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Business Group Affiliation, Financial Distress and Corporate Investment-Cash Flow Sensitivity: Evidence from India

In: Indian Business Groups and Other Corporations

Author

Listed:
  • Jitendra Mahakud

    (Indian Institute of Technology)

  • Gaurav Gupta

    (FORE School of Management)

Abstract

This study explores the role of business group affiliation and financial distress on determination of corporate investment policy of the manufacturing companies in India. We find that the firm specific variables like cash flow, Tobin’s Q ratio, sales income, age of the company, financial leverage are the major determinants of corporate fixed investments. Companies affiliated to a business group invest more in the fixed assets than the standalone companies. Group affiliation reduces the impact of cash flow in determining corporate fixed investment. The results indicate that financial distress plays a negative role in the determination of corporate investment. We also find that financial distress does not affect the investment-cash flow sensitivity of the affiliated firms in India. The results are robust across the periods and different types of companies.

Suggested Citation

  • Jitendra Mahakud & Gaurav Gupta, 2023. "Business Group Affiliation, Financial Distress and Corporate Investment-Cash Flow Sensitivity: Evidence from India," India Studies in Business and Economics, in: Achin Chakraborty & Indrani Chakraborty (ed.), Indian Business Groups and Other Corporations, chapter 0, pages 129-173, Springer.
    • Handle: RePEc:spr:isbchp:978-981-99-5041-6_6
    DOI: 10.1007/978-981-99-5041-6_6
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