Investment Behavior in Post-Crisis Period ? Comparison of Indian Publics and Private Firms

Corporate investment in capital assets plays an important role in the total capital investment in the country particularly in the developing nations like India. The policy emphasis on corporate investment in India has undergone a major change in the last decade in line with the liberalization move. Also, the optimal investment strategy is crucial for business enterprise with the growing turbulence in the economies more importantly after the global financial crisis. Optimal allocation of capital to the right investment projects is of paramount importance to the firm and economy. We are, therefore, motivated to analyze the factors that influence the investment behavior of firms in India and comparison between the public and private firms. We choose a period of 2007-2013 reflecting the after effects of the global financial crisis. The investment behavior has been analyzed with along with the selected variables reflecting cash flow movements, dividend distribution, and firm’s size and leverage aspect of financing total assets using a panel regression methodology considering both fixed and random effects models. We find that in case of private firms, the investment behavior is significant influenced by the firm size leaving the dividend payout, cash flows and leverages. However, investment by public firms is more affected by government policies rather than their own financial variables. We find that this behavior has significantly contributed to the robustness of the economic conditions after the crisis.