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Determinants of firm-level investment in India: Does size matter?

Author

Listed:
  • Parul Bhardwaj

    (Confederation of Indian Industry)

  • Abhishek Kumar

    (Indira Gandhi Institute of Development Research)

Abstract

The study estimates the dynamic panel version of augmented neoclassical investment model using ARDL specification. There are evidences in support of interest rate and credit channels of monetary transmission, both in the short as well as in the long run. Our evidence of interest rate channel is robust and is not driven by outliers on the basis of size, investment to capital and cash flow to capital ratio. We also correct for the presence of financially distressed and constrained firms. The heterogeneous impact of cash flow to capital stock ratio on investment spending of small and large firms provides further evidence in favour of working of credit channel.

Suggested Citation

  • Parul Bhardwaj & Abhishek Kumar, 2019. "Determinants of firm-level investment in India: Does size matter?," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-016, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2019-016
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2019-016.pdf
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    References listed on IDEAS

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    Cited by:

    1. Pravakar Sahoo & Ashwani Bishnoi, 2021. "Investment Slowdown in India: Role of Fiscal-Monetary policy and Economic Uncertainty," IEG Working Papers 439, Institute of Economic Growth.
    2. Pravakar Sahoo & Ashwani Bishnoi, 2021. "Drivers of Corporate Investment Slowdown in India: A Firm Level Analysis," IEG Working Papers 441, Institute of Economic Growth.

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    More about this item

    Keywords

    Monetary policy; Investment spending; Dynamic System GMM; Interest rate channel; Credit rate channel;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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