Does Business Group Affiliation Enhance Firm-level Innovation? Evidence from Indian Automotive Components Industry

Abstract

This article examines the determinants explaining the innovative behaviour of the firms operating in the Indian automotive components industry. The study uses an unbalanced panel of 114 firms operating in the components industry compiled from the Centre for Monitoring of Indian Economy database for the period 2000–2018 and employs the panel Tobit model estimated with the maximum likelihood estimator. The finding of the estimated models finds that various explanatory variables such as firm’s size, age, technology imports, overseas investment and affiliation to a business group exercise positive and significant effects on enhancing this industry’s technological capabilities, while other variables such as market share, firm’s leverage and business group affiliates with investments abroad have negative and significant effects. All these findings suggest that being outward-oriented in terms of overseas investments and being affiliated to a business group creates a significant difference in respect of the innovative behaviour of the firms in this industry. JEL Codes: O320, L620