Firms, Markets, and the State: Institutional Change and Manufacturing Sector Profitability Variances in India

Abstract

W e assess absolute magnitudes, relative importance, and intertemporal differences in firm, industry, and business group effects in explaining the variance of Indian manufacturing firms' profitability over the 26-year period between 1980-1981 and 2005-2006. We stratify the data by institutional phases to place emphasis on the role of changing institutional factors in an emerging economy: first as a regime of command and control transits to partial liberalization (between 1985 and 1991) and then to an open competitive market economy (after 1991); thereafter, financial reforms occur, followed by legal reforms. We find that liberalization significantly affects and alters the relative importance of firm, industry, and group effects. Firm effects are always important, whether in a command and control regime, with benefits accruing from protectionism and political rent seeking, or in liberalized periods where firm-specific capabilities and dynamic efficiencies are valued. Industry effects are significant in the command and control regime, when mandatory sector placement benefits firms in industries with superior profits, and in the liberalized period, when the choice of the industry segment in which to operate is open to firms. Thereafter, industry effects dissipate. Business group effects matter in explaining profitability variances. Group effects' magnitudes, however, do not change significantly over time.

Revisiting the firm, industry, and country effects on profitability under recessionary and expansion periods: A multilevel analysis

“…The differences between emerging and developed economies are so profound that they can only result in unequal growth opportunities for firms (Majumdar and Bhattacharjee, ; Peng, ; Tong et al , ). Indeed, Diaz‐Hermelo and Vassolo () proposed that persistent superior economic performance is more difficult for firms in emerging economies.…”

“…In such conditions, firms tend to revert back on their idiosyncratic competencies and strategies, rather than being reliant on informal markets and affiliations (Chakrabarti et al, 2007). Indeed, Majumdar and Bhattacharjee (2014) showed that the contestable climate of institutions in transition inspire idiosyncratic capability development and new firm strategic initiatives.…”

Organizational Landscape in India: Historical Development, Multiplicity of Forms and Implications for Practice and Research

“…Emerging economies such as China and India are unique and hence are valuable contexts for research (Luo and Tung, 2007). While a number of interesting studies have been conducted leveraging the unique context of China (e.g., Child, 1996;Nee, 1992;Luo and Peng, 1999;Peng and Luo, 2000;Tsui et al, 2004), India's potential as a valuable research context is yet to be fully realized (Chari and David, 2012;Khanna and Palepu, 2000;Majumdar and Bhattacharjee, 2014). A broad objective of the India special issue in Long Range Planning is therefore to highlight how India constitutes a valuable context to address a number of interesting research questions.…”

Performance Impact of Temporal Strategic Fit:Entrainment of Internationalization with Pro‐Market Reforms

“…Figure 2 shows indicative trajectories of broad-scope reforms in India, comprised of product market reforms (starting in 1991), capital market reforms (starting in 1999-2000) and legal reforms (Chari & David, 2012;Popli & Sinha, 2014). Each set of reforms represents a shock (Majumdar & Bhattacharjee, 2013) and is followed by more progressive reforms.…”