The IUP Journal of Accounting Research and Audit Practices:
Microeconomic and Macroeconomic Determinants of Efficiency: Evidence from Indian Industrial Machinery Sector

Article Details
Pub. Date : July, 2018
Product Name : The IUP Journal of Accounting Research and Audit Practices
Product Type : Article
Product Code : IJARAP31807
Author Name : Sumit Kumar Maji
Availability : YES
Subject/Domain : Finance
Download Format : PDF Format
No. of Pages : 13



Industrial machinery industry is one of the most important drivers of growth of the manufacturing sector in the Indian economy. The importance of this industry can be understood from the fact that it produces a wide range of machinery that is at the core of other manufacturing industries in India. Moreover, this sector can contribute towards generating foreign earnings and employment. There are 97 listed companies in this segment, which makes this sector highly competitive. Thus, the firms have to be efficient in order to endure in the long run. The present study seeks to evaluate the efficiency of the 43 (44.33%) select industrial machinery firms for the period 2001-02 to 2014-15 with the help of Stochastic Frontier Analysis in the first stage. In the second stage, the determinants (both microeconomic and macroeconomic) of such firm level efficiency are explored using Panel Censored Tobit Regression Model. The results of the study show that leverage, size, openness, age and inflation are the major determinants of the efficiency of the industrial machinery firms operating in India during the period of study.


The very objective of the firm is to maximize its value, and to a great extent, the maximization of the wealth of the shareholders is conditioned upon the level of efficiency of the firms at which it operates. In the present age of cut-throat competition, it is inevitable to manage the business with the highest degree of efficiency to survive in the long run and the productive efficiency of the firms gets largely affected by the firm-specific factors and major macroeconomic factors (Sufian, 2009). The level of competition between the firms belonging to Indian manufacturing sector is very high as evidenced by the existence of a large number of firms in each and every manufacturing segment. With the emergence of the liberalization measures in India in 1991, such competition has been more intensified. Effective and efficient utilization of the available scarce resources is of utmost importance for achieving corporate excellence. Effective usage of the available human capital, technology, size or scale and managerial potential have direct impact on the cost-effectiveness of the firm, profit and ultimately on the market value of the firm.