Capital expenditure and persistence of firm performance: an empirical study for the Indian automobiles industry

Abstract

The purpose of the present work is to analyse the dynamic relationship between capital expenditure (CAPEX) intensity and firm performance for the automobiles industry in India. A dynamic panel methodology has been deployed. A sample of 95 listed automobiles firms in India for the period 2005 to 2014 has been considered. The results show that there exists a negative and persistent relation between performance and CAPEX. Also, a moderate level of persistence in the firm performance is observed for the sample companies. The results also indicate a possible U-shape relationship between CAPEX and firm performance. The study highlights the need for proper identification of the appropriate capital expenditure levels. This may lead to positive benefits for the Indian automobiles firms in the long-run.