Effect of Demonetization on Advertising, Research & Development and Human Resource Intensities and its Impact on Firm’s Performance

Abstract

Investing in advertising, research and development (R&D) and human resource management and development (HRMD) enabled firms to achieve competitive advantage and improve profitability. Indian economy witnessed the event of ‘Demonetization’ in November 2016 that created short term cash shortage. The study aimed at understanding the relationship of advertising, R&D and HRMD intensities on firm performance (proxied with return on assets). The effects of demonetization on these variables were explored. Financial data of listed Indian firms, over the years 2014–2019 was collected from CMIE Prowess database for the analysis using fixed effects panel-data regression. Results indicated significant positive relationship between R&D and advertising intensity with firm’s performance pre-demonetization, while reduced effect post-demonetization. HRMD intensity had a negative relationship pre as well as post-demonetization on firm’s performance. The results provided insights for managers and decision-makers on the impact of cash resource allocation on R&D, HRMD and advertising expenditures in creating firm value.