Dr J Vineesh Prakash, Assistant Professor, Department of Economics, presented a paper at the 17th East Asian Economic Association (EAEA) convention that was held on August 27-28, 2022 at Sunway University, Kuala Lumpur, Malaysia.The theme of the convention was “Growth, Resilience and Sustainability: Asian Dynamism in an Uncertain World”.
The East Asian Economic Association (EAEA) was founded in 1987 as the first international academic organisation devoted to East Asian economics. The international convention is its annual conference where papers for publication in the Asian Economic Journal are discussed.
Dr Vineesh presented the paper titled Does Business Group Affiliation Enhance Firm-Level Profitability? Evidence from Indian Automotive Component Industry, that addresses the growing competitive and volatile nature of economic sphere by testing the persistence of profit in a highly evolving emerging country environment such as India.
Emerging economies, such as India, confront different challenges than developed economies. The country has witnessed diverse regulatory environments, varying from highly regulated to more liberal ones. The more liberal environment coupled with the entry of overseas players into this realm has a definite impact on the existing industrial structure, thereby creating a volatile, ever evolving competitive environment.
The paper aims to address this issue and seeks to validate the part played by RBV in generating inimitable capabilities in a context-specific setting of a particular industry, i.e., the Indian automotive component industry. It also analyses the part played by business group affiliation in the post-reform era and its influence on profitability.
The paper found that profitability has moderate-to-high persistence and the variables, such as business group firms with overseas investments, export intensity, firm size, labour productivity growth, and past R&D intensity, have a contributory role in enhancing a firm’s profitability. Other variables such as business group affiliation, firm’s age, firm’s leverage, capital intensity, and A&M intensity have found to exercise a detrimental impact on the firm’s profitability.
Social implications of the research
The results, as reported in this paper, have some important implications for different stakeholders like managers, regulators, policymakers, etc. The finding that past R&D intensity has a positive influence on current profitability is significant to managers so they can allocate appropriate resources to fund such projects without many apprehensions.
The proof that labour productivity growth and profitability are positively related implies that managers could further focus on various in-house skill development programs to enhance labour productivity.
The finding of a positive influence of exports on profitability indicates that managers could further explore the external markets to boost up profitability as export markets are reportedly far more rewarding.
The discovery of moderate to high profit persistence has an important implication for regulators in order to facilitate healthier competition among firms. The moderate to high profitability persistence implies that the regulators have not managed to instill a reasonable level of competition in the industry through carefully crafted interventions, thereby facilitating its growth.