What Determines Profitability in the Indian Automobile Industry?

Abstract

This study tends to examine the firm-level profitability determinants of Indian automobile and ancillary industry which is recognised for its global competitiveness. The study uses recent dataset to investigate the firm-level profitability determinants in the Indian automobile and ancillary industry and records the effect of shifts in profitability due to change in economic environment. This study intends at using real financial balanced panel data for a period 1999–2019 and applies the two-step system generalised method of moments regression model with robust standard errors. The study has found that lagged profitability, marketing and advertising intensity, firm’s market power and operational efficiency have exercised positive impact on firm-level profitability. Negative and statistically significant impact of raw material import intensity and export intensity highlights the need of planning and implementation of appropriate investment strategies. The findings of this study suggest that firms should pay more attention to optimise their operating expenditures, marketing and advertisement expenditures and expand their market power as a part of their survival and growth strategy. JEL Code: L25