Corporate Response to Public Policy Changes: Some Intriguing Aspects

J. Dennis Rajakumar ()
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J. Dennis Rajakumar: EPW Research Foundation

Chapter Chapter 3 in Indian Business Groups and Other Corporations, 2023, pp 29-57 from Springer

Abstract: Abstract This chapter analyzes corporate responses to public policy changes. Using data from National Accounts Statistics and Reserve Bank of India’s Studies of Company Finances, it shows that the response of the private corporate sector to the public policy changes has been in line with the expected outcomes of increasing the sector’s contribution to the growth process. Not only that the sector’s share of capital formation and savings in country’s NDP increased, but the sector aided their growth as well. However, the way corporate sector responded brought about a shift in the composition of corporate income with profit share rising considerably. This was largely attributable to the sector’s increased reliance on shareholders’ fund. With reductions in direct corporate tax rate, the incidence of corporation tax showed an upward trend. Although the sector’s engagement with the rest of the world was facilitated by trade and foreign investment related policies, the sector continued to have lower earnings than their expenditure in foreign currencies. The chapter also reports that market valuation remained higher relative to the replacement cost (that is, Tobin’s Q exceeding unity), implying that corporate investment decisions were driven by market sentiments. This changing character of the private corporate sector has implications for income distribution as well as for achieving stability in growth.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-981-99-5041-6_3

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DOI: 10.1007/978-981-99-5041-6_3

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