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EDITORIAL ANALYSIS : Lessons from Hindenburg’s ‘skin in the game’ approach


Source: The Hindu

  • Prelims: Protectionism, liberalization, Neoliberalism, capitalism, GDP etc
  • Mains GS Paper III and IV: Government planning, mobilization of resources, LPG reforms, protectionism etc


  • Hindenburg, published a voluminous research report that raised grave allegations about the business ethics of the Adani group of companies and manipulation of share price to inflate the value.




Crony capitalism:

  • It is a term used to describe a capitalist economic system in which individuals or businesses with close ties to political leaders and government officials use their political connections to gain an unfair advantage in the marketplace.
  • Crony Capitalism Index 2021 published by The Economist;
    • India was ranked at 7th position where crony sector wealth accounted for 8% of Gross Domestic Product (GDP) of the country.


Issues Associated with Crony Capitalism:

  • Unfair Advantage in Marketplace
  • Distorted Market Competition
  • Reduced Innovation
  • Public Distrust of Government and the Economy


Hindenburg group and its report:

  • It is a company that specializes in forensic financial research.
  • It looks for:
    • accounting irregularities
    • undisclosed related-party transactions
    • illegal/ unethical business or financial reporting practices
    • undisclosed regulatory, product, or financial issues in companies.
  • It published a report critical of the group’s finances.
  • The research firm, which has short positions in Adani companies through US-traded bonds and non-Indian-traded derivative instruments, said:
    • Key listed companies in the group had “substantial debt” which has put the entire group on a “precarious financial footing”.


What was the Impact?

  • Much of that wealth disappeared following a crash in the stock values that shaved more than $100 billion off the market capitalisation of seven publicly listed Adani group companies.
  • Withdrawal, post-launch, of a $2.5 billion share issue and, possibly, of rounds of borrowing.


Issues with the report:

  • The Solicitor General of India questioned the motives of Hindenburg in the SC.
    • He argued: The report is a mistaken belief to drive the share price down deliberately and profit from this.
  • Former Vice Chair of NITI Aayog, a former Chief Economic Adviser, a former Foreign Secretary and many others: have jumped in to cast aspersions on Hindenburg’s motives
  • It is being disciplined as a mischievous report to manipulate the Adani shares to profit from its fall.


Empirical evidence that Hindenburg’s ‘skin in the game’ approach helped establish its credibility among market participants:

  • CreditSights(Aug 2022): published a similar report raising questions on the governance practices and share valuations of the Adani Group.
  • The group responded to those allegations without any reference to ‘Jalianwalla Bagh’ or a national flag (tapping into nationalism), as it did in its response to the Hindenburg report.
  • The CreditSights report did not elicit much uproar and the stock market brushed it off with no impact on the share price of the Adani companies.
  • There have been eight news or research reports in the last four years by foreign publications (Bloomberg, The Guardian and Morgan Stanley) about the Adani Group’s alleged dubious business practices and share price movements.
    • None of them seemed to have had the impact that the Hindenburg report has had.
  • Hindenburg’s willingness to take a financial bet that lent credibility to its findings than a mere report.


A sign of veracity(accuracy):

  • The financial market, like the electoral marketplace, is complex and multivariate to be manipulated so easily.
  • It is common practice in financial markets for investors who/that buy shares, to talk them up in the hope of influencing others to buy these shares and drive the price up.
    • This is a legitimate practice and no one frowns upon it.


Illegality versus immorality

  • Adani’s backers: Hindenburg deflated its stock price immorally to gain
  • It is ethically reasonable to profit from a fall in the share price as it is to profit from its rise.
  • Philosophical idea of ‘skin in the game’ of symmetrical rewards and penalties is very important to cultivate trust and trustworthiness in societies.
  • Hindenburg’s ‘short sale’ bet signaled confidence and trust in its research and played a critical role in the exposé of Adani’s alleged financial dishonesty.
    • This was neither illegal nor unethical.


Way Forward

  • The rumors of state patronage possibly encouraged foreign bond and equity investors searching for higher yields to buy into Adani, whenever the opportunity arose.
  • Such a ‘skin in the game’ approach where journalists, scientists and commentators are held accountable for their words and actions can help reduce the menace of fake news, ‘hit jobs’ and the tyranny of experts.
    • It will enhance trust in society and reduce discord.
  • Neoliberalism is not about market competition and transparency, but an instrument to engineer income and wealth redistribution.
    • In this case in favor of one individual and his group.



The broader aims and objectives of WTO are to manage and promote international trade in the era of globalization. But the Doha round of negotiations seem doomed due to differences between the developed and the developing countries.” Discuss in the Indian perspective.(UPSC 2016) (200 WORDS, 10 MARKS)