The Indian manufacturing sector: finance, investment and performance of firms

Manmohan Agarwal () and Rumi Azim ()
Additional contact information
Manmohan Agarwal: Centre for International Trade and Development, Jawaharlal Nehru University
Rumi Azim: Centre for International Trade and Development, Jawaharlal Nehru University

Working Papers from National Institute of Public Finance and Policy

Abstract: The paper tests the hypothesis that financial stress caused the stagnation in the manufacturing sector, using firm level data on a sample of 804 large, mid, and small cap manufacturing firms for 15 years from 2005 to 2019. We analyse the trend in the financial indicators and estimate dynamic panel data regression using a two-step GMM method. We do not find substantial for financial stress to be a major determinant of the investment slowdown in these firms. Our results support the Pecking order theory, particularly for larger firms. In addition, we find that the declining growth in sales is a major determinant in explaining the slowdown in fixed investments and profits. For small cap firms, the size of the firms also matters. We therefore suggest that measures to increase demand can help in reviving the sales growth of firms and thereby private investments and profits.

Keywords: Capital structure; Investment; Profitability; Manufacturing; India (search for similar items in EconPapers)
Pages: 35
Date: 2021-08
New Economics Papers: this item is included in nep-cfn, nep-cwa, nep-eff, nep-fdg, nep-isf and nep-sbm
Note: Working Paper 339, 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.nipfp.org.in/media/medialibrary/2021/08/WP__339_2021.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:npf:wpaper:21/339

Access Statistics for this paper

More papers in Working Papers from National Institute of Public Finance and Policy
Bibliographic data for series maintained by S.Siva Chidambaram ( this e-mail address is bad, please contact ).