Page 239 - ES 2020-21_Volume-1-2 [28-01-21]

222 Economic Survey 2020-21 Volume 1

(1) (2) (3) (4)
VARIABLES Management Compensation and RPT Directors Salary

Treatment X Post 0.231** 0.242*** 0.071* 0.075*
(2.492) (2.619) (1.788) (1.916)
Controls No Yes No Yes

Observations 91,566 90,576 38,931 38,579
R-squared 0.688 0.689 0.817 0.818

FE Firm and Year
Clustering Firm

Observation Level Firm-Year

Table 5: Table shows a difference-in-difference specification to estimate the change in
compensation to management within firms. The outcome variables are explained above.
All the variables and notations remain the same as in Table 4. Source: Chopra, Nishesh,
and Tantri (2020).

Coefficients for both the variables are positive and have standard statistical significance.
The firms likely to benefit from forbearance, therefore, increase remuneration to their key
management personnel. This suggests that forbearance results in an increase in benefits
being redirected to firms’ management.

Increased defaults by borrowers benefitting from forbearance

7.27 Subsequent to the deterioration in their fundamentals, restructured firms in the forbearance
window also witnessed a decrease in their credit ratings. Figure 20 shows that the average
credit rating for a firm deteriorated by 7.7% upon restructuring during the forbearance regime
while the same marginally improved (0.33%) before forbearance. The forbearance regime also
accompanied an increase in defaults by restructured firms when compared to a decrease in the
same in the pre-forbearance era. The proportion of restructured firms that became defaulters
increased by 51% in the forbearance period, while the pre-period increase was comparatively
marginal (by 6%). In terms of the amount under default, the figure more than doubled (an
increase of 114%) in the post-forbearance period compared to an 18% decrease in the value
before forbearance. Once again, restructuring in the pre-forbearance era seems to have helped
distressed and defaulting borrowers repay their debt and undo their defaulter tag. However,
firms benefitting from restructuring during the forbearance window, on average, started
defaulting more.

7.28 In conclusion, the prolonged forbearance policy meant to address grievances of crisis-
hit borrowers led to unintended negative consequences for the firms in the long run. The
internal governance of the firms weakened, misappropriation of resources increased, and
their fundamentals deteriorated. On a macroeconomic front, as shown in figure 21, under the
forbearance window, a higher share of restructured firms within an industry was also associated
with a decrease in the entry of new firms in the industry.