Working Paper: Determinants of Firm-Level Investment in India: Does Size Matter?

NO: WP-2019-016

AUTHOR: Parul Bhardwaj and Abhishek Kumar

TITLE: Determinants of Firm-Level Investment in India: Does Size Matter?


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.

Keywords: Monetary policy, Investment spending, Dynamic System GMM, Interest rate channel, Credit rate channel

JEL Code:  E4, E5, E6