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Drivers of corporate investment in India: The role of firm-specific factors and macroeconomic policy

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  • Sahoo, Pravakar
  • Bishnoi, Ashwani

Abstract

India's investment slowdown has proved detrimental to India's growth trajectory. Prior literature has addressed the investment slowdown at macro and micro levels; however, the asymmetric effect of firm-specific variables on India's investment drivers has been overlooked. This study attempts to bridge the gap by employing firm-level data from 2001 to 2019. The findings reveal that the investment slowdown has been asymmetric with respect to the firm size and leverage, particularly in the construction, mining, and service sectors. Furthermore, this study finds that the positive impact of a higher leverage rate on investment is offset amidst a tight monetary phase stance. Nevertheless, the investment rate of over-leveraged firms has slowed because of higher interest payments and increased retained earnings. This leverage impact intensified during a contractionary monetary policy phase. In addition, Tobin's Q emerges as relevant only for investments related to firms in the sectors of manufacturing and nonfinancial services.

Suggested Citation

  • Sahoo, Pravakar & Bishnoi, Ashwani, 2023. "Drivers of corporate investment in India: The role of firm-specific factors and macroeconomic policy," Economic Modelling, Elsevier, vol. 125(C).
    • Handle: RePEc:eee:ecmode:v:125:y:2023:i:c:s0264999323001426
    DOI: 10.1016/j.econmod.2023.106330
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    Cited by:

    1. Yuan, Mingqing, 2023. "Economic Policy Uncertainty and Corporate Investment Dynamics: Evidence from Listed Chinese Firms," MPRA Paper 119992, University Library of Munich, Germany.

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    More about this item

    Keywords

    Corporate investment; India; Over-leverage; Monetary policy; Economic uncertainty;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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