Monetary policy and corporate investment: evidence from India

Abstract

Purpose

This study aims to investigate the impact of quantity-based and price-based monetary policy on corporate investment in India. Also the study investigates the impact of firm-level factors on corporate investment under quantity-based and price-based monetary policy.

Design/methodology/approach

The study is based on sample of 3,782 non-financial Indian firms (45,238 observations) and the data has been collected for a period 2000–2023. The study applies instrument variable approach to arrive at the results.

Findings

The study finds that both quantity-based and price-based monetary policy significantly affects corporate investment of firms and the transmission of monetary policy to corporate investment is constrained by firm-specific factors. This paper find that firm-specific factors play a significant role in transmitting the effects of both quantity-based as well as price-based monetary policy respectively and such results have also been witnessed across manufacturing and non-manufacturing sectors.

Originality/value

To the best of the authors’ knowledge, this is the first study in the Indian context that examines the impact of quantity-based and price-based monetary policy on corporate investment.

Citation

Bagow, S. and Altaf, N. (2024), "Monetary policy and corporate investment: evidence from India", Journal of Financial Economic Policy, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFEP-04-2024-0103