Purpose – The purpose of this paper is to study the efficiency of capital allocation, across levels of ownership, in the aftermath of pro‐market reforms in India. Design/methodology/approach – The paper measures investment efficiency using the accelerator principle and examines the effect of ownership type on capital allocation. Findings – No significant improvement in capital allocation during the period studied is found. The findings suggest firms face significant costs in adjusting their capital stock. Originality/value – The paper uses unique data to estimate the elasticity of capital with respect to output.
Journal of Financial Economic Policy – Emerald Publishing
Published: May 31, 2011
Keywords: Capital; Cost allocation; Economic reform; Corporate ownership; India