National Fire Academy provided valuable

information needed to complete the project. The three paper’s

reviewed are contained in the literature review section of this

paper. Several books written on multi- source evaluations were

also used which are listed in the reference section. Telephone

conversations were conducted with the authors of two of the

research paper’s reviewed in this project.

Roberto Revera of Texas El Paso Fire Department said he

implemented the 360- degree feedback to three different

stations on three different shifts on a trial basis for his research

project. The feedback he received was positive. The

subordinates enjoyed giving feedback to their officers and felt

it improved their relationship. The officers felt they had

improved from the feedback they had received. One officer

said it was too short a period to really benefit from it. Roberto

said it has not been implemented because all city departments

use the same type of evaluation and he has not been able to sell

it to all departments (R. Revera, phone conversation,

November 17, 1998).

David Lobdell of the Washington Spokane Valley Fire

Department, who also recommended that 360-degree feedback

be implemented in their department, said at this time it is on

the back burner. He delegated it to a newly appointed battalion

chief as a probationary project and it never got implemented.

He has not had time to re-delegate it at this time but does have

plans to implement it in the near future (D. Lobdell, phone

conversation, November 17, 1998).

An inter-department survey was conducted to find out

how many were satisfied or dissatisfied with our current

evaluation system. The purpose was also to find out how they

felt about the idea of a multi-source assessment performance

appraisal. The following survey was distributed:

EFOP Research Project Survey

1. What is your current rank?

2. I am satisfied with our current evaluation form and

system.

Strongly agree Agree Disagree Strongly disagree

3. I would be willing to evaluate my superiors, peers and

subordinates.


4. I would be willing to accept an evaluation from my peers

and subordinates.


5. I think evaluations should be associated with pay raises.


6. I think pay raises should be associated with promotions


7. Additional comments:

Sixty four (64) of eighty two (82) personnel employed with

the department were hand delivered a survey form and given a

brief explanation of its purpose. They were told the results

would be documented in this research project and would also

be provided to the employee evaluation review committee.


Many of the employees were not educated about multi-

source/360 evaluations and a brief explanation of how it

proceeds was given stressing the importance and guarantee of

anonymity.

The sixty four (64) surveys included seventeen (17)

firefighters, twenty five (25) engineers and twenty one (21)

officers. The make up of officers included fire inspectors, three

(3) lieutenants, thirteen (13) captains, four (4) divisions chiefs

and the fire chief. One survey form was excluded due to not

answering all the questions bringing the total number of

surveys used to sixty three (63). This represents seventy six

percent (76%) of the department participating in the survey.

The two secretaries were overlooked and not provided the

opportunity to participate in the survey. Sixteen (16) personnel

were unavailable due to vacation, sick leave or attending

school at the time of the survey.

Limitations

The author was unable to locate any data that spoke out

against the 360-degree feedback performance appraisal. In

order to get a true picture you need to evaluate the pros and

cons. All the literature reviewed was favorable of the 360 even

though a limited amount of disadvantages were covered.

It is questionable whether the respondents of the survey

by The Wilson Fire and Rescue Services personnel had a good

understanding of the 360-degree feedback performance

appraisal. It is assumed respondents answered the survey

honestly. They were given very little time to answer the survey

and a brief definition of the 360 and how it works. The

unavailability of some personnel due to leave time could

possibly skew the results.

Results

This section will provide answers to the original research

questions along with a narrative description of the findings of

the study.

1. What is 360-degree feedback performance appraisals?

From the literature reviewed, 360-degree feedback is a

new model for performance feedback and appraisal. 360 turns

the appraisal process upside down. It assesses employee

performance and development from multi perspectives such

as supervisors, peers, subordinates, customers and clients. It is

aimed at improving performance by providing a better

awareness of strengths and weaknesses. The employee

receives feedback from multiple sources in anonymous form,

compares them with self-ratings, gets limited coaching and

sets goals for improvement. It is a process of feeding back to a

person how others see him or her from people who work most

closely with them and know them best. 360 serves as a

supplement to, not a replacement for, supervisory review.

2. Should 360-degree feedback be used for development or for management decisions such as raises and promotions also?

32

The answer to this question falls into three general

categories: (1) for development only, (2) for performance

appraisal; or (3) for development and performance appraisal.

Victoria Pollman believes in using 360-degree feedback

strictly for development purposes only. She believes that using

it for appraisal supports the “Theory X” philosophy and makes

it punitive by its very nature (Bracken, Dalton, Jako, McCauley,

Pollman and Hollenbeck, 1997).

David W. Bracken believes the full power of 360 is not

maximized when it is used for development only. He states

that multi rater feedback for decision making has worked in

many organizations (Bracken, Dalton, Jako, McCauley,

Pollman and Hollenbeck, 1997).

Studies have shown that when the ratings can influence

another’s career when used for decision making purposes,

both self-ratings and the ratings of co-workers tend to be

inflated (Fleenor and Prince, 1997). Whether 360 is being used

for development only or performance appraisal, the raters

should be held accountable to provide honest, fair and

unbiased feedback.

Whether 360 should be used for management decisions or

development only is the most significant disagreement among

proponents who have provided information on the subject.

Though this has been debated there is no clear right or wrong

answer.

Cynthia D. McCauley (Bracken, Dalton, Jako, McCauley,

Pollman and Hollenbeck, 1997) attended a debate where

Dalton and Pollman presented their views as to why 360-

degree assessments should be used for feedback and

development only while Bracken and Jako expressed these

type of assessments were appropriate for use in administrative

decision-making also. After hearing the wealth of information

and experience from both sides on the topic, she found herself

unable to take one side or the other.

The information obtained leads the author of this research

paper to believe it should be left up to the organization who

wishes to implement 360-degree feedback on what it should be

used for. Each organization must decide what will work best

for them.

3. What are the advantages and disadvantages of 360-degree feedback?

Some advantages and disadvantages are listed below:

Advantages:

The feedback is more honest, reliable and valid than

traditional appraisals from the supervision only.

Feedback from multiple sources has a more powerful

impact than information from a single source.

No action has more power for motivating employee

behavior change than feedback from credible work associates.


Employers are more strongly motivated to change work

behaviors to obtain the esteem of their co-workers.

They are typically not as time consuming for the

supervisor as the traditional performance appraisal.

They offer a more balanced and comprehensive view.

When using 360 degree feedback systems work associates

are rarely reluctant to identify poor performance of co-

workers.

One person performance appraisals are subject to claims

of bias or partiality. Multi source offers substantial stronger

legal protection.

Disadvantages:

If co-workers like the individual being rated, they are

concerned about doing or saying anything that may hurt them.

If raters disliked the individual they may decide that this is

a good time to get even. Is the use of anonymous raters legally

practical?

Even when the feedback is anonymous, the recipient may

be able to identify the source. Subordinates often cannot

evaluate the supervisor’s work as it relates to management

objectives

There should be five or six evaluators to provide sufficient

perspective and to protect anonymity.

Raters may lack proper training.


Many employees will not provide feedback without

respondent anonymity. When anonymity is not guaranteed

their responses tend to be highly inflated.

360-Degree works only when respondent anonymity is

assured. Many times people say, “We must trust one another

around here and be honest with our feedback,” or “We want

people to be able to confront their rater directly, and get all the

information out in the open.” But this approach encourages

people to give only positive information. People are not stupid:

They will not give the difficult feedback if there is any chance

the feedback can be traced to them. No amount of training

changes this aspect of human behavior (Edwards & Ewen,

1996, pg. 158).

All the information reviewed agreed that to address the

issue of retribution and accountability and increase the

likelihood that raters will provide candid feedback that was

accurate , honest and fair anonymity must be assured.

Survey

A survey was conducted of The Wilson Fire and Rescue

Services personnel to determine how they felt about our

current performance appraisal system and what their thoughts

would be on a global type (360) performance appraisal system.

The results, for the most part, was surprising.

The first question on the survey form asked for each

employee to specify his rank. The purpose was so the data

could be compiled separately by rank and also in totality by the

department as a whole.

To the second statement 26.1% of the non-officers

(firefighters and engineers) agreed that they were satisfied

with our current evaluation form and process. 42.8% disagreed

and 30.9% strongly disagreed. 23.8% of the officers (inspectors,

lieutenants, captains and chiefs) agreed that they were satisfied

with our current evaluation form and process. 52.3% disagreed

and 23.8% strongly disagreed. When tallied by the department

as a whole 25.3% agreed, 46% disagreed and 28.5% strongly

disagreed. The closeness of the percentages between the

officers and non-officers was quite surprising as was displayed

throughout this survey.

33

Table 1: Percentage of Satisfaction withCurrent Evaluation System

Non Officers

Officers

Departments

StronglyAgree

Agree Disagree StronglyDisagree

0

0

0

26.1%

23.8%

25.3%

42.8%

52.3%

46.0%

30.9%

23.8%

28.5%

To the third statement 26.1% of the non-officers strongly

agreed that they would be willing to evaluate their superiors,

peers and subordinates. 59.5% agreed, 7.1% disagreed and

7.1% strongly disagreed. 23.8% of the officers strongly agreed,

66.6% agreed, 4.7% disagreed and 4.7% strongly disagreed.

When tallied as a whole 25.3% strongly agreed, 61.9% agreed,

6.3% disagreed and 6.3% strongly disagreed.

Table 2: Percentage Willing ToEvaluate Superiors, Peers, and Subordinates

Non Officers

Officers

Departments

StronglyAgree


26.1%

23.8%

25.3%

59.5%

66.6%

61.9%

7.1%

4.7%

6.3%

7.1%

4.7%

6.3%

To the forth statement 26.1% of the non-officers strongly

agreed that they would be willing to accept an evaluation from

their peers and subordinates. 73.8% agreed, 2.3% disagreed

and 7.1% strongly disagreed. 28.5% of the officers strongly

agreed, 66.6% agreed, 4.7% disagreed and 0% strongly

disagreed. Tallied as a whole 26.9% strongly agreed, 71.4%

agreed, 3.1% disagreed and 4.7% strongly disagreed.


To the fifth statement 16.6% of the non-officers strongly

agreed that evaluations should be associated with pay raises.

30.9% agreed, 30.9% disagreed and 21.4% strongly disagreed.

19% of the officers strongly agreed, 42.8% agreed, 33.3%

disagreed and 4.7% strongly disagreed. Tallied as a whole

17.4% strongly agreed, 34.9% agreed, 31.7% disagreed and

15.8% strongly disagreed.

34

The author of this paper concludes that multiple assessors

increase validity and that subordinates and peers are in a better

position to observe certain skills of their supervisors and co-

workers such as leadership, guidance, coordination, planning,

training, coaching and work behavior that is often overlooked

by management. Through personal experience supervisors

seldom have sufficient opportunity to observe and provide a

complete performance picture of the individual. Development

depends on the quality of feedback received.

In comparison, the survey of WF/RS personnel that

participated in the survey showed that 74.6% had some degree

of dissatisfaction with our current performance appraisal

system.

87.3% were willing to evaluate their superiors, peers and

subordinates. 98.4% were willing to accept an evaluation from

their peers and subordinates. Again this is assuming the survey

questions were answered with total honesty and with proper

interpretation.

Recommendations

The recommendations concluded from this research

project is based on the data compiled from the research itself.

An overwhelming percentage (74.6%) of WF/RS personnel

that were surveyed (76.8% of WF/RS personnel were

surveyed) showed some degree of dissatisfaction with our

current performance appraisal system. The best time to

implement a change is when people are dissatisfied with the

present method.

The data collected coincides with the purpose of the

recently developed Wilson Fire and Rescue Services

Evaluation Review Committee to develop a evaluation that

would produce a fair, accurate and non opinionated

performance appraisal of our employees.

It is the authors opinion that the growth and development

of personnel and the department will be more probable with

the adoption of 360-degree feedback performance appraisals. It

will enhance the growth of our personnel in all aspects as well

as in emergency operations in the utilization of The Incident

Command System by receiving feedback from their superiors,

peers and subordinates while on and off the emergency scene.

The information contained in this research paper will be

provided to the employee evaluation review committee to

examine and research further for the possibility of

implementation. 360 is the newest alternative for performance

appraisals.

If 360-degree feedback is implemented, the author

recommends that:

1. All participants have comprehensive knowledge of 360

feedback.

2. All raters be assured anonymity.

3. All personnel trained in how to provide feedback.

4. All personnel trained in how to receive feedback.

5. The ratings be kept confidential.

Table 3: Percentage Willing toAccept Evaluation from Peers and Subordinates

Non Officers

Officers

Departments

StronglyAgree


26.1%

28.5%

26.9%

73.8%

66.6%

71.4%

2.3%

4.7%

3.1%

7.1%

0

4.7%

Table 4: Evaluations AssociatedWith Pay Raises

Non Officers

Officers

Departments

StronglyAgree


16.6%

19.0%

17.4%

30.9%

42.8%

34.9%

30.9%

33.3%

31.7%

21.4%

4.7%

15.8%

To the sixth statement 9.5% of the non-officers strongly

agreed that evaluations should be associated with promotions.

59.5% agreed, 19% disagreed and 11.9% strongly disagreed.

4.7% of the officers strongly agreed 71.4% agreed, 9.5%

disagreed and 0% strongly disagreed. Tallied as a whole 12.6%

strongly agreed, 63.4% agreed, 15.8% disagreed and 7.9%

strongly disagreed.

Table 5: Evaluations AssociatedWith Promotions

Non Officers

Officers

Departments

StronglyAgree


9.5%

4.7%

12.6%

59.5%

71.4%

63.4%

19.0%

9.5%

15.8%

11.9%

0

7.9%

Discussion

The conclusion from this study confirms that the majority

of fire departments and the private sector are still using the

traditional top down one-on-one supervisor to subordinate

appraisal. It also concludes that 360 is the wave of the future.

“Like it or not, 360-degree feedback has become an accepted

fact in organizations today, and its use is still growing”

(Hollenbeck, 1997, pg. ix). The U. S. Department of Energy,

Disney, Arizona State University, Monsanto, Florida Power

and Light, Du Pont, Westinghouse, Motorola, Federal Express,

Kino Hospital, Fidelity Bank and McDonnell-Douglas are

some of the innovators of 360-degree feedback.


6. The evaluation should be fairly short.

7. Should be able to be completed in thirty to forty-five

minutes.

8. There should be a minimum of three evaluators.

9. The evaluation program be evaluated periodically.

10. Make modifications as necessary.

11. Acquire the services of a consulting firm.

References

• Bracken, D.W., Dalton, M. A., Jako, R. A., McClauley, C.D.,

Pollman, V. A., and Hollenbeck, G.P., (1997). Should 360-

Degree feedback Be Used Only For Developmental purposes?

Greensboro, North Carolina: Center For Creative Leadership.

• Edwards, M. R., and Ewen, A. J., (1996). 360-Degree Feedback:

The Powerful New Model For Assessment And Performance

Improvement. New York: AMACOM

• Fleenor, J. W., and Prince, J. M., (1997). Using 360-Degree

Feedback In Organizations.

An Annotated Bibliography. Greensboro, North Carolina:

Center For Creative leadership.

• Kaplan, R. E., and Palus, C. J., (1994). Enhancing 360-Degree

Feedback for Senior Executives. Greensboro, North Carolina:

Center for Creative Leadership.

• Lobdel, D., (1997). Selecting An Appropriate Performance

Appraisal Program For Spokane Valley Fire Department.

(Executive Development Applied Research Project).

Emmitsburg, MD: National Fire Academy.

• Rivera, R., (1996). Performance Appraisals A Change From

Single Source To Multi Source Evaluations. (Strategic

Management Of Change Applied Research Project).


• Simms, H. H., (1996). Subordinate Appraisal Of Supervisors

An Improvement In Appraisal Technique. (Strategic

Management Of Change Applied Research Project).


Appendix

Survey• As a student enrolled in The National Fire Academy’s Executive

Fire Officer Program, I am compiling data for an applied

research project pertaining to employee performance appraisals.

• A meeting was held earlier this year to discuss possible revisions

in our present employee forms.

• An employee evaluation review committee was selected to

develop an evaluation form that would produce a fair, accurate,

non opinionated evaluation of our employees based on objective

measures.

• The results of this survey will be documented in my research

project and will be forwarded to the Wilson Fire and Rescue

Service Employee Evaluation Review Committee.

• Please take the time to answer the questions on the attached

survey form.

EFOP RESEARCH PROJECT SURVEY

1. What is your current rank?

2. I am satisfied with our current evaluation form and

process?


3. I would be willing to evaluate my superiors, peers and

subordinates.


4. I would be willing to accept an evaluation from my peers

and subordinates.


5. I think evaluations should be associated with pay raises.


6. I think evaluations should be associated with promotions.


7. Additional comments:

.....................................................................................................

.....................................................................................................

.....................................................................................................

.....................................................................................................


*Director, KIPM- College of Management. Email-id: [email protected]

**Head, Department of Management, KIPM- College of Management. Email-id: [email protected]

INTRODUCTION

The microfinance is not a new concept in India, it started

way back in nineteenth century with the establishment of

cooperatives, but the modern form of microfinance emerge in

1970s with the innovation of self help groups, the shifts took

place from credits to savings, and it is also true that there is a

huge expansion in microfinance sector with large client base

and increasing innovative financial services for low income

groups in last forty years. It attracts the researchers to study the

impact of microfinance services on the low income people and

large number of studies has been conducted by individual

researchers as well as government departments like NCAER,

NABARD etc. and also by different organizations like IFMR,

Sa-dhan, ACCESS (State of sector Report) including many

international organizations. There is one common thing in each

report that each report reflects growing number of people, who

financially included in the microfinance services whether it is

through self help groups or through microfinance professional

institutions (NBFCs). NABARD annual report on microfinance

sector, which it is producing for last four years (the data given

by NABARD is considered most reliable data & used by

various researchers and organizations for the analysis of

microfinance sector), shows remarkable growth in the number

of self help groups and also in savings and credits by them.

However some controversies are also attached with the

microfinance institutions, inspite of these controversies, there

is no doubt in saying that microfinance provides the access to

financial services to the low income people which are unable to

approach it due to various reasons. The major issues of

discussion are- what impact microfinance made on the lives of

people involved. As the microfinance is considered a tool to

poverty reduction, is it really contributing in reducing the

poverty? What is the impact of microfinance on the living

standard of the people? Is it able to improve employment and

hence incomes of involved people? And in last but not the least,

does it contributes in the economy of the country?

1.1 Hypothesis of the study

The aim of the present paper is to find the impact of

microfinance on economic development by exploring the

linkages among financial system, microfinance and economic

Microfinance is provision of financial services provided to

low income, poor and very poor self employed people who do

not have access to traditional banking services. These financial

services included credits, savings, insurance, fund transfers

etc. Basically it is considered as poverty alleviation tool,

through which poor people are helped to raise their income.

In India, self help group bank linkage programme is the

largest microfinance programme in the world. NABARD is

the apex body which is facilitating and regulating the self help

group programme on behalf of government and reserve bank of

India. By analyzing the NABARD annual data, it is concluded

that microfinance leads to development of financial services

among the low income group and weaker sections of society.

Further, microfinance has a positive impact on the Economic

development of the country by smoothening the consumption

pattern and improving financial status of the low income

people.

Role of Microfinace in Developmentof Indian Economy Prof. (Dr.) Amit K. Srivastava*

Dr. Gyan Prakash Upadhyay**

development. We use following hypothesis to study the

linkage between microfinance and financial services and hence

leads to economic development. We want to explore the

influence of microfinance on macro environment.

Hypothesis 1: Microfinance leads to development of

financial services

Hypothesis 2: Microfinance has a positive impact on the

Economic development

The first hypothesis analyzes the statistical data of

microfinance sector, and figure out the expansion and outreach

of micro financial services to the low income and financially

excluded people. The second hypothesis explores the various

studies conducted in microfinance sector and observes the

impact of micro financial services in economic development i.e.

impact of microfinance on macro environment.

1.2 Statistical Evaluation of Microfinance

In India self help group model dominates the

microfinance sector. In true words, self help group bank

linkage programme is the largest microfinance programme in

the world. At the end of March 2010, about 60 million poor

households have been assisted under this programme. If we

compare the expanse of Microfinance institutions is quite small

as compared to SHGs, but it is getting pace with many

controversies. Self help group bank linkage programme (SBLP)

is found very helpful to low income groups to smoothening

their consumption, fighting with seasonal liquidity crisis,

establishing micro enterprises, raising savings and incomes.

The SBLP has developed extensively particularly in the

Southern and Western regions of India, where the socio-

economic conditions are more favorable for the growth of Self

Help Group culture. In the other regions of the Country,

particularly Northern, Eastern and North-Eastern regions,

there is vast unsatisfied demand for micro finance from the

financially excluded households. Let’s have a look on

numbers:

1.2.1Contribution of savings by Microfinance Sector

The data of savings by Self Help Groups Bank Linkage

programme with banks are made available by NABARD in the

year 2006 for the first time in the last fifteen years. The data

showing the number of total self help groups linked with banks

and their savings with the different banks with their respective

growth rates are represented in the Table 1.1. This data

includes the total savings of self help groups with Commercial

banks, Regional rural banks and Cooperative banks. As on 31st

March 2010, there are a total of 69,53,250 self help Groups are

linked with the different banks, which grew with the average of

18.73% in last four years from 2006-07 to 2009-10. The amount

of Savings grew from Rs 3512.7 Crore to Rs 6198.71 Crore in

four years with average growth rate of 22%.

The years 2007-08 and 2008-09 have shown remarkable

growth in numbers of self help groups (Table 1.1) linked with

the banks as that was the expansionary period for the sector.

More and more people joined the groups. Maximum number

of low income people linked with the banks through various

linkage programmes.

Table 1.1: Number of SHGs andAmount of Savings

Period Number

of SHG

%

Growth

in

Numbers

Amount

of

Savings(in

Rs Crore)

% Growth

in

Amount

Average

savings per

group

(in Rs)

2006-07 4160584 ------ 3512.70 ------- 8442.81

2007-08 5009794 20.41 3785.39 7.76 7555.98

2008-09

6121147

22.18

5545.62

46.50

9059.77

2009-10

6953250

13.59

6198.71

11.78

8914.84

(i)

01000000200000030000004000000500000060000007000000

Number of SHGs

Chart - 1.1

01000200030004000500060007000

Amounts of Savings (Rs Crore)

(ii)

37Role of Microfinace in Development of Indian Economy

0.00

20000.00

40000.00

60000.00

80000.00

100000.00

20

06

-07

20

07

-08

20

08

-09

20

09

-10

Amount of loan Disbursed per Group (in Rs)

As it is represented pictorially in chart-1.3, there is 11.04%

growth in number of self help groups while loan size increases

by 34.68%, and average loan per group grown by 21,30% from

the year 2006-07 to the year 2007-08. In the year 2008-09, there is

increase of 31.10% in number of self help groups who avail

loans with an increase of 38.47% of total loan disbursed from

previous year, but the average loan per group increased only

by 5.62%.

The average savings per group throughout the four years

is Rs 8493.35, where it increased from Rs 7555.98 to Rs 9059.77

in the year 2007-08 to the year 2008-09, there it showed a

decrease from Rs 9059.77 to Rs 8914.84 in the year 2009-10. This

decrease would be due to the proper utilization of savings for

internal lending. Chart 1.1(i) shows the numbers of self help

groups linked with the banks, chart 1.1 (ii) represents the

amount of savings and the chart 1.1(iii) shows the average

saving per group during the period of four years i.e. 2006-10.

The actual savings of the groups would be higher as banks

do not take into consideration the savings used for internal

lending within the groups.

1.2.2 Loan Disbursement to Self Help Groups

During the year 2009-10, a total of Rs 14453.30 crore is

disbursed to about 15.87 lakh self help groups by different

banks including commercial banks, regional rural banks and

cooperative banks account for an average disbursement of Rs

91,083 per group. (Table 1.2)

38

6500.007000.007500.008000.008500.009000.009500.00

Average Savings per Group (Rs)

(iii)

Table 1.2: Number of SHGsand Amount Disbursed

Number of SHGs

(Loan Disbursed

in Rs Crores)

Amount of loan

Disbursed (in Rs

Crore)

Amount of loan

Disbursed per Group

(in Rs)

% Growth

in no .of SHG

% Growth in

Amount Disbursed

% Growth in

Amount of loan

Disbursed per Group

2006-07 1105749 6570.50 59421.26 2007-08 1227770

8849.26

72075.88

11.04

34.68

21.30

2008-09 1609586

12253.51

76128.33

31.10

38.47

5.62

2009-10 1586822 14453.30 91083.31 -1.41 17.95 19.64

There are 16.09 lakh SHGs who have taken loan of Rs

12253.51 crore in the year 2008-09 and with an average of Rs

76128.33 per group. In the year 2007-08 loan was disbursed to

12.28 lakh SHGs as compared to 11.06 lakh SHGs in the year

2006-07. The amount disbursed in 2007-08 was Rs 8849.26

crore, while it was Rs 6570.50 in the year 2006-07. The average

loan disbursed per group in both years was Rs 72075.88 and Rs

59421.26 respectively. As it is clear from the chart 1.2 (i) that

there was more number of groups, to whom loan was

disbursed during the year 2008-09, but amount of loan

disbursed per SHG is lower than the year 2009-10 chart 1.2(iii).

The year 2009-10 receives highest loan amount disbursed to

each group.

0

500000

1000000

1500000

2000000

Number of SHGs (Loan Disbursed)

(i)

Chart - 1.2

(ii)

0.00

5000.00

10000.00

15000.00

Amount of loan Disbursed (in Rs Crore)

(iii)


Year 2009-10, showed a decrease in number of SHGs by

1.41%, but total loan disbursed and average loan per group

increased by 17.95% and 19.64% respectively. In the four years

time i.e. from 2006-10, there is total increase of 43.51% in

number of SHGs who have disbursed loan, while the total loan

amount disbursed in four years is increased by 120%. The

average loan per group is remarkably increased by 53.28%.

It is blamed that microfinance institutions are trying to

dominate the self help group bank linkage programme, and

use self help groups in making them into joint liability groups

and provide credits.

1.2.4 Amount of Loan Outstanding with Microfinance Sector

According to the NABARD report a total of 48.51 lakh self

help groups have loan outstanding with them in the year 2009-

10 which amounts to Rs 28038.28 crore (refer table 1.4) against

the 42.24 lakh SHGs with loan outstanding of Rs 22679.84 crore.

There are 36.26 lakh SHGs having loan outstanding of Rs

16999.91 crore in the year 2007-08 whereas there was a total of

28.94 SHGs with loan outstanding of Rs 12366.49 crore in the

year 2006-07. The loan outstanding per group is highest in the

year 2009-10 with Rs 57,794.73. As it is clear from the chart 1.6

(i) (ii), (iii) that over the four years there is remarkably increase

in number of Self help groups with loan outstanding, amount

of loan outstanding and more importantly amount of loan

outstanding per group. However, numbers of self help groups

are growing, but it is with declining rate (Chart 1.7) i.e from

25.27% growth in number of SHGs from the year 2006-07 to

2007-08, 16.50% growth in number of SHGs in the year 2008-09

from 2007-08 and 14.84% increase in number of SHGs in the

year 2009-10 from the year 2008-09.

39

Chart - 1.3

1.2.3 Total loan disbursement in Microfinance sector (Self Help Groups and Micro Finance Institutions)

Microfinance Institutions are also serving the low income

group with a different strategy, like self help group are saving

oriented while microfinance institutions are credit oriented.

These institutions form joint liability groups, which imparted

each other guarantee, and avail credit from the MFIs for their

needs. These MFIs get funding from the different banks to

serve the low income clients. Table 1.3 shows the Loan

disbursed to MFIs by different banks including commercial

banks, Rural Regional Banks and Cooperative Banks.

Table 1.3: Total disbursement of Loans

Loan Disbursed with SHGs (in

Rs Crore)

Loan Disbursed with MFIs (in Rs

Crore)

Total Loan Disbursed in Microfinance sector(in Rs

Crore)

% Growth in Amount Disbursed with SHGs

% Growth in Disbursed loans

with MFIs

% Growth in MicroFinance Sector loan Disbursed

2006-07 6570.50 1151.56 7722.06

2007-08 8849.26 1970.15 10819.41 34.68 71.09 40.11

2008-09 12253.51 3732.33 15985.84 38.47 89.44 47.75

2009-10 14453.30 8062.74 22516.04 17.95 116.02 40.85

Table 1.3, also represents in detail the total loan amount

provided to microfinance sectors by banks and percentage

growth in loan disbursement for the years 2006-10. The total

loan amount is increased by 191.58% in four years i.e. from 2006

to 2010.

Chart - 1.4

Although MFIs avail very less amount (Chart 1.4) from the

banks as compared to self help groups, but it is growing very

rapidly (chart 1.5) from 71.09% to 89.44% from the year 2006-07

to 2007-08 and again 89.44% to 116.02% in the year 2009-10.

Chart - 1.5

Role of Microfinace in Development of Indian Economy

Percentage growth in amount of loan outstanding is also

follow the declining pattern as from 37.47% growth in the year

2007-08, 33.41% growth in 2008-09 and 23.63% growth in 2009-

10. However, the growth in loan outstanding per SHG is

maximum in the year 2008-09 with 14.51% and lowest growth

percentage in the year 2009-10 with 7.65.

40

Table 1.5 represents the total loan outstanding amount

including the microfinance institutions for the four years time.

There is a total of loan outstanding of Rs 38185 crore with the

microfinance sector including MFIs in the year 2009-10, which

was Rs 27688.93 crore in the year 2008-09.

Number of SHGs (Loan Outstanding)

Amount of loan Outstanding (in Rs Crores)

Amount of Loan Outstanding per Group

(in Rs.)

% Growth in no.of SHG

% Growth in Amount Outstanding

% Growth in Amount of loan Outstanding

per Group

2006-07 2894505 12366.49 42724.02

2007-08 3625941 16999.91 46884.13 25.27 37.47 9.74

2008-09 4224338 22679.84 53688.51 16.50 33.41 14.51

2009-10 4851356 28038.28 57794.73 14.84 23.63 7.65

Table 1.4: Number of SHGs and Amount of Loan Outstandings

(i) (ii) (iii)

0

2000000

4000000

6000000

Number of SHGs (LoanOutstanding)

0

10000

20000

30000

Amount of loan Outstanding (in Rs Crores)

0.0020000.0040000.0060000.00

Amount of Loan Outstanding per Group (in

Rs.)

Chart - 1.6

0.00

10.00

20.00

30.00

40.00

2007-08 2008-09 2009-10

% Growth in no.of SHG

% Growth in Amount Outstanding

% Growth in Amount of loan Outstanding per Group

Chart - 1.7

Table 1.5: Loan Outstanding with SHGs and MFIs

Loan Outstanding with SHGs

(in Rs Crore)

Loan Outstanding

with MFIs (in Rs Crore)

% growth in outstanding loans with

MFIs

Total Loan Outstanding

in Microfinance

sector

% growth in MF loan

Outstanding

2006-07 12366.49 1584.48 13950.97

2007-08 16999.91 2748.84 73.49 19748.75 41.56

2008-09 22679.84 5009.09 82.23 27688.93 40.21

2009-10 28038.28 10147.54 102.58 38185.82 37.91


As it is clear from chart 1.8 that total loan outstanding

amount is very less as compared to SHGs but again it is also

clear from the chart 1.9 that it is increasing with a higher

percentage from year to year like 73.49% growth in the year

2007-08, 82.23% growth in the year 2008-09 and 102.58%

growth in 2009-10.

41

Chart 1.8

1.2.5Recovery Performance

In the year 2009-10, out of total 302 banks who reported

data for recoveries, 103 banks have reported recovery

performance more than 95%, which shows increase in the

recoveries from the year 2008-09. In the year 2008-09, 29.5%

banks reported recoveries more than 95% (table 1.6), but in the

year 2009-10, 34.1% banks has reported recovery more than

95%. 33.1% banks has reported the recovery of loans between

80 to 94% in the year 2009-10, whereas 38.2% banks has

reported recoveries in same range in the year 2008-09, which

shows a drop of 5.1% in recoveries.

Chart 1.9

Table 1.6: Recovery Performance

No. of Banks reported recovery data

Recovery Performance

=>95% 80-94% 50-79% <50%

2008-09 267 79 (29.5%) 102 (38.2%) 59 (22.1%) 27 (10.1%)

2009-10 302 103 (34.1%) 100(33.1%) 70 (23.2%) 29(9.6%)

70 out of 302 banks, which accounts for 23.2% of banks

reported in the year 2009-10 has recovery between the ranges

50-79%, which is slightly more than the year 2008-09 where

22.1% banks reported recovery between the range.10.1% and

9.6% banks have reported recoveries less than 50% for both the

years.

If we have a look upon non-performing assets (table 1.7) of

microfinance sector, it hovers around 2.9 percent with Rs

625.86 crores (data reported by 292 banks) in the year 2008-09

while 2.94% with Rs 823.04 crore (data reported by 221 banks)

in the year 2009-10


Over a decade, the recovery performance of the

microfinance sector is nearly 98%, but now the recovery

performance is declining and the non-performing assets are

shown growth. The main reasons behind it are considered as

the microfinance institutions are growing and trying to

dominate self help groups. The people have approach to

multiple lending, which influenced the recoveries of self help

groups. The microfinance institutions (NBFCs) work as

corporate, so they provide more services to the clients, held

meetings periodically and also have a tight repayment

collection system, which is absent in the formal banks and self

help groups.

1.2.6 Overall Comparison

Table 1.8 represents the comparison of number of self help

groups under the three headings i.e. having saving accounts,

loan disbursed and loan outstanding.

42

The banks sanctions the loans on behalf of saving accounts

i.e. three to four times the amount of savings of the group, but

the chart 1.11 shows that amount of loan disbursed is only

about twice that of savings. But the loan outstanding is quite

high as compared to savings as well as amount disbursed, but it

is considered a normal situation as recoveries are quite good

and NPA shows normal behavior.

Table 1.10 gives a summary of the overall picture of the

microfinance sector, which we have discussed till now. The

figures written below show the percentage change over the

previous years in respective field.

It is clear from the chart that there is large number of

groups having savings accounts as comparative to the loan

disbursed and loan outstanding. However numbers of SHGs

with loan outstanding are more than loan disbursed, but again

it is quite less than having a saving account.

If we compare amount of savings with the amount of loan

disbursed and outstanding (presented in table 1.9), It is clear

from the chart 1.11 that amount of savings is just half than the

amount of loan disbursed.

Table 1.7: Non-performing Assets

No. of Banks

reported data on NPAs

Non-performing Assets

Outstanding Loans against

SHGs

Amount of NPAs

% of NPAs to Outstanding bank loans

2008-09 292 21561.04 625.86 2.9

2009-10 221 28038.28 823.04 2.94

Table 1.8

Number of SHGs having

Saving Accounts

Number of SHGs (Loan

Disbursed)

Number of SHGs (Loan

Outstanding)

2006-07 4160584 1105749 2894505

2007-08 5009794 1227770 3625941

2008-09 6121147 1609586 4224338

2009-10 6953250 1586822 4851356

Chart 1.10

Table 1.9: Amounts of Savings,Loan Disbursed & Loan Outstanding

Amounts of Savings

(Rs Crore)

Amount of loan Disbursed

(in Rs Crore)

Amount of loan

Outstanding (in Rs Crores)

2006-07 3512.70 6570.50 12366.49

2007-08 3785.39 8849.26 16999.91

2008-09 5545.62 12253.51 22679.84

2009-10 6198.71 14453.30 28038.28

Table 1.11

Overall it is concluded that the sector is included more and

more people year by year and provide financial services to low

income groups however there are different opinions of

researchers about the effect of it, but the one point at which all

are agree that the client base is increasing day by day, more and

more people which are financial excluded for long are getting

access to financial services through the microfinance sector.

If we talk about the total number of clients, it is much more

than these figures, because a large number of clients are served

by microfinance institutions. As per state of sector report 2008-

09, Microfinance institutions have a client base of 2.2 crore

households. So, in all microfinance sector serves a total of 80

million clients as per March 2010. Microfinance sector provides

different financial products according to the needs of poor

people. Microfinance sector serves those people with its

customized financial products, which the formal financial

institutions are unable to serve. As services provided by

microfinance sector indirectly come from formal financially

sector in the form of loans and savings, but with a different

strategy, finally it leads to the development of financial

services by included more and more people in the system. So,

in light of above data our first hypothesis comes to be true that

microfinance leads to development of financial services.


1.3 Contribution of Financial Services in Economical Development

The economists assume that development in financial

services in the country is among the one of the most important

factors of economic growth. The financial institutions mobilize

the savings and channel them to investment opportunities.

Financial system is something which is responsible for the

efficient distribution of resources among the society. To

channel the funds among society, a strong financial system is

needed, which can provide funds (society savings) to people

who have entrepreneur instinct with the security of funds. A

good financial system improves the allocation of resources

among the society. External funding to businesses and firms

helps the firms to grow and leads to financial development as it

creates assets as well as employment opportunity for the

society. Strong financial system leads to financial

development. Financial development lead to capital market

growth and banking sector growth as both sectors are

necessary for growth and are mutually reinforcing, providing

different functions to economy and each other. Financial

Development can contribute to increase per capita income by

easing the credit constraints to the people. Financial

development is related with economic growth, physical capital

accumulation and economic efficiency improvements.

The key role of the financial sector in economic growth is

introduced by Schumpeter (1911). He argued that the service

provision by financial intermediaries including savings

mobilization, risk management, projects evaluation,

monitoring the managers, and facilitating transactions are

necessary for technological improvement and economic

growth. Financial intermediaries need to be capable of efficient

allocation of resources facilitating in that way higher returns

and desirable risk transformation. The modern literature on

economic growth was actually started in mid 1950s when

Robert Solow (1956) presented his growth model. Some

leading economists like Goldsmith (1969), McKinnon (1973),

Levine (1993) emphasized that finance can be an essential

component for the growth of an economy. Levin (1993) argues

that a better developed financial system reduces transaction,

information and monitoring costs. It increases the efficiency of

resource allocation and in turn spurs the growth. A well

developed financial system promotes investment

opportunities to potential businesses, mobilizes savings,

enables trading, monitors the workings of managers, offers

hedging, and diversifies risk. An efficient financial system

offers improved financial decisions, supports the better

distribution of resources and thereby accelerates economic

growth. A strong financial sector needs to have deep rooted

domestic and international banking system as well as liquid

stock markets.

43

Table 1.10

Brief Snapshot of Microfinance Sector (Amount in Rs Crore)

2006-07 2007-08 2008-09 2009-10

No. of SHGs

Amount No. of SHGs Amount No. of SHGs

Amount No. of SHGs

Amount

Saving with

SHG

4160584 3512.71 5009794 20.4% 3785.39

7.8%

6121147

22.2%

5545.62

46.5%

6953250

13.6%

6198.71

11.6 %

Loan

disbursed

with SHGs

1105749 1411.02 1227770 11% 8849.26

34.7%

1609586

31.1%

12253.51

38.5%

1586822

12.5%

14453.3

17.9%

Loan

Outstanding

with SHGs

2894505 12366.49 3625941 25.3% 16999.91

37.5%

4224338

33.4%

22679.84

33.4%

4851356

(1.4%)

28038.28

23.6%

Loan

disbursed to

MFIS

334 1151.56 518 55.1% 1970.15

71.1%

581 12.2% 3732.33

89.4%

691

18.9%

8062.74

116%

Loan

Outstanding

with MFIs

550 1584.48 1109 101.6% 2748.84

73.5%

1915 72.7% 5009.09

82.2%

1513

(21%)

10147.54

102.6%


1.4 Relation of Microfinance Services with Economic Development

As per the statistical analysis in section 1.2, it is clear that

microfinance services are including the low income people into

financial system by providing them distinct financial

instruments like small savings and loan accounts, associated

with micro insurance etc., however the total saving and loans

are very small as compared to the total saving and loan

disbursement of the country, but according to economic

growth theories, if a particular economy grows by 1% in a year,

then in 10 years time the income grows by 11%. So, even a

small increase in household incomes and consumptions can

make a difference. The micro financial services are making a

positive impact on the income as well as on the lives of people,

however, the figure reported by the studies is different but all

the studies reported improvements however small. The impact

of microfinance is multidimensional, the access to financial

instrument helping the poor people in one or another way. So,

if in the country where more than one-forth population is

below than poverty line, a small change can contribute in

raising the living standard of people. If employment and

income increases, it definitely contributes to economic

development. There is an another aspect that the growing

microfinance institutions also providing employment

opportunities to the thousands as employees as microfinance

institutions grow by 13 times in four years times i.e. from 2005

to 2009. However, it is very difficult to evaluate the exact

impact of microfinance in isolate situations as there are lot of

another efforts and programs of poverty alleviation are

initiated by the government and other agencies like world bank

etc. and also at the same time some another factors like skills,

knowledge of business & management of funds, liabilities,

individual drive and aspiration are important in raising

incomes. According to modern economic growth theories

innovation and technology enhancement play an important

role in economic development, but it is also true that in absence

of credit access many innovations would not be able to convert

into successful entrepreneurial ventures. Studies shows

microfinance gives access to financial instruments which is

essentially an important factor in success of any enterprises. So,

here our second hypothesis comes to be true that microfinance

has a positive impact on the Economic development.

44

1.5 Conclusion of the Paper

The economic growth is strongly related to efficiency of

financial intermediaries of the country. Microfinance

institutions are acting strong financial intermediaries with a

large client base and channelizing the financial resources

among the lower sector of the society and hence helping the

poor people to increase standard of living. They are also

helping in development of financial markets of country by

employing the funds into productive means. Figures shows

microfinance is growing in the country with a great pace

including the poor and low income people financially. It is

proving much influential in improving incomes and

smoothening the consumption of low income people by

providing them micro finance products like small saving

accounts, micro credits, micro insurance etc. this is a reliable

source rather than informal lending practices. In short, we can

conclude that microfinance is contributing to the growth of

poor sector economically, and with the time, it will help in

eradicate poverty from the country.

Refernces

• Goldsmith, R.W. (1969), Financial Structure and

Development, New Haven, CT:

• Impact study by SIDBI ‘Assessing Development Impact of

Micro Finance Programmes

• King, R. & Levine, R. 1993 Finance and growth:

Schumpeter might be right. The Quarterly Journal of

Economics, 108, 717-737

• Mckinnon, R. (1973) Money and Capital in Economic

Development, Brookings Institution Press

• NABARD Repot-Status of Microfinance in India-2008-09

• NABARD Repot-Status of Microfinance in India-2009-10

• N. Srinivasan, State of Sector Report 2009

• NCAER study on’ Impact and sustainability of self help

group bank linkage programme’ 2008

• Richard Rosenberg,’Does Microcredit Really Help Poor

People?’, 2010

• Schumpeter, J. 1934. The fundamental phenomenon of

economic development.

• Solow, R. 1956. A contribution to the theory of economic

growth. The Quarterly Journal of Economics, 70, 65-94.


*Associate Professor (OB & HR), Jaipuria Institute of Management, Noida. E-Mail: [email protected]

INTRODUCTION

Job satisfaction has been the subject of research at least

since the Hawthorne studies of the 1920s (Roethlisberger &

Dickson, 1939). Job satisfaction is defined as the "pleasurable or

positive emotional state resulting from the appraisal of one's

job or job experiences" (Locke, 1976 p. 1300). Churchill, Ford, &

Walker (1974 p. 225) define job satisfaction for salespeople as

"all characteristics of the job itself and the work environment

which salesmen find rewarding, fulfilling, and satisfying, or

frustrating and unsatisfying.”

An individual's attitude about his or her job should have

meaningful implications about how he or she does it. Many

human-relations era researchers sought to establish job

satisfaction as a driver of performance (e. g. McGregor, 1960).

Brayfield & Crockett (1955), however, cited conflicting

research results and questioned this view. Porter & Lawler

(1968) espoused the contrary view that performance leads to

job satisfaction. This has become the generally accepted view.

Even so, the strength of the relationship appears to be very

weak (Iaffaldo & Muchinsky, 1985).

Greater job satisfaction has also been generally related to

reduced intent to leave the organization (Brayfield & Crockett,

1955; Mowday, Koberg, & McArthur, 1984) and with reduced

rates of absenteeism (Porter & Steers, 1973). In addition, job

satisfaction has been shown to be strongly related to

organizational commitment (Porter, Steers, & Mowday, 1974)

and to organizational citizenship behaviors (Smith, Organ, &

Near, 1983; Organ, 1988).

Stress in the work place is increasingly a critical problem

for employees, employers and the society. Researchers who

study stress have demonstrated the direct and indirect costs of

stress. (Matteson & Ivancevich, 1987). There are many

variables which have been related to organizational stress.

Ivancevich and Matteson (1980) proposed a model of

organizational stress research that outlined the major

antecedents of work stress. They noted the importance of

individual differences as moderators of stress and detailed

possible outcomes of stress at work.

Purpose: Experts have over the years, attempted to

describe the work of all managers by a set of common behaviors

or roles. It was found during the course of reviewing the

literature that there is a paucity of survey research from

psychological point of view on the Private sector managers.

The major objective of the study was to find the moderating

effect of Locus of Control on the relationship between

Organisational role stress and Job satisfaction.

Methodology: The present study was done on a sample

of 250 managers belonging to Private Sector Organizations

Variables in the study were assessed using three validated

Instruments. Descriptive statistics, Pearson Product Moment

Correlation and Hierarchical regression analysis was used to

analyze the data.

Findings: It was found that Organisational Role stress

was negatively related to Job satisfaction and Internal Locus of

Control moderated the Stress and Job-Satisfaction

relationship.

Implications: The findings of this study can assist

administrators and policy makers to provide an attractive

working climate in order to decrease side effects and increase

productivity of managers. An Internally controlled manager

may develop coping strategies to reduce the Stress and thereby

increasing the job satisfaction level. The knowledge of the

relationships undertaken in the present study may be utilized,

by the organisations regarding the enhancement of

effectiveness at individual level in particular and

organizational level in general.

Key Words: Research Paper, Internal Locus of Control,

Organisational Role stress, Job satisfaction, Private sector

managers.

Stress-Job satisfaction Relationship: Impactof Personality Variable: An Empiricalstudy on Private Sector Managers Dr Shalini Srivastava*

Stress is associated with impaired individual functioning

in the workplace. A number of aspects of working life have

been linked to stress. Aspects of work itself can be stressful,

namely work overload (Defrank & Ivancevich, 1998; Sparks &

Cooper, 1999) and role-based factors such as lack of power, role

ambiguity, and role conflict (Burke, 1988; Nelson and Burke,

2000).In the past three decades, empirical researches on the

theme of stress have increased many folds. Researchers have

focused their attention on causal factors of stress, stress

manifestations, moderators of stress-strain relationship, and

types of stresses experienced by diverse work populations, and

various coping strategies adopted by organizational entities to

cope with stress (Pestonjee, 1992).

The large organizations, like other settings, exert its own

set of unique forces on the individual. Through the application

of these forces, the organization is able to channel the

individual’s behavior towards certain goals and to direct

his/her interactions towards certain people and away from

others.

Locus of control is a concept in Psychology, originally

developed by Julian Rotter in the 1950s. The two 'loci', as

established by the theory, are the internal and external loci. The

locus of control represents how a person's decision making

ability is influenced; essentially, those who make choices

primarily on their own are considered to have internal loci,

while those who make decisions based more on what others

desire are said to have external loci. People with external loci

are generally more apt to be stressed and suffer from

depression as they are more aware of work situations and life

strains. Women tend to have more of external locus than men.

(Jones and Page, 1986; Linder, 1986; Doherty and Baldwin,

1985; and Roodin et al. 1974). A more internal locus of control

is generally seen as desirable. Having an Internal locus of

control can also be referred to as "personal control", "self-

determination", etc. Males tend to be more internal than

females; as people get older they tend to become more internal;

People higher up in organizational structures tend to be more

internal. Internal locus of control appears to protect one against

unquestioning submission to authority (Lefcourt, 1982).

Internals are more resistant to influences from other people.

They make more independent judgments and try harder to

control the behavior of others. They tend to assume more

responsibility for their own behaviour and attribute

responsibility to others. As a result, they are more likely to be

punitive and less sympathetic than externals.

Organisational Role stress and Job satisfaction

Most of the research on organizational stress has focused

on its relationship with job satisfaction. Much of this research

has been correlational studies that have used role ambiguity

and role conflict to operationalize stress. These studies

generally indicate that job stress and satisfaction are inversely

related (e.g., Hollon Chesser, 1976; Miles, 1976; Miles & Petty,

1975). Because the relationships between role conflict and

ambiguity, and organizational outcomes have been meta-

analyzed (Fisher & Gitelson, 1983; Jackson & Schuler, 1985)

reviewed (Van Sell, Brief, & Schuler, 1981), and critiqued (King

& King, 1990) elsewhere, our analysis does not include these

previously examined areas. Instead we focus on newer

methods of data analysis and other operationalizations of job

stress and research completed since these meta-analyses.

In addition to these correlational studies, more

sophisticated techniques, such as Lisrel and path analysis, have

been used to examine the stress-satisfaction relationship. For

instance, Kemery, Mossholder, and Bedeian (1987) employed

Lisrel to test three models, (e.g., Beehr & Newman, 1978; Locke,

1976; Schuler, 1982) that postulate causal relationships among

role ambiguity, role conflict, and organizationally valued

outcomes such as job satisfaction, physical symptoms, and

turnover intentions. Using 370 employees, (e.g., faculty,

administrators, staff), from a large southeastern university,

Kemery and associates found that role conflict and ambiguity

exert a direct influence on job satisfaction and physical

symptoms, which in turn influence turnover intentions.

Similar findings of the indirect effect of stress on turnover

intentions through job satisfaction have been reported by

Hendtix, Ovalle, and Troxier (1985) and Kemery, Bedian,

Mossholder, and Touliatos (1985). Hendrix and associates used

a stress assessment package developed by them to measure

organizational stress, job satisfaction and turnover intentions

of employees working for the Department of Defense (n=341)

and a civilian hospital (n=29). They did not find a direct,

significant relationship between organizational stress and

turnover intentions. However, results of a path analysis

indicated that job satisfaction was affected by factors such as

involvement in decision making, skill variety, and whether

work was subject to the whims of supervisors. In turn, job

satisfaction was strongly linked to the intention to quit.

Kemery and associate (1985) used three samples of

accountants, (public n=275, government n=254, industrial

n=459), and a sample of hospital employees (n=66) derived

from Jackson's 1983 study, to replicate the Bedeian and

Armenakis (1981) model of the relationship between role

ambiguity and conflict, as well as job tension, satisfaction, and

intention to leave. Using Lisrel, they found that data from these

three samples of accountants supported the Bedeian and

Armenakis model(1). Stress exerted an indirect influence on

turnover intentions through job satisfaction. However, unlike

the results of Kemery et al. (1985) and Hendrix et al. (1985),

stress also exerted a direct influence not only on job-related

tension and job satisfaction, but on the propensity to leave the

organization. The diversity of job types, (e.g., university,

defense department, hospital employees), as well as the

differences in experienced stress levels and in the measures

employed could explain these conflicting findings.

Relative effects of different sources of stress on job

satisfaction have also been analyzed. Drory and Shamir (1981)

examined the effects of intraorganizational factors, (e.g., role

confl ict , role ambiguity, management support) ,

extraorganizational factors, (e.g., community support, family-

role conflict), and task characteristics on the job satisfaction and

burnout of 266 Israeli prison guards. They found that

extraorganizational factors, especially community support,

made the greatest contribution to explained variance (12%) in

job satisfaction. Task characteristics accounted for 4.35% and


Rahim (1996) concluded that a person with high internal LOC

believes that they can cope with stress functionally and more

effectively than someone with high external LOC. Other

researchers have suggested that LOC is a significant predictor

of job satisfaction and job performance (Judge, Erez, Bono, &

Thoresen, 2003). As one might expect, people with internal

LOC report higher levels of job satisfaction(Martin, Thomas,

Charles, Epitropaki & Mcnamara, 2005).

Method

Participants in the study consisted of Managers attached

to thirty randomly selected private sector organizations

located in NCR and Delhi region. The data was collected day

administering questionnaires mainly during office hours, with

the consent of relevant representatives of the employer as well

as the respondents. The participants were chosen randomly

from each organization and belonged to different departments

of the organization. Most of the participants showed their

willingness to participate in the study after a short meeting.

Measures

Design: The study employed descriptive survey research

design using the ex-post facto type. In this kind of study, no

manipulation is involved. It is an after fact study.

Participants: Participants in the study consisted of

Managers attached to thirty randomly selected private sector

organizations located in NCR and Delhi region. The data was

collected day administering questionnaires mainly during

office hours, with the consent of relevant representatives of the

employer as well as the respondents. The participants were

chosen randomly from each organization and belonged to

different departments of the organization. Most of the

participants showed their willingness to participate in the

study after a short meeting.

Questionnaire measures were used to obtain data on three

variables included in the study: Job Satisfaction,

Organisational Role Stress and Locus of Control. Job

Satisfaction was conceptualized as dependent variable

whereas, Organisational Role Stress and Locus of Control as

Independent variables. Self-report measures were used to

obtain the data. Job Satisfaction was measured through a

questionnaire adapted from Spector (1983), which consisted of

36 items. Organisational Role stress was measured through a

questionnaire developed by Udai Pareek, (1981) consisting of

50 items. Locus of Control was measured through a

questionnaire developed by Udai Pareek consisting of 30

items.

The measures used in this study were borrowed from their

original source and adapted from Indian work setting.

Instrumentation

Organisational Role Stress (ORS): This scale was

developed by Udai Pareek (1983). The ORS scale is used to

measure 10 role stresses. It is a 5-point scale (0 to 4), containing

organizational variables accounted for 3.4% of the explained

variance. These results suggest that extraorganizational types

of stresses are as important as intraorganizational sources in

determining an individual's levels of job satisfaction in Israel.

These results also emphasize the impact of the non-work

factors on work outcomes in the Israeli context. However, in

explaining job burnout, intraorganizational factors accounted

for 9% and extraorganizational factors accounted for 5% of the

variance. Task characteristics did not add significantly to the

net explained variance in job burnout. Although both intra-

and extraorganizational factors made unique contributions to

the explained variance in burnout, internal factors accounted

for a greater proportion. These results seem to suggest that

though management support may be an important factor in

preventing burnout, it is probably of lesser importance in

preventing job dissatisfaction.

Low job satisfaction can be an important indicator of the

counterproductive employee behavior and can result in

behavior such as absenteeism (Spector, 1982; Martin & Miller,

1986) and turnover intentions (Spector, 1982; Dupre & Day,

2007). Perceived satisfaction on the job is reflected by the needs

of fulfillment and expectation for the job to be interesting,

challenging and personally satisfying (Smither, 1994). Job

satisfaction is also an achievement indicator in career

development tasks (Sidek, 2002) and is associated with the

psychological (Limbert, 2004) and individual well-being

(Nassab, 2008).

Locus of Control and Organizational Role stress

Judge et al. (1999) in their study hypothesized that

managerial responses to organizational change are influenced

by seven dispositional traits (locus of control, generalized self-

efficacy, self-esteem, positive affectivity, openness to

experience, tolerance for ambiguity, and risk aversion). In their

study, the seven traits were reduced to two factors: positive

self-concept and risk tolerance. Both of these trait factors

significantly predicted the self-reports and independent

assessments of coping with change.

Many studies have been conducted on this concept and its

relationship to such concepts as job stress, job satisfaction and

organizational commitment. (Martin, Thomas, Crosby,

Epitropaki & Mcnarmara, 2005). Specifically several studies

have identified the interaction between locus of control and job

stress (Rahim, 1966; Daniels & Guppy, 1994), job satisfaction,

and job performance (Judge, Erez, Bono & Thoresesn, 2003). As

an aspect of personality, LOC measures an individual

expectancies for internal vs. external control of reinforcement

(Rotter, 1966). Specifically, it refers “to the extent to which

people believe they or external factors such as chance and

powerful others are in control of the events that influences their

lives” (Firth, Mellor, Moore & Loquet, 2004). Individuals with a

low LOC score have an internal LOC (internals) and their own

behavior, capacities, or attributes determine the rewards that

they obtain. Individuals with a high LOC score have an

external LOC (externals)and believe that receiving rewards in

life are generally outside of their control (Rotter, 1966). In the

research of the behavior of entrepreneurs and managers,

47Stress-Job satisfaction Relationship: Impact of Personality Variable: An Empirical study on Private Sector Managers

five items for each role stress and a total of 50 statements. The

scale is reported to have satisfactory reliability as well as

validity Udai Pareek (1983). The ten role stressors are as

follows:

Inter-role distance (IRD)

Role Stagnation (RS)

Role expectation conflict (REC)

Role erosion (RE)

Role overload (RO)

Role isolation (RI)

Personal Inadequacy (PI)

Self-role distance (SRD)

Role ambiguity (RA)

Resource Inadequacy (RIn)

Of ten dimensions, only six factors were found to be

significant for this study. These were: Self-role distance

(á=.84), Resource Inadequacy (á=.71), Role ambiguity (á=.82),

Role expectation conflict (á=.83), Role erosion (á=.78) and

Personal Inadequacy (á=.76)

Job Satisfaction survey (JSS): The Scale was developed by

Paul E.Spector (1985). It is a 36 item, nine facet scale to assess

employee attitudes about the job and aspects of the job. A

summated rating scale format is used, with six choices per item

ranging from “strongly disagree” to “strongly agree”. The JSS

Scale had a Cronbach alpha of .80 and good concurrent and

predictive validity and reliability. Nine broad facets of JSS

were covered by this measurement, they were as follows: Pay,

Promotion, Supervision, Fringe benefits, Contingent Rewards,

Operation Procedures, Coworkers, Nature of work,

Communication.

Locus of Control Inventory (LOCO): This scale was

developed by Udai Pareek (1992). The LOCO inventory has 10

items each for internality, externality (others), and externality

(luck). A 5-point scale is used in scoring responses. The scale

has high reliability and validity. The three dimensions of Locus

of control are:

Internal (I)

External (E-O)

External (E-C)

Out of three dimensions only one dimension viz., Internal

locus of control was found to be significant (á=.84)

Hypotheses

H1: Organisational Role Stress is significantly and

negatively related to Job Satisfaction

H2: Internal Locus of moderates the effect of

Organisational Role Stress on Job Satisfaction.

Methods of Analysis

The hypotheses were tested using a three-step hierarchical

regression (Cohen & Cohen, 1975) where the model variables

As seen from Table 1, the instruments used in this study

were reliable, with coefficients ranging from 0.71 to 0.84 .

48

(Organisational Role Stress) were entered in the first step.

Internal Locus of Control was added in the equation in the

Second step. In the final step, the interaction term was added

into the regression equation. The change in the F-value and the

significance of the individual parameter was observed. If

interaction term was found to be significant, Internal Locus of

control is said to moderate the relationship between

Organisational Role stress and Job satisfaction.

Results

Out of 270 questionnaires, 250 usable responses were

obtained from Private Sector Organizations comprising of

BPO, Banks and IT Sectors. The response rate obtained was

88%.The organizations within the private sector were located

in Delhi and NCR. The sample profile is shown in Table 1.

Variables Factors No. of items

Cronbach’s á

Organisational

Role stress

Self-role distance 5 .84

Resource Inadequacy

5 .71

Role ambiguity 5 .82

Role expectation conflict

5 .83

Role erosion 5 .78

Personal Inadequacy

5 .76

Locus of Control

Internal 10 .84

Job Satisfaction 36 .80

Table 1: Reliability Coefficients of the Instruments

Table 2: Means, Standard Deviations, Reliabilities,and Correlations Among the Variables (N=250)

Variable1. SRD2. RIn3. RA4. REC5. RE6. PI7. ILOC8. JS

Mean2.262.323.562.542.542.224.6356.24

SD0.630.710.790.780.760.521.2416.24

1.84.36**.27*.46**.67**.55**.37*-.42**

2

.71

.66**

.45**

.75

.64**

.66**

.33**

3

.94

.76**

.67**

.46**

.47**-.36**

4

.89

.65**

.35*

.66**-.49**

5

.92

.55**

.66**-.55**

6

.76

.45**-.32**

7

.84-.54**

8

.97

Note: ** p < 0.01; * p < 0.05

Coefficient alphas are reported as diagonals. Self-role

distance, RIn=Resource Inadequacy, RA=Role ambiguity

,REC=Role Expectation conflict RE=Role Erosion, PI=Personal

inadequacy, ILOC-Internal Locus of Control, JS=Job

Satisfaction


Independent Variables Std Beta (Model 1)

Std Beta (Model 2)

Std Beta (Model 3)

Model Variables

Self-role distance

-.34*

-.58**

Resource Inadequacy

-.37*

-.67**

Role ambiguity

-.56**

-.93*

Role expectation conflict

-.84**

-1.12**

Role erosion

-.78**

-.96*

Personal Inadequacy

-.96**

.1.38**

Moderating Variable

Internal locus of control 3.42** 3.96**

Interaction

Self-role distance× Internal locus of control

.76**

Resource Inadequacy× Internal locus of control

.48**

Role ambiguity× Internal

locus of control

1.132**

Role expectation conflict×

Internal locus of control

1.224**

Role erosion×

Internal locus of control

1.282*

Resource Inadequacy× Internal locus of control

1.164*

R²

0.262

0.568

0.984

Adj. R²

0.238

0.556

0.964

R² Change

0..262

0.306

0.416

Sig. F Change 0.000 0.000 0.000

As shown in Table 3, when the six Organizational stress

variables were entered into the regression analysis in the first

step, the coefficient of determination (R2) was found to be 0.262

indicating that 26.2% of Job Satisfaction is explained by the

Independent variable (ORS) variables. In step 2, to test whether

internal locus of control serves as an independent variable, a

second regression was undertaken. By adding Internal Locus

of control as independent variables, the R2 increased to 56.8%.

This R2 change (0.306) is significant. This implies that the

additional 30.6% of the variation in Job satisfaction is explained

by Internal Locus of control. The F-statistics is significant (p =

0.000) suggesting that the proposed model was adequate. As

can be seen from Table 2, internal locus of control had a positive

relationship with Job satisfaction.

From the first regression model, it can be observed that

Self role distance and resource Inadequacy had a significant

and negative relationship with Job satisfaction at 0.05 level.

Additionally, Role erosion, Personal Inadequacy, role

expectation conflict and Role Ambiguity had a significant

effect on managerial at the 0.01 level. These results provided

full support for the first hypothesis of the study.

To examine the moderating effects of Internal locus of

control, a third regression model was developed by adding the

interaction terms. As shown in Table 3, the R2 increase of 41.6%

is significant. This means that Internal locus of control did

49

serve as a moderator in seeing the effect of organizational role

stress variables on Job Satisfaction. Thus, our second

hypothesis is also proved.

Discussion

It is quite natural that Individuals who perceive stress are

bound to be less satisfied with their jobs. With support from

previous studies (Hollingsworth et. al. 1988; Keller, 1975), the

findings of the present study reveal the same. Managers with

lower job satisfaction were found to experience more stress in

the form of role ambiguity, role expectation conflict, personal

Inadequacy, Resource Inadequacy and role erosion, compared

to those with higher job satisfaction.

The second hypothesis that Internal locus of control

moderates the effect of organizational role stress on Job

Satisfaction is also proved by our results. In other words, when

Internal locus of control acted as a moderator, the impact that

stress had on Job Satisfaction was reduced to some extent.

Manager, who has internal locus of control, will perceive role

stress in a healthy way and try to understand and solve the

conflicting expectations of others in a mature manner. Same

goes for personal inadequacy. If a manager realizes that he is

inadequate, he will try to overcome it and will be more

effective. Recent theory suggests that individual performance

at work is influenced not only by individual effort and ability,

but also by situational constraints. Focusing upon job resources

inadequacy as a specific situational constraint, it was argued

that job resources inadequacy not only mediates the link

between individual effort and ability (on the one hand) and

individual performance (on the other), but also has a more

direct impact on both effort and ability. (Bacharach &

Bamberger’ 2002). This is supported by the study on the

behavior of entrepreneurs and managers, where Rahim (1996)

concluded that a person with high internal LOC believes that

they can cope with stress functionally and more effectively

than someone with high external LOC. Kalbers and Fogarty

(2005) found that individuals with an internal LOC people are

less likely to experience a high level of stress but external LOC

people are to be more vulnerable to stress and are more likely to

perceive certain events as stressful.

Others researchers have suggested that LOC is a

significant predictor of job satisfaction and job performance

(Judge, Erez, Bono, & Thoresen, 2003). As one might expect,

people with internal LOC reports higher levels of job

satisfaction (Martin, Thomas, Charles, Epitropaki &

Mcnamara, 2005).

Singh and Rhoads (1991) found that those with an internal

locus of control experience less role ambiguity, since they tend

to be better informed about their role and task environment.

Similarly, Von Emster & Harrison (1998) argued that

“Internals” have a great sense of control over situations and

experience less role ambiguity as a result.

Conclusion

It can be concluded from the above study that locus of

Table 3: Hierarchical Regression Results

Note: ** p < 0.01; * p < 0.05

Stress-Job satisfaction Relationship: Impact of Personality Variable: An Empirical study on Private Sector Managers

control, which represents an important personality dimension,

is associated with Job Satisfaction. As predicted, internally

controlled managers have been found to be higher on Job

Satisfaction. In order to be effective as managers, it is very

much essential that managers should try to reduce the stress

faced due to organizational variables. The findings of this

study are indeed significant for HR practitioners. The results of

this study also indicate that it is possible to identify the

potentials of existing employees for higher level managerial

jobs based on their locus of control beliefs and accordingly

develop career plans for them. The findings of this study can

assist administrators and policy makers to provide an

attractive working climate in order to decrease side effects and

increase productivity of managers. By better understanding

the current situation, managers may develop coping strategies

to reduce role related stress. There should be more social and

organisational support as well as better resources and

opportunity to extend collaborative relationship among

managers, and to develop appropriate coping strategies and

eventually other forms of possible interventions considered

suitable. The knowledge of the relationships undertaken in the

present study may be utilized, by the organisations regarding

the enhancement of effectiveness at individual level.

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Stress-Job satisfaction Relationship: Impact of Personality Variable: An Empirical study on Private Sector Managers

*assistant Professor, Dept. of Management Studies, Tjps College (P.G Courses), Guntur.

INTRODUCTION

Each one of us need finance at various stages of our life and

to ensure that we have the money available at the right time

and when needed, financial needs of an individual, translating

the needs into monetarily measurable goals at different times

in the future and planning the financial investments that will

allow the financial needs and achieve his life's goals. With the

emergence of capital markets at the centre stage of the Indian

financial system from its marginal role a decade earlier, the

Indian capital market also witnessed during the same period a

significant constitutional development in the form of a

diversified structure of Mutual funds. The large amounts of

money collected by mutual funds from 2004 onwards indicates

that they have emerged as an important savings vehicle of

investors and with their war chests of money they also became

significant institutional investors in the capital market. The

accelerated growth of mutual funds highlights a need for a

study on the performance of Tax saving Mutual fund schemes

in India.

Research Objectives

1. To evaluate the performance of Tax saving Mutual fund

schemes in India.

2. To compare the performance of Tax saving Mutual fund

schemes using different measures like Sharpe, Treynor

and Jensen.

Data

The data used for analysis is mainly the secondary data.

Data on mutual funds is drawn from the respective web-sites.

The sample is restricted to 19 tax saving funds whose data is

available on a daily basis for the sample period. The schemes

considered in the study are only those with the growth option

as this will not warrant any dividend adjustments to the

published NAV data. The sample period spans over the 2003-

2007.

Methodology & Analysis

1,3,5 yrs absolute returns were calculated for all the 19

The objective of this paper is to evaluate the

performance of Indian Mutual fund tax saving schemes

during the period 2003-2007. 1,3,&5 absolute returns

were calculated. Since the absolute returns does not

account for overall market movements during the period

we have calculated Excess returns for 1,3,&5 years. To

evaluate the performance of tax saving mutual fund

schemes various Performance measures like Sharpe

ratio, Treynor ratio and Jensen measure are used.

Performance Evaluation of Mutual Funds onTax Saving Schemes In India S. Durga*

schemes. 1,3,5 yrs Excess returns were also calculated as

absolute returns doesn't account for overall market

movements.we then used have used Sharpe's, Treynor's and

Jensen's measures which takes into account not only the

market performance but also the riskiness of the scheme.

We started the performance evaluation by looking at raw

returns which is defined as under, Where

Rt = Daily return of a mutual fund in the period t

NAVt = Daily net asset value per unit of the mutual fund in

the period t

Since the sample is restricted only to growth oriented

schemes there is no intermediate income and hence no

adjustments for dividends are required. Return alone should

not be considered as the basis of measurement of the

performance of a mutual fund scheme, it should also include

the risk taken by the fund manager because different funds will

have different levels of risk attached to them. Risk associated

with a fund, in a general, can be defined as variability or

fluctuations in the returns generated by it. The higher the

fluctuations in the returns of a fund during a given period,

higher will be the risk associated with it. These fluctuations in

the returns generated by a fund are resultant of two guiding

forces. First, general market fluctuations, which affect all the

securities, present in the market, called market risk or

systematic risk and second, fluctuations due to specific

securities present in the portfolio of the fund, called

unsystematic risk.

The total risk of the mutual funds under consideration is

measured by the standard deviation of the daily returns which

was calculated as follows: Where,

S = Standard deviation (total risk) of the mutual fund

n = Number of daily returns

Rt = Daily returns of the mutual fund

= Mean return of the mutual fund

Systematic risk, on the other hand, is measured in terms of

Beta, which represents fluctuations in the NAV of the fund vis-

à-vis market. The more responsive the NAV of a mutual fund is

to the changes in the market; higher will be its beta. Beta is

calculated by relating the returns on a mutual fund with the

returns in the market.

Empirical Results

1. For 1yr, 3yr and 5yr return analysis, we had considered all

those schemes that had a track record of at least one year in

existence. Consequently we were left with the following

schemes. Their names and their returns were presented in

the following Table:

Calculation of Excess Returns

Since the absolute return does not account for over all

market movements during the period under consideration we

also computed the excess returns defined as under:

ER = SR – MR ,

Where ER = Excess Returns , SR = Scheme Returns, MR =

Market Returns

Calculation of 1-year Excess Returns

The following Table presents the Excess Returns Statistics:

Fund Name 1-YearReturn (%)

3-YearReturn (%)

5-YearReturn (%)

Birla Equity Plan

40.17

50.5

59.26

Birla Sun Life Tax Relief '96

52.53

47.42

50.07

BoB ELSS '96

39.05

35.7

42.97

Canara Robeco Equity Tax Saver

56.5

49.64

43.97

Escorts Tax Plan

45.71

44.66

45.69

Franklin India Index Tax

43.77 43.97 40.46

Franklin India

Taxshield 37.67 45.12 49.51

HDFC LT Advantage

24.53 40.56 53.96

HDFC Taxsaver 31.26 55.03 59.49 ICICI Prudential Tax Plan

12.9 44.68 54.3

LICMF Tax Plan 29.81 29.38 35.91 Magnum Taxgain 48.12 69.01 69.67 Principal Personal Tax Saver

61.48 47.04 46.89

Principal Tax Savings

51.48

51.55

52.64

Sahara Tax Gain

34.95

41.99

44.27

Sundaram BNP Paribas Taxsaver

50.13

53.99

55.1

Tata Tax Saving

34.27

39.87

49.07 Taurus Libra

Taxshield

42.69

33.38

37.05

UTI Equity Tax Savings

35.9

39.55

42.8

Table 1

Table 2

Fund Name

1-Year Excess returns over

Sensex BSE 100 Nifty

Birla Equity Plan 0.2 -2.72 -4.04

Birla Sun Life Tax Relief '96 12.56 9.64 8.32

BoB ELSS '96 -0.92 -3.84 -5.16


16.53 13.61 12.29

Escorts Tax Plan 5.74 2.82 1.5

Franklin India Index Tax 3.8 0.88 -0.44

Franklin India Taxshield -2.3 -5.22 -6.54

HDFC LT Advantage -15.44 -18.36 -19.68

HDFC Taxsaver -8.71 -11.63 -12.95

ICICI Prudential Tax Plan -27.07 -29.99 -31.31

53Performance Evaluation of Mutual Funds on Tax Saving Schemes In India

Computation of Sharpe’s, Treynor’s and Jensen’s

For computing Sharpe’s ratio we had taken one year – T

Bill yield as the proxy or rate and ignored those schemes with

out one year of existence accordingly we are left with only

twenty schemes. Calculation of 3-year Excess Returns


54

LICMF Tax Plan -10.16 -13.08 -14.4 Magnum Taxgain 8.15 5.23 3.91 Principal Personal Tax Saver

21.51 18.59 17.27

Principal Tax Savings 11.51 8.59 7.27 Sahara Tax Gain -5.02 -7.94 -9.26 Sundaram BNP Paribas Taxsaver

10.16 7.24 5.92

Tata Tax Saving -5.7 -8.62 -9.94 Taurus Libra Taxshield 2.72 -0.2 -1.52 UTI Equity Tax Savings

-4.07

-6.99

-8.31

Table 3

Fund Name 3-Year Excess returns over



BoB ELSS '96 -11.18 -9.63 -8.46


2.76 4.31 5.48

Escorts Tax Plan -2.22 -0.67 0.5

Franklin India Index Tax -2.91 -1.36 -0.19

Franklin India Taxshield -1.76 -0.21 0.96

HDFC LT Advantage -6.32 -4.77 -3.6

HDFC Taxsaver 8.15 9.7 10.87

ICICI Prudential Tax Plan -2.2 -0.65 0.52

LICMF Tax Plan -17.5 -15.95 -14.78 Magnum Taxgain 22.13 23.68 24.85 Principal Personal Tax Saver 0.16 1.71 2.88 Principal Tax Savings 4.67 6.22 7.39 Sahara Tax Gain -4.89 -3.34 -2.17 Sundaram BNP Paribas Taxsaver

7.11 8.66 9.83

Tata Tax Saving -7.01 -5.46 -4.29 Taurus Libra Taxshield -13.5 -11.95 -10.78 UTI Equity Tax Savings -7.33 -5.78 -4.61

Calculation of 5-year Excess Returns


Table 4

Fund Name 5 -Year Excess returns over



BoB ELSS '96 -0.03 -1.27 1.47


0.97 -0.27 2.47

Escorts Tax Plan 2.69 1.45 4.19

Franklin India Index Tax -2.54 -3.78 -1.04

Franklin India Taxshield 6.51 5.27 8.01

HDFC LT Advantage 10.96 9.72 12.46

HDFC Taxsaver 16.49 15.25 17.99

ICICI Prudential Tax Plan 11.3 10.06 12.8 LICMF Tax Plan -7.09 -8.33 -5.59 Magnum Taxgain 26.67 25.43 28.17 Principal Personal Tax Saver 3.89 2.65 5.39 Principal Tax Savings 9.64 8.4 11.14

Sahara Tax Gain 1.27 0.03 2.77 Sundaram BNP Paribas Taxsaver

12.1 10.86 13.6

Tata Tax Saving 6.07 4.83 7.57 Taurus Libra Taxshield -5.95 -7.19 -4.45 UTI Equity Tax Savings -0.2 -1.44 1.3

Table 5

Fund Name Sharpe Ratio

Treynor's Ratio

Jensen's Excess

return ( )

Birla Equity Plan

1.78

0.441

9.38

Birla Sun Life Tax Relief '96

1.58

0.381

4.73

BoB ELSS '96

1.25

0.284

-4.25


1.58

0.430

8.69

Escorts Tax Plan

1.67

0.411

6.96

Franklin India Index Tax 1.65 0.340 1.17

Franklin India Taxshield 1.63 0.369 3.67

HDFC LT Advantage 1.71 0.446 8.19

HDFC Taxsaver 1.87 0.454 11.22

ICICI Prudential Tax Plan 1.42 0.386 5.32 ING Tax Savings 1.57 0.420 7.93 LICMF Tax Plan 1.1 0.248 -7.27 Magnum Taxgain 2.51 0.687 26.52 Principal Personal Tax Saver

1.59 0.413 7.42

Principal Tax Savings

1.73

0.422

8.53

Sahara Tax Gain

1.55

0.375

3.73 Sundaram BNP Paribas

Taxsaver

1.7

0.417

8.41

Tata Tax Saving

1.41

0.361

2.37 Taurus Libra Taxshield

0.98

0.290

-4.31

UTI Equity Tax Savings 1.46 0.341 1.16

Findings of The Study

1. The sample used to evaluate the performance of Mutual

Funds is confirmed to Tax saving funds with the growth

option over the period 2003-07.

2. To evaluate the portfolio’s performance we used the

important and widely measures like the Treynor’s,

Sharpe, Jensen

3. On the absolute return bases it was inferred that ICICI

prudential tax saving scheme returned the minimum with

12.9% and Principal Tax saver returned a Maximum of

61.48% which is the Max return from the tax saving

schemes.

4. Since the absolute return does not account for over all

market movement excess returns have been computed for

1year, 3year, 5years.

5. For 1year excess returns ICICI Prudential’s tax saving

scheme turned out to be least performer with a negastive

excess returns of 31.31% & Principal Tax saver was the best

performer with excess returns of 17.27%.


6. The 3 year excess returns against magnum tax gain turned

out to be the best performer with 24.85% while the LIC MF

tax plan turned out to be the least performed with a

negative excess return of 14.78%.

7. The Sharpe’s ratio is minimum for Taurus Libra fund at

0.98 and is maximum for SBI’s Magnum Tax gain at 2.51.

From Sharpe’s ratio we can infer that excess returns per

unit risk of the scheme are minimum for Taurus and

maximum for Magnum tax gain.

8. In order to evaluate the fund performance in the light of

the overall market performance along with the risk

associated with the scheme, we used Sharpe’s, Treynor’s

and Jenson’s measure.

9. The Sharpe’s ratio is minimum for Taurus Libra fund at

0.98 and is maximum for SBI’s magnum tax gain at 2.5%

10. Treynor’s ratio is maximum for SBI’s magnum tax gain

with a Treynor’s measure of 0.68 while LIC mutual fund is

the worst performer with a Treynor’s measure of 0.25.

11. Jenson’s measure of differential return is used and the

LICMF tax plan was the worst performer with a negative

return of 7.27% and the best performer was again SBI’s

magnum tax gain scheme with 26.52%.

Conclusion

In recent decades, mutual funds have been the fastest

growing type of financial intermediary. The global mutual

fund industry held assets of $17.8 trillion in 2005 almost

doubling those managed in 1998 ($9.6 trillion). Although the

growth of the mutual fund industry started in the U.S., where

the mutual fund industry plays an extremely important role in

the economy, the trend has spread more recently to a

significant number of countries around the world. The

accelerated growth of mutual funds highlights a need for a

study on the performance of Mutual Funds.

The present study has focused on the performance

analysis of the tax saving schemes as these schemes were

becoming an important vehicle for the small savers hence it is

imperative to see how these funds are faring. The sample

period spans over the 2003-2007.

The asset base will continue to grow at an annual rate of

about 30 to 35% over the next few years as investors shift their

assets from banks and other traditional avenues. Some of the

older public and private sector players will either close shop or

be taken over. Out of ten public sector players five will sell out,

close down or merge with stronger players in three to four

years. In the private sector this trend has already started with

two merges and one takeover. Here too some of them will

down their shutters in the near future to come. But this does not

mean there is no room for other players. The market will

witness a flurry of new players entering the arena. There will be

a large number of offers from various asset management

companies in the time to come. Some big names like Fidelity,

Principal, and Old Mutual etc. are looking at Indian market

seriously. One important reason for it is that most major

players already have presence here and hence these big names

would hardly like to get left behind. In developed countries

like the U.S.A there are funds to satisfy everybody’s

55

requirement, but in India only the tip of the iceberg has been

explored. In the near future India too will concentrate on

financial as well as physical funds.The mutual fund industry is

awaiting the introduction of DERIVATIVES.

Indian Scenario

As per Hindu religion, an auspicious start to any event

would be an invocation to the Lord Ganesha. So also, any

discussion on the mutual fund sector in India has to start with

Unit Trust of India (UTI).

UTI was constituted under the UTI Act, 1963. It

commenced operations in July 1964 “with a view to

encouraging savings and investment and participation in the

income, profits and gains accruing to the Corporation from the

acquisition, holding, management and disposal of securities.”

UTI remained the monopoly player in the mutual fund

sector until 1987, when public sector banks and insurance

companies were permitted to enter the fray. Finally, in 1993,

the securities and Exchange Board of India (SEBI) came up with

comprehensive mutual fund regulations, that permitted the

private sector to start mutual fund operations. These were later

replaced by the SEBI Mutual fund Regulations, 1996. In the

past, UTI launched several schemes where income for the

investors was assured. Such assured returns schemes, where

the government is a guarantor, have since been transferred to

“Specified Undertaking of UTI”. Other schemes of UTI, which

are market related, are being managed by UTI Asset

Management Company.

References

1. Sharpe, William F. (1992) Asset Allocation: Management Style

and Performance Measurement, Journal of Portfolio

Management, vol. 18, No. 2 pp 7-19

2. George P. Artikis, (2003) Performance Evaluation: A Case

Study of the Greek Balanced Mutual Funds Managerial Finance

Vol. 29 No. 9 pp 1-8

3. Fischer, E. D. & Jordan, J. R. (1997) Security Analysis and

Portfolio Management; Prentice - Hall of India Private Ltd.

New-Delhi 6th Edition.

4. Christopherson, J. 1995. "Equity Style Classifications," Journal

of Portfolio Management, 21, 32-43.

5. Schwob Robert (2000) Style and style analysis from a

practitioner’s perspective: What is it and what does it mean for

European Equity investors? Journal of Asset Management Vol.

1, 1, 39-59

6. Juan Carlos Matallý´n Sa´ ez (2000) Style analysis and

performance evaluation of Spanish mutual funds Journal of

Asset Management Vol. 1, 2, 151–171

7. Sharad Panwar and R. Madhumathi Characteristics and

Performance Evaluation of Selected Mutual Funds in India

Working Paper SSRN-Id876402

8. S. Narayan Rao , M. Ravindran Performance Evaluation of

Indian Mutual Funds Working paper http://papers.ssrn.com/

sol3/papers.cfm?abstract_id=433100.

9. H. Sadhak , Mutual Funds in India, Marketing Strategies and

Investment Practices, Second Edition, Response Books, A

Performance Evaluation of Mutual Funds on Tax Saving Schemes In India

division of Sage Publications India Pvt. Ltd, 2003.

10. Corporate finance –Theory and practice by Viswanath S.R

11. Indian mutual funds handbook – by sundar sankaran

12. Performance evaluation of mutual funds in India – by Lalith K

Bansal


*Associate Professor, School of Management, Gautam Buddha University, Greater Noida, UP, India. Email: [email protected].

INTRODUCTION

Stock exchange mergers are all the rage these days. The

NYSE Euronext Group (NYSE:NYX) and Deutsche Boerse AG

have merged. The London Stock Exchange Group PLC and

TMX Group Inc. Canada were also getting together.

There is a consolidation cycle among exchange operators

that has accelerated over the past decade. In 2010, Singapore

Exchange Ltd. (SPXCF.PK) agreed to an $8.3 billion takeover of

Australia's ASX Ltd (ASXFF.PK) to create Asia's fourth-largest

stock exchange. And Intercontinental Exchange Inc. (ICE)

purchased the Britain-based Climate Exchange PLC

(CXCHF.PK) that same year for $597 million.

This paper concentrates on NYSE Euronext, Inc. and its

quest to become the world’s largest stock exchange. NYSE

Euronext, Inc. (formerly NYSE Group, Inc. and Euronext N.V.)

is a Euro-American for-profit corporation that operates

multiple securities exchanges, most notably New York Stock

Exchange (NYSE), Euronext and NYSE Arca (formerly known

as ArcaEx).

Overview

NYSE completed its acquisition of Archipelago Holdings

via a "double dummy" merger on March 7, 2006 in a US$10

billion deal to create the NYSE Group. The NYSE Group

became a for-profit corporation and began trading publicly on

its own stock exchange on March 8, 2006 under the NYX ticker.

Owners of the 1,366 NYSE seats received 80,177 shares of NYSE

Group stock plus US$300,000 in cash and US$70,571 in

dividends for each seat. NYSE Group merged with Euronext

on April 4, 2007 to form the first global equities exchange.

NYSE Regulation subsequently merged with NASD to form

FINRA on July 26, 2007 and is therefore no longer managed by

the exchange.

Mergers

Euronext and NYSE Group

Due to apparent moves by NASDAQ to acquire the

London Stock Exchange, NYSE Group bid €8 billion in cash

Purpose: Every Stock Echange has certain avantages in

terms of customer base, location, time zone, products traded

and settled. Initially the trend was to cross hold certain

percentage of stake in other stock exchanges to benefit in terms

of expertise transfer and profits.

The last decade has seen mergers and acquisitions

amongst stock exchanges. The biggest amongst the same has

been NYSE Euronext, Inc. It is a Euro-American for profit

corporation that operates multiple securities exchanges, most

notably Euronext, New York Stock Exchange (NYSE) and

NYSE Arca (formerly known as AcraEx).

Design/methodology/approach: The methodology

used is to analyze the pre and post merger trend in the Equities,

Debt and Futures and Options segments of the NYSE

Euronext, Inc. The parameters used for analysis are market

capitalisation, total listings, diversification of product

offerings and liquidity.

Findings: The analysis finds that NYSE Euronext, Inc

has become the 1st Transatlantic Marketplace and the largest

exchange by market capitalization of listed companies i.e $28.5

trillion. It has 79 of the 100 largest companies globally. It also

has the world’s largest liquidity pool. It is fast becoming the

listing venue of choice having 3,656 listings from 55 countries.

Originality/value: A lot of stock exchanges around the

world are waiting to analyse the value that this merger brings

about to the financial system and to the participating financial

institions. An unbiased analysis will help them in taking

similar decisions.

Keywords: Global Stock Exchange, Transatlantic

Financial Market, NYSE, Euronext.

Global trend in consolidation of Stock Exchanges:An analysis of NYSE Euronext Inc. Dr. Shweta Anand*

and shares for Euronext on May 22, 2006, outbidding a rival

offer for the European Stock exchange operator from

Germany's Deutsche Börse, the German stock market.

Contrary to statements that it would not raise its bid, on May

23, 2006, Deutsche Börse unveiled a merger bid for Euronext,

valuing the pan-European exchange at US$11 billion (€8.6bn),

€600 million over NYSE Group's initial bid. Despite this, NYSE

Group and Euronext penned a merger agreement, subject to

shareholder vote and regulatory approval. The initial

regulatory response by the U.S. Securities and Exchange

Commission chief Christopher Cox (who was coordinating

heavily with European counterparts) was positive, with an

expected approval by the end of 2007. The new firm, tentatively

dubbed NYSE Euronext, would be headquartered in New York

City, with European operations and its trading platform run

out of Paris. NYSE CEO John Thain, who would head NYSE

Euronext, intends to use the combination to form the world's

first global stock market, with continuous trading of stocks and

derivatives over a 21-hour time span. In addition, the two

exchanges hoped to add Borsa Italiana (the Milan stock

exchange) into the grouping. On June 23, 2007, the Borsa

Italiana was however sold to the London Stock Exchange.

Deutsche Börse dropped out of the bidding for Euronext

on November 15, 2006, removing the last major hurdle for the

NYSE Euronext transaction. A run-up of NYSE Group's stock

price in late 2006 made the offering far more attractive to

Euronext's shareholders. On December 19, 2006, Euronext

shareholders approved the transaction by a 98.2% margin. The

remainder voted in favor of the Deutsche Börse offer. Jean-

François Théodore, the Chief Executive Officer of Euronext,

stated that they expected the transaction to close within three

or four months. Some of the regulatory agencies with

jurisdiction over the merger had already given approval. NYSE

Group shareholders gave their approval on December 20, 2006.

The NYSE consummated its US$11 billion takeover of Paris-

based exchange operator Euronext NV at ceremonies in the

U.S. and Europe on April 4, 2007.

NYSE Euronext operates & holds stake in: the New York

Stock Exchange (NYSE), Euronext, NYSE Liffe, NYSE Arca,

NYSE Arca Europe, NYSE Alternext, NYSE Amex, NYSE Liffe

US, LLC (NYSE Liffe US), NYSE Technologies, Inc (NYSE

Technologies), EasyNext, BlueNext, Free Market (Marché

Libre) and SmartPool.

NYSE Euronext and Deutsche Börse

On 9 February, 2011, Bloomberg reported that the

Deutsche Börse was in advanced talks to buy NYSE Euronext

in a deal that would create the world's largest trading

powerhouse. The shares of both companies were temporarily

frozen on the news due to the risk of large price movements

and clarifications of the deal. A successful deal would see the

new company becoming the world's largest stock exchange

operator with a market capitalisation of listed companies equal

to US$15 trillion.

President and deputy CEO of NYSE Euronext Dominique

Cerutti would become the new company's president and head

of commercial and internal technology. Roland Bellegarde,

also of NYSE Euronext, would become the head of European

cash equities. The new company have €300 million (US$410

million) in cost savings. However, the merger would be subject

to review in both the United States and with the European

Union for concerns it could create a “de facto monopoly.”

Deutsche Börse had also considered an acquisition once in

2008 and again in 2009. MarketWatch's commentator David

Weidner has called the forming of the Euro-American Stock

Exchange “a blow to national pride.”

On April 1, 2011 NASDAQ and IntercontinentalExchange

made a competing hostile bid valued at $11.3 billion with a cash

and stock offering of $42.50 per share. This represents a 19%

premium over the Deutsche Börse offer and a 27% premium

over NYSE's value before that offer was made in February.

The board of NYSE Euronext twice rejected the Nasdaq

OMX-ICE proposal, saying the unsolicited deal would lead to

too much debt and regulatory opposition. NYSE Euronext

shareholders will vote on Deutsche Börse’s all-stock deal,

which the board backs, on July 7, and Deutsche Börse

shareholders have to vote on the deal by July 13.

Formation of NYSE Technologies

NYSE Technologies is the commercial technology division

of NYSE Euronext. NYSE Technologies was launched in

January 2009, incorporating all the internal technology

divisions of NYSE Euronext, NYSE Euronext’s Market Data

division and a number of acquisitions including: The Securities

Industry Automation Corporation (SIAC) in November 2006,

TransactTools in December 2006, Wombat Financial Software

in January 2008, and Atos Euronext Market Solutions in

August 2008. In August 2009, NYSE Euronext announced that

it was acquiring NYFIX - subject to NYFIX shareholder and

regulatory approvals.

NYSE Regulation and FINRA

On May 4, 2010, NYSE Euronext and the Financial

Industry Regulatory Authority (FINRA) announced that

FINRA would assume responsibility for performing the

market surveillance and enforcement functions originally

conducted by NYSE Regulation. The agreement was subject to

review by the Securities and Exchange Commission and

completed by end of June, 2010.

Under the agreement announced, FINRA assumed

regulatory functions for NYSE Euronext’s U.S. equities and

options markets – the New York Stock Exchange, NYSE Arca

and NYSE Amex. FINRA currently provides regulatory

services to the NASDAQ Stock Market, NASDAQ Options

Market, NASDAQ OMX Philadelphia, NASDAQ OMX

Boston, The BATS Exchange and The International Securities

Exchange.

NYSE Euronext, through its subsidiary NYSE Regulation,

remains ultimately responsible for overseeing FINRA’s


performance of regulatory services for the NYSE markets. The

agreement involved approximately 225 staff, most of whom

will be transferred to FINRA.

Locations

Its family of exchanges, located in six countries, includes

the New York Stock Exchange, the world's largest cash equities

market; Euronext, the Eurozone's largest cash equities market;

Liffe, Europe's leading derivatives exchange by value of

trading; and NYSE Arca Options, one of the fastest growing

U.S. options trading platforms. Below is a list of major NYSE

Euronext locations:

• Amsterdam, Netherlands - Euronext Amsterdam

• Paris, France - Euronext Paris

• Lisbon, Portugal - Euronext Lisbon

• London, United Kingdom - Euronext.liffe

Global trend in consolidation of Stock Exchanges: An analysis of NYSE Euronext Inc. 59

• Chicago, Illinois, United States of America - NYSE Arca

(formerly Archipelago)

• New York City, New York, United States of America -

NYSE, Headquarters

• New York City, New York, United States of America -

AMEX (To be relocated to NYSE headquarters)

• San Francisco, California, United States of America - NYSE

Arca (formerly Pacific Exchange)

• Belfast, Northern Ireland - part of NYSE Euronext

Technologies (formerly Wombat Financial Software)

• Brussels, Belgium - Euronext Brussels

Conclusion

The impact of the mergers is that NYSE Euronext is now

the top ranking Stock Exchange in the world both in terms of

Market Capitalization as well as Trade Value.

Rank Economy Stock Exchange Market

Capitalization (USD Billions)

Trade Value (USD

Billions)

1 United States Europe NYSE Euronext 15,970 19,813

2 United States Europe NASDAQ OMX 4,931 13,439

3 Japan Tokyo Stock Exchange 3,827 3,787

4 United Kingdom London Stock Exchange 3,613 2,741

5 China Shanghai Stock Exchange 2,717 4,496

6 Hong Kong Hong Kong Stock Exchange 2,711 1,496

7 Canada Toronto Stock Exchange 2,170 1,368

8 India Bombay Stock Exchange 1,631 258

9 India National Stock Exchange of India 1,596 801

10 Brazil BM&F Bovespa 1,545 868

11 Australia Australian Securities Exchange 1,454 1,062

12 Germany Deutsche Börse 1,429 1,628

13 China Shenzhen Stock Exchange 1,311 3,572

14 Switzerland SIX Swiss Exchange 1,229 788

15 Spain BME Spanish Exchanges 1,171 1,360

16 South Korea Korea Exchange 1,091 1,607

17 Russia MICEX 949 408

18 South Africa JSE Limited 925 340

Figure 1: List of Stock Exchanges in terms of Market Capitalization and Trade Value

NYSE Euronext combined force offers a diverse array of

financial products and services for issuers, investors and

financial institutions in cash equities, options and derivatives,

ETFs, bonds, market data, and commercial technology

solutions. NYSE Euronext's nearly 4,000 listed companies

represent a combined $ 30.9/ € 19.8 trillion in total global

market capitalization, more than four times that of any other

exchange group. NYSE Euronext's equity exchanges transact

an average daily trading value of approximately $161.9 /

€106.9 billion, which represents more than one-third of the

world's cash equities trading. NYSE Euronext is part of the S&P

500 index and the only exchange operator in the S&P 100 index.

Source: Wikipedia (data as on 31st Dec 2010)

The main driver behind exchange mergers is the dream of

global dominance. The NYSE controls Euronext, which itself is

an agglomeration of several Paris-based European stock

exchanges (including the old Paris Stock Exchange). So a

Deutsche Boerse-NYSE tie-up would give the merged

exchange dominance in all major global markets except Asia.

However, since regulators have forced derivatives trading

increasingly onto exchanges, and since the volume of

derivatives outstanding is a large multiple of world gross

domestic product (GDP), the revenues available from

achieving dominance in the global derivatives markets are

very substantial - even if the fees charged are only a minuscule

portion of each individual trade.

NYSE Euronext (NYX) now operates the world’s leading

and most liquid exchange group, and is now enabled to seek to

provide the highest levels of quality, customer choice and

innovation.

References

• "Annual Results 2010". NYSE Euronext. http://phx.corporate-

ir.net/External.File?item=UGFyZW50SUQ9MzU2NjUzM3

xDaGlsZElEPTQxMjc4MHxUeXBlPTI=&t=1. Retrieved 27

February 2011.

• "NYSE and Euronext 'set to merge'". BBC News. 2006-05-21.

http://news.bbc.co.uk/1/hi/business/5002438.stm. Retrieved

2006-05-22.

• "Deutsche Boerse outbids NYSE for Euronext merger". BBC

News. May 23, 2006. http://news.bbc.co.uk/2/hi/business/

5007230.stm. Retrieved 2006-05-23.

• Lucchetti, Aaron; Macdonald, Alistair; Scannell, Kara (June 2,

2006). "NYSE, Euronext Set Plan to Form A Markets Giant".

The Wall Street Journal. http://online.wsj.com/article/

SB114919826887369084.html. Retrieved 2006-06-02.

• "London Stock Exchange buys Borsa". BBC News. June 23,

2007. http://news.bbc.co.uk/1/hi/business/6233196.stm.

Retrieved 2007-06-23.

• Taylor, Edward; Lucchetti, Aaron; Macdonald, Alistair (2006-

11-15). "Deutsche Börse Is Exiting Euronext Chase". The Wall

S t r e e t J o u r n a l . h t t p : / / o n l i n e . w s j . c o m / a r t i c l e /


• Lucchetti, Aaron; Macdonald, Alistair (2006-12-19).

"Euronext Shareholders Approve Acquisition by NYSE". The

Wall Street Journal. http://online.wsj.com/article/


• "Big Board Holders Back Euronext Deal". The New York

Times. 2006-12-21. http://www.nytimes.com/2006/12/21/

business/worldbusiness/21nyse.html?ref=worldbusiness.


60

• "Key Deve lopments" . Reuters . Apr i l 3 , 2007 .

http:/ /www.investor.reuters.wallst .com/stocks/key-

developments.asp?rpc=66&ticker=NYX&timestamp=200704

03185600. Retrieved 2007-05-11.

• "BlueNext Shareholders". BlueNext.fr. 2010-08-08.

http://www.bluenext.fr/exchange/shareholders.html. Retrieved

2010-08-08.

• "NYSE Euronext (NYX) Profile". nyse.com. 2010-08-08.

http://www.nyse.com/about/listed/nyx.html. Retrieved 2010-

08-08.

• German firm in talks to buy NYSE Euronext newsday.com

(February 10, 2011)

• http://www.bloomberg.com/news/2011-02-09/nyse-deutsche-

boerse-are-sa id- to-be- in-advanced-ta lks- to-merge-

exchanges.html

• David Weidner: “Nachtmare on Wall Street. Commentary: An

American institution goes kaput”, MarketWatch, 15 February

2011.

• "Nasdaq, ICE Make Hostile Play for NYSE Euronext". New

York Times: DealBook. http://dealbook.nytimes.com/2011/04/

01/nasdaq-ice-make-hostile-bid-for-nyse-euronext/?hp.

Retrieved 4/1/2011.

• "Nasdaq, ICE Taking NYSE Bid Directly to Traders Who

W o u l d P r o f i t F r o m D e a l " . B l o o m b e r g L . P . .

http://www.bloomberg.com/news/2011-05-09/nasdaq-ice-

taking-nyse-bid-directly-to-traders-who-would-profit-from-

deal.html. Retrieved 15 May 2011.

• "NYSE agrees to buy one-third stake in SIAC for $40 mln".

Marketwatch.com. 2006-10-25. http://www.marketwatch.com/

story/nyse-agrees-to-buy-one-third-stake-in-siac-for-40-mln.


• "Nyse buys TransactTools". Finextra.com. 2006-12-13.

http://www.finextra.com/fullstory.asp?id=16264. Retrieved

2006-12-13.

• "NYSE Euronext to Acquire Wombat Financial Software".

m o n d o v i s i o n e . c o m . 2 0 0 8 - 0 1 - 1 4 .

http://www.mondovisione.com/index.cfm?section=news&acti

on=detail&id=71883. Retrieved 2008-01-14.

• "Atos Origin, NYSE Complete AEMS Joint Venture

Transaction". huliq.com. 2008-08-12. http://www.huliq.com/

66280/atos-origin-nyse-complete-aems-joint-venture-

transaction. Retrieved 2008-08-12.

• "NYSE Euronext to pay 95 pct premium for NYFIX".

reuters.com. 2009-08-27. http://www.reuters.com/article/

mergersNews/idUSN2730860320090827. Retrieved 2009-08-

27.

• "FINRA to Perform NYSE Regulation’s Market Oversight

Funct ions". NYSE News Releases . 2010-05-04.

http://www.nyse.com/press/1272880693677.html. Retrieved

2010-09-22.

• http://www.euronext.com/

• http://www.wikipedia.com/


*Associate Professor, Department of Management, Central University of Rajasthan, Kishangarh, Ajmer. Email: [email protected]

**Associate Professor, Haryana School of Business, Guru Jambheshwar University of Sc. & Tech., Hisar. Email: [email protected]

***Research Scholar, Haryana School of Business, Guru Jambheshwar University of Sc. & Tech., Hisar. Email: [email protected]

INTRODUCTION

Insurance is a US $ 41.6 billion Industry world’s one of the

two fastest growing markets. The Indian Insurance scenario

has undergone profound changes during last decade. Until

1999, there were not any private insurance companies in India,

LIC had monopoly. The industry consisted of only two state

insurers LIC and GIC. GIC had four subsidiaries – National

Insurance Company, New India Insurance Company, Oriental

Insurance Company and United India Insurance Company.

The government then introduced the Insurance Regulatory

and Development Authority Act in 1999, thereby de-regulating

the insurance sector and allowing private companies.

Furthermore, foreign investment was also allowed and

capped at 26 per cent holding in the Indian Insurance

Companies. Global players like AIG, Aviva, Met Life, New

York Life, Lombard have rushed into market by joining hands

with Indian Insurance player for both life and non-life

segment. Today there are 23 Life Insurers, 21 non-insurers and

one reinsurer operating in the country.

The reforms in the Insurance Sector have brought not only

in the design of the product available in the market but also the

manner in which they are marketed. A number of new

products has been introduced in both Life and non Life

segment live single premium mode insurance, micro

insurance, unit linked, add on riders, hospital cash benefit,

weather insurance, credit insurance, product liability, burglary

cover etc. Despite all the development about 80 per cent of

Indian population is without life insurance cover, while health

insurance and non-life insurance continues to be below

international standards. India’s life Insurance premium as a

percentage of GDP is 4.1 per cent far lower than developed

market level of 6-9 per cent.

However the insurance sector has not made much

progress in the rural sector. There are still a number of

opportunities waiting to be tapped. A recent study indicate

that about 73 per cent of population in rural areas does not have

life insurance and the penetration rate for non-life insurance in

rural area is only 14 per cent which is mainly for motor

insurance. The rural segment is still untapped and can be

The Indian Insurance scenario has undergone profound

changes during last decade. Until 1999, there were not any

private insurance companies in India, LIC had monopoly. The

government then introduced the Insurance Regulatory and

Development Authority Act in 1999, thereby de-regulating

the Insurance sector and allowing private companies.

Furthermore, foreign investment was also allowed and capped

at 26 per cent holding in the Indian Insurance Companies.

Global players like AIG, Aviva, Met Life, New York Life,

Lombard have rushed into market by joining hand with Indian

Insurance player for both life and non-life segment. Today

there are 23 Life Insurers, 21 non –insurers and one reinsurer

operating in the country. Despite all the development about 80

per cent of Indian population is without life insurance cover,

while health insurance and non-life insurance continue to be

below international standard. India’s life Insurance premiums

as a percentage of GDP is 4.1 per cent for lower than developed

market level of 6-9 per cent. However the insurance sector has

not made much progress in the rural sector. There are still a

number of opportunities waiting to be tapped. A recent study

indicates that about 73 per cent of population in rural areas

does not have life insurance and the penetration rate for non-

life insurance in rural area is only 14 per cent which is mainly

for motor insurance. The rural segment is still untapped and

can be exploited by insurance companies. The present paper

highlights the rural consumer’s buying behavior towards

insurance policy.

Key Words: Insurance policy, IRDA, Non-insurer,

Reinsurer, Premium, Risk Protection.

Rural Consumer’s Buying Behaviortowards Insurance Policy

Dr. Maithili R.P. Singh*Dr. Sanjeev Kumar**

Jagdeep Kumar***

Table 1: Motivational factors to buy insurance policy

Motivational Factors Frequency Percentage

Long term saving 151 36%

Investment 113 27%

Risk Protection 46 17.8%

Children Edu. & Marriage 7 11.0%

Tax Benefit 21 5%

Retirement benefit 14 3.2%

Total 420 100%

exploited by insurance companies. FORTE research indicates

that rural market is vibrant market and hold tremendous

potential for growth of insurance business, particularly

because of strong saving habit, changing aspiration, closed

integration with economy and unprecedented exposure to

information explosion. However some Insurance companies

have realized the potential of rural market and betting big on

rural market, through strategic partnership with bank, MFI,

N.G.O. etc. LIC has introduced Jeevan Madhur which offers

the option of a minimum weekly payment of the option of a

minimum weekly payment of Rs. 25. This plan is devised both

in terms of payment schedule and delivery for rural area

keeping affordability of rural people in mind. Another attempt

to provide assistance to the rural people, Tata AIG has

introduced micro Insurance plan Navkalyan yojana and

Sampuran Bima Yojna for rural people.

Literature Review

Ramesh H.N., A parna. J. Verma (2011) reveals that

government spending on health care is less than 2 per cent of

GDP. Around 70 per cent of India’s healthcare expenditure is

financed out of pocket with only 15 per cent of Indian

population covered by health related insurance schemes. This

highlights the need for alternative finances like health

insurance at much wider level.

Shahmas Beegum P.P., Dr. Sareeda A.K. (2011) Micro

insurance is low cost health insurance based on a community

or co-operation modal, as distinct from conventional insurance

Micro health insurance covered and estimated thirty six

million people worldwide in 2006.

C 11 Ermst and Young (2010) study projected that health

insurance Premium is lively to touch Rs. 30,000 crore in 2015

from existing Rs. 4000 crore.

Chandera Sekaran David (2009) found that market

initiatives of the new companies have certainly helped enhance

insurance awareness in the country. The corporate agency,

especially where a bank is corporate agent seems to hold much

promise. The full potential of this new channel is yet to be fully

tapped.

Swiss Re Sigma (2007) report reveals that the

Bancassursance is an established and growing channel for

insurances distribution. Current success is built on simple

products and integrated operation. Penetration of

bancassurance is expected to increase in developed and

emerging market.

Devadasan. N. (2006) highlights the need of multiple

strategies to cover the health of poorer section of society in

India. Community health insurance is one of them.

David M. Dror (2006) found that most Indian is willing to

pay 1.3 per cent income or more for health insurance and prefer

holistic benefit package at basic coverage. The need of the poor

and their demand for health Insurance depend on local

conditions.

ILO (2004) Penetration of micro Insurance scheme is very

low anywhere between 5 and 10 million individual. Micro

insurance market is likely to touch Rs. 250 billion by 2008.

Banerjee T.K. (2001) revealed that the scope of growth

offered by rural market is tremendous in India. The size or

rural market is growing. The economy has expanded very fast.

The rural GDP has increased from 6500 crore to 2, 60, 000

approximately four fold increase. Rural GDP constituted 50.35

per cent of GDP as per RBI estimate in 1997-98.

Gopal Swamy, T.P. (1997) elaborated the strategies

regarding market mix in the rural India. Considering the low

per capita income, a rural customer can afford the smaller unit,

a price of small packing in cheaper in comparison. Regarding

distribution, use of public distribution and co-operative

societies in village can play an important role. Product

innovation is key to success.

Sri Lakshmi and Sri Ram Murthy D. suggested four

mantras for success for any company planning to enter in rural

market. Mantra are four A’s- Availability, Affordability,

Acceptance and Awareness.

Objectives and Methodology

The main objective of this research paper is to study

consumer’s behavior towards insurance products in rural

areas. The research design is exploratory cum descriptive.

Primary data is collected with the help of structured

questionnaire and personal interview with respondents. The

universe comprised of all people living in all the villages of

Haryana. It would be an enormous task to study each person

and would escalate the cost, time and efforts required to the

extent of turning entire exercise into unmanageable and futile.

Therefore a representative sample was taken from the universe

in a manner that would not hamper the quality and

representativeness of data facilitating better analysis and

interpretation. The sampling method used is stratified random

sampling. The sample size is 500 policy holders (25 each from

20 villages), the questionnaire was administered, and

substitution of respondents was not allowed. Only 420 of the

returned questionnaires were found suitable for analysis. Data

so collected was analyzed with the help of percentage method.

Results and Discussion

The Result obtained through analysis, have been

presented in the following Tables (Table No 1 to Table No 9 in

this section.)



Rural Consumer’s Buying Behavior towards Insurance Policy 63

Table 3 reveals assessment of satisfaction level through

various dimensions like risk protection, Tax benefit, saving

investment etc. Around 48 per cent respondents are somewhat

satisfied with risk protection and saving while 28.4 per cent are

very much satisfied with risk protection. High percentage 67 is

neutral with retirement benefit.

Table 1 exhibits motivational factors to buy insurance

products, major persuasion for taking insurance policy are

saving, investment, risk protection and children education &

marriage. About 36.per cent buy insurance product because it

help long term saving, 27 per cent respondents purchase

insurance policy for investment and17.8 per cent for risk

protection.

Table 2 reveals that premium, return, image of company,

and advice from agent play more important role in selecting an

insurance policy than liquidity, investment, risk and

advertisement. Out of 420 respondents, with regard to

premium, 32.1 per cent respondents consider as important and

43 percent consider as most important. With regard to return

on insurance policy more than 30 percent respondents rate

very important and 46.9 per cent respondents rate most

important factor. A big number more than 25 per cent of

respondent think that liquidity and advice from friend play not

important role in selection of policy.

Table 2: Opinion about importance of factorsin selection of insurance policy

Factors Not Imp. Least Imp. Imp. Very Imp. Most Imp. Total

Premium 18(4.3) 11(2.3) 134(32.1) 76(18.1) 181(43.0) 420 (100%)

Investme

nt Risk

53(12.4) 84(20.0)

153(36.5) 98(23.4) 32(7.7) 420 (100%)

Liquidity 117(27.8)

119(28.4)

111(26.4)

39(9.4)

34(8.0)

420 (100%)

Return 3(0.7)

11(2.7)

80(19.1)

130(30.9)

196(46.6)

420(100%)

Insurance Coverage

17(4)

71(17.0)

180(42.8)

104(24.7)

48(11.4)

420(100%)

Image of Company

6(1.3) 9(2.3) 128(30.5) 116(27.5) 161(38.3) 420(100%)

AdviceFrom friend

25(6)

83(19.7)

219(52.2)

53(12.7)

40(9.5)

420 (100%)

Advice From Agent

41(9.7)

131(31.1)

181(43.1)

43(10.4)

24(5.6)

420(100%)

Advertisement

70(16.7) 156(37.1) 139(33.1) 28(6.7) 27(6.4) 420(100%)


Benefit Very much dissatisfied

Somewhat dissatisfied

Neutral Somewhat satisfied

Very much satisfied

Total

Risk protection

11 (2.7)

38 (9.0)

49 (11.7)

202 (48.2)

120 (28.4) 420 (100%)

Tax Benefit 8 (2.0)

21 (5.0)

167

(39.5)

135 (32.1)

89 (21.1) 420 (100%)

Saving 11 (2.7) 13 (3.0) 41 (9.7) 204 (48.5) 152 (36.1) 420 (100%)

Investment 10 (2.3) 117 (23.1)

74 (17.7)

173 (41.1.)

65 (15.4) 420 (100%)

Children education& Marriage

5 (1.3)

14 (3.3)

46 (11.0)

233 (55.5)

119 (28.4) 420 (100%)

Retirement Benefit

13 (3.0) 16 (3.7) 281 (67.2) 93 (22.1) 17 (4.0) 420 (100%)

Table 3: Satisfaction Level regarding various benefits


Table 4 indicates that 52.1 per cent respondents preferred

assured low returned policy followed by unit linked 24.8 per

cent and 23.1 per cent respondents have no knowledge.

Table 4: Opinion about type of policy

Type of policy Frequency Percentage

Unit Linked 104 24.8%

Assured Low

Returned

219 52.1%

Don’t Know 97 23.1%

Total 420 100%


Table 5: Preferred combinations Life Insurance

Combination Rank Frequency Percentage

Life Insurance+ Accidental Insurance

2

114 27.2

Life Insurance+ Health Insurance

4

17 4.1

Life Insurance+

Loan Insurance

3

25 5.9

Life Insurance+ Health+ Loan+ Acc. Insurance

1 264 62.8

Total 420 100%


Table 5 reveals that respondents preferred various

combinations of life insurance like, Life insurance+ Health

insurance, Life insurance + Accidental insurance, Life

insurance + Loan, Life insurance+ Health+ Loan+ Accidental

insurance. 62.8 per cent of respondents preferred combination

of Life insurance+ Health+ Loan+ Accidental insurance

followed by 27.2 per cent of respondents preferred

combination of Life Insurance+ Accidental Insurance.

Feature

Very low

Low

Average

High

Very high

Total

Return 38 (9.0) 57 (13.7) 244 (58.2) 76 (18.1) 4 (1.0) 420 (100%)

Liquidity 62 (14.7) 117 (27.8) 192 (45.8) 42 (10.0) 7 (1.71) 420 (100%)

Safety 11 (2.7) 11 (2.7) 84 (20.1) 231 (54.0) 86(20.5) 420 (100%)

Table 6: Opinion about financialfeatures of insurance products


64

company play important role in a selection of insurance policy.

Respondents preferred various combinations of life insurance

like, Life insurance+ Health insurance, Life insurance +

Accidental insurance, Life insurance + Loan, Life insurance+

Health+ Loan+ Accidental insurance. Most of respondents are

of opinion that return on insurance products is average,

liquidity low and safety is high. Majority of respondents were

found satisfied with risk protection, saving, investment, tax

benefit of insurance policies. About half of respondents

preferred half yearly premium pattern. More than 40 per cent

had intention to purchase insurance policies in future. We may

conclude that there is good scope in rural areas for insurance

companies.

References

• Banerjee T.K. “The Present experience of LIC and The future

prospects of Rural market in India”, FICCI Sixth international

conference on insurance 15th Oct, 2001.

• C11 Ernst and Young (2010) “Indian Insurance sector stepping

into the next Decade of Growth”.

• Devadasen.N. “community Health Insurance Schemes” Yojna,

April, 2006.

• David M. Dror, “Health Insurance for the poor: Myths and

Realities”, Economic and political weekly, Nov 2006.

• David Chandera Savarana “Marketing of Life Insurance”

IRDA Journal, May2009, PP 18-19.

• Gopalswamy, T.P, “Rural Marketing: Environment, Problem

and Strategies” wheeler Publishing, New Delhi.

• ILO (2004) India “Insurance products provided by insurance

companies to the Disadvantaged groups, strategies and tool

against social exclusion and poverty step”.

• MRP Singh, ‘Customers’ Awareness and Perception about

Insurance Products in Rural Areas’, JM International Journal

of Marketing Management, Journal of JM Academy of IT and

Management, Arasaradi, Madurai, Tamil Nadu, India, Vol. 1

No. 3, March, 2011. Print:(ISSN-2230-701X) ; Online: (ISSN-

2229-4570)

• MRP Singh, Sanjeev Kumar and Jagdeep ‘Potential of

Insurance Products in Rural Haryana’, Research Lines, Journal

of Deva Matha College, Kuravilangad, Kottayam, Kerala, India.

Vol. 4 No. 1-C, Jan.-June, 2011(ISSN-0975-8941)

• Ramesh H.N, Aparna. J Verma “An Analysis of Health care

Economics and Health Insurance Industry in India” Research

Lines volume IV No. I-C January June, 2011, P.P. 117-124.

• Shahmas Beegum P.P, Dr. Sarla A.K. “Micro Insurance an

innovation in Insurance”. Research Lines volume IV No. 1-C

January – June 2011 P.P. 117-124.

• Sri Lakshmi K. and Sri Rama Murthy D. “Rural Marketing in

Indian Context” www. Cool avenues. Com.

• Swiss Re sigma 5/2007 “Bancassurances : Emerging Trends,

opportunities and challenges”

• www.irdaindia.org.in

• www.licindia.org.in

• www.indianfoline.com

Table 6 shows about the opinion of respondents about

financial features of insurance policies. Data reveals that 58.2

per cent respondent think that return is average while about 30

per cent are opinion of that return is high, in case of liquidity

45.8 per cent respondents think that it is average, high

proportion (54 percent) of respondent are of opinion that the

safety is high.

Table 7: Opinion about premium charged

Type Low Reasonable High Total

Life insurance

58 (13.7%)

258 (51.6%) 104 (24.7 %)

420 (100%)

Non life insurance

29 (7.1%)

136 (32.4%) 255 (60.6%)

420 (100%)


Table 7 shows that about 60 percent respondents feel that

premium charges by insurance companies for life insurance

products is reasonable, while in non life segment premium is

high.

Table 8: Preferred premium Pattern

Premium pattern Frequency Percentage

Monthly 48 11.4

Quarterly 62 14.7

Half yearly 225 53.5

Yearly 81 19.4

5 year 4 1.0

Total 420 100%


Table 8 indicates that 53.5per cent respondents preferred

half yearly premium pattern followed by yearly 19 per cent and

quarterly 14 per cent premium pattern.

Table 9: Future plan to purchase an insurance policy

Mode Frequency Percentage

Yes 184 43.9

No 236 56.1


Table 9 depicts that about 44 per cent respondents have a

plan to purchase insurance policies in future.

Conclusion

Major persuasion for taking insurance policy are saving,

investment, risk protection and children education &

marriage. Premium, return from policy and image of insurance


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Volume II, No. 2, July - December 2011

SAMIKSHA

1. An Empirical Study of Organizational Climate with Reference to

Employee’s Motivation

2. Construction of Equity Portfolio of Banking Sector with reference to

The Sharpe Index Model

3. Factors influencing Seller Communication Style

4. A Study of The Marketing Practices of Farmers at Uzhavar Sandhai

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An Empirical study on Private Sector Managers

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9. Global trend in consolidation of Stock Exchanges:

An analysis of NYSE Euronext Inc.

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