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Profitability Study of Indian Pharmaceutical Industry: A Co Integration Approach


Affiliations
1 Department of Management Studies, Maulana Azad National Institute of Technology, Bhopal, Madhya Pradesh 462 003, India
 

Profitability (ROA) study of the Indian pharmaceutical industry has been studied under dynamic conditions to avoid endogeneity issues. Vector Error Correction Mode (VECM) results suggest short-run and long-run dependency of profitability on working capital intensity, research & development intensity, and physical capital intensity. Physical capital intensity exhibited a negative impact on ROA. Auto Regressive Distributed Lag (ARDL) results suggest short-run and longrun positive dependency on research & development intensity, working capital intensity, and leverage on profitability. Granger causality with two lags from fixed assets invested on net profits along with a strong positive correction suggests a longer payback period. This sector will require continuously high investments in physical capital intensity, operating capital, and research & development. Financing through debt can be undertaken with profitability but with prudence.

Keywords

Export intensity, Physical capital intensity, Leverage, Research and development intensity, Working capital management.
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  • Profitability Study of Indian Pharmaceutical Industry: A Co Integration Approach

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Authors

Nirbhay Mahor
Department of Management Studies, Maulana Azad National Institute of Technology, Bhopal, Madhya Pradesh 462 003, India
Amit Banerji
Department of Management Studies, Maulana Azad National Institute of Technology, Bhopal, Madhya Pradesh 462 003, India

Abstract


Profitability (ROA) study of the Indian pharmaceutical industry has been studied under dynamic conditions to avoid endogeneity issues. Vector Error Correction Mode (VECM) results suggest short-run and long-run dependency of profitability on working capital intensity, research & development intensity, and physical capital intensity. Physical capital intensity exhibited a negative impact on ROA. Auto Regressive Distributed Lag (ARDL) results suggest short-run and longrun positive dependency on research & development intensity, working capital intensity, and leverage on profitability. Granger causality with two lags from fixed assets invested on net profits along with a strong positive correction suggests a longer payback period. This sector will require continuously high investments in physical capital intensity, operating capital, and research & development. Financing through debt can be undertaken with profitability but with prudence.

Keywords


Export intensity, Physical capital intensity, Leverage, Research and development intensity, Working capital management.

References