Profitability Determinants of Manufacturing Firms in India: The Case of Pharmaceutical and Electronics Industry

Abstract: Based upon the dataset drawn from Centre for Monitoring of Indian Economy (CMIE) Prowess database for a period 2005–2021, this article tests the persistence of profitability and examines the part played by business group affiliation in a context-specific setting of two industries namely, Indian Pharmaceutical and Electronics industry, under a Generalized Method of Moments (GMM) framework. The article finds that the persistence of profitability is high in pharmaceutical industry, while in electronics industry persistence of profitability is found to be low. The article further finds that the following variables such as export intensity, firm size, labour productivity growth and COVID-19 induced lockdown period have a contributory role in enhancing pharmaceutical industry’s profitability, while in the electronics industry only variables like firm size and labour productivity growth have a contributory role. On the contrary, other variables such as R&D intensity, business group affiliation, firm’s leverage and capital intensity have a detrimental role in enhancing pharmaceutical industry’s profitability. While, in the electronics industry variables like R&D intensity, firm’s leverage, firm’s age, and capital intensity exhibited a detrimental role. The role of past R&D intensity was found to be insignificant for both the industries. Business group affiliation was found to have a significant impact only in pharmaceutical industry.

Keywords: Business Group Affiliation, Profitability, Indian Pharmaceutical Industry, Indian Electronics Industry 

JEL Classification Number: L250, L650, L630