Bhattacharyya, Surajit (2008): Determinants of Corporate Investment: Post Liberalization Panel Data Evidence from Indian Firms.
Download (270Kb) | Preview
The paper models alternative investment-accelerator relationships within the neoclassical theory of Jorgenson followed by firm level panel data estimation and empirical test for other determinants of corporate investment e.g., internal liquidity, profitability, and firms’ financial strength. Athey and Laumas (1994) claimed that internal liquidity had replaced market demand in Indian firm level investment. Others indicate presence of finance constraints in Indian private sector investment activities; Kumar et al. (2001, 2002). Therefore, in the immediate aftermath of liberalization whether market demand had still not been important when availability of internal liquidity, firms’ profitability and creditworthiness are considered. We consider Indian manufacturing firms in the post-reform period of 1990s. There is significant support for the investment–accelerator relationship. Internal liquidity is relatively more important than profitability when it comes to firms’ investment decisions. There is also evidence that credit worthiness of firms to outside creditors is important for firm investment decision.
|Item Type:||MPRA Paper|
|Original Title:||Determinants of Corporate Investment: Post Liberalization Panel Data Evidence from Indian Firms|
|Keywords:||Business fixed investment, sales accelerator, retained earnings, profitability, financial strength|
|Subjects:||D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment; Capacity
L - Industrial Organization > L6 - Industry Studies: Manufacturing > L64 - Other Machinery; Business Equipment; Armaments
|Depositing User:||Surajit Bhattacharyya|
|Date Deposited:||12. Jan 2008 06:01|
|Last Modified:||13. Feb 2013 08:42|
Ahluwalia J. Isher (1985), “Industrial Growth in India: Stagnation since the Mid-Sixties”,Oxford University Press, India. Athey J. Michael and Prem S. Laumas (1994), Internal Funds and Corporate Investment in India, Journal of Development Economics, 45, pp. 287 – 303. Athukorala Prem-chandra and Kunal Sen (2002), “Saving, Investment, and Growth in India”, Oxford University Press, India. Bilsborrow E. Richard (1977), The Determinants of Fixed Investment by Manufacturing Firms in a Developing Country, International Economic Review, 18 (3), pp. 697-717. Bond Stephen, Julie Elston, Jacques Mairesse, and B. Mulkay (2003), Financial Factors and Investment in Belgium, France, Germany and UK: A Comparison Using Panel Data, Review of Economics and Statistics, 85 (1), pp. 153-165. Bhattacharyya Surajit and Surajit Sinha (2004), Accelerators and Investment Functions, The Indian Economic Journal, 52 (1-2), pp. 21-32. Eastwood Robert and Renu Kholi (1999), Directed Credit and Investment in Small-Scale Industry in India: Evidence from Firm-Level Data 1965-78, The Journal of Development Studies, 35 (4), pp. 42-63. Fazzari M. Steven and Michael J. Athey (1987), Asymmetric Information, Financing Constraints and Investment, Review of Economics and Statistics, 69, pp. 481-487. Fazzari M. Steven, R. Glenn Hubbard and Bruce C. Peterson (1988), Financing Constraints and Corporate Investment, Brookings Papers on Economic Activity, 1, pp. 141-195. Greenwald Bruce, Joseph E. Stiglitz, and Andrew Weiss (1984), Informational Imperfections in the Capital Market and Macroeconomic Fluctuations, American Economic Review, 74, pp.194-199. Hubbard R. Glenn (1998), Capital-Market Imperfections and Investment, Journal of Economic Literature, 36, pp. 193-225. Jorgenson W. Dale (1963), Capital Theory and Investment Behavior, American Economic Review, 53, pp. 247- 259. Jorgenson W. Dale and James A. Stephenson (1967), Investment Behavior in U.S. Manufacturing, 1947-1960, Econometrica, 35 (2), pp. 169-220. Jorgenson W. Dale and Calvin D. Siebert (1968), A Comparison of Alternative Theories of Corporate Investment Behavior, American Economic Review, LVIII (4), pp. 681-712. Jorgenson W. Dale (1971), Econometric Studies of Investment Behavior: A Survey, Journal of Economic Literature, 9 (4), pp. 1111-1147. Jensen M and W. Meckling (1976), Theory of the firm: managerial behavior, agency costs, and capital structure, Journal of Financial Economics, 3, pp. 305-60. Krishnamurty, K. and D.U. Sastry (1975), “Investment and Financing in the Corporate Sector in India”, Tata McGraw-Hill, New Delhi. Kadapakkam Palani-Rajan, P.C. Kumar and Leigh A. Riddick (1998), The impact of cash flows and firm size on investment: The international evidence, Journal of Banking and Finance, 22, pp. 293-320. Kumar A. Ganesh, Kunal Sen and R. R. Vaidya (2001), Outward Orientation, Investment and Finance Constraints: A Study of Indian Firms, Journal of Development Studies, 37 (4), pp. 133-149. Kumar A. Ganesh, Kunal Sen and R. R. Vaidya (2002), Does the Source of Financing Matter? Finacial Markets, Financial Intermediaries and Investment in India, Journal of International Development, 14 (2), pp. 211-228. Sen Kunal and R. R. Vaidya (1997), “The Process of Financial Liberalization in India”, Oxford University Press, India. Tybout James (1983), Credit Rationing and Investment Behavior in a Developing Country, Review of Economics and Statistics, 65, pp. 598-607. White Halbert (1980), A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica, 48, pp. 817-838.