AMN / WEB DESK
The Reserve Bank of India has observed that Foreign Direct Investment (FDI) positively impacts the profitability of FDI-receiving companies.
In the paper ‘Impact of Foreign Direct Investment on Profitability – Evidence from the Indian Corporate Sector’ published yesterday, RBI has presented this conclusion.
The paper says, the size of the company is positively associated with profitability, suggesting that larger FDI-receiving companies are likely to have higher profitability.
This is because, in larger companies, the management is often more focused on preserving or improving its reputation, which helps in attracting greater FDI.
Hence, FDI plays a greater role in enhancing the profitability of larger companies as compared to smaller companies.
The paper also says, older companies are likely to have lower profitability.
This is because FDI in younger companies provides the much-needed stable funding, and technological know-how which can make their operations more cost-effective, and thereby enhances profitability.