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Regulatory Forbearance: An Emergency Medicine, Not Staple Diet! 221
period. Overall, while firm fundamentals usually improved upon restructuring in the pre-
forbearance era, they significantly declined under forbearance. Note that, these values are
adjusted for industry and year and thus are not influenced by macroeconomic shocks during
the forbearance regime.
Figure 19: Deterioration in Operating Metrics and Performance of
Firms Benefitting from For forbearance
Source: MCA (for restructured loans) and CMIE Prowess for the composition of boards
Pre: Average percentage change two years after and before for firms restructured during 2002-2006
Post: Average percentage change two years after and before for firms restructured during 2009-2015
Box 7: Misappropriation of Resources by
Firms Benefitting from Forbearance
Using the difference-in-difference technique discussed in Box 6, this box shows the impact of
forbearance on increased remuneration to boards of firms that benefited from the forbearance.
There are two outcomes studied: (i) Management Compensation and RPT — the total
compensation of the key management in the firm including any related party transactions
with them and (ii) Directors Salary - the total remuneration of all directors on the board. With
the identifications and regression framework remaining the same, the following results are
obtained:
