Economics Journals| Applied Economics

The IUP Journal of Applied Economics

Ownership and Financial Sustainability of Indian Oil and Gas Enterprises: An Orthogonal Deviation GMM Analysis

Article Details

Pub. Date	: July, 2023
Product Name	: The IUP Journal of Applied Economics
Product Type	: Article
Product Code	: IJAE020723
Author Name	: Rama Krishna Yelamanchili
Availability	: YES
Subject/Domain	: Economics
Download Format	: PDF Format
No. of Pages	: 17

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Abstract

Although financial sustainability has attracted the attention of many researchers, the effect of ownership structure on financial sustainability has been understudied. In this paper we empirically investigate the relationship between ownership structure and financial sustainability of state-owned and private enterprises. We posit that by using debt for investments, the companies would be able to yield higher returns to their equity holders. Our measure of financial sustainability is return to equity holders. To check robustness, we assess return on assets. We use solvency ratios as our regressors. Data for this paper comes from 11 Indian oil and gas companies of which six are state-owned and five are private companies. The data is balanced panel data spread over 10 years during 2013-2022. We apply static Random Effects Model (REM) estimation and dynamic Generalized Method of Moments (GMM) model with orthogonal deviation. The results indicate differences in the effect on financial stability of state-owned and private companies.

Introduction

Financial sustainability is currently a hot topic among corporate leaders. Corporate leaders put every effort into making their firms financially sustainable. Financial sustainability increases long-term shareholder value, i.e., maximization of shareholder wealth. To accomplish this, corporates strive for superior financial performance and a favorable risk-return tradeoff. On the other hand, with regard to State-Owned Enterprises (SOEs), financial sustainability will allow them to cover administrative costs and arrange their activities so as to achieve their missions without depending on the state for funds. Nevertheless, the percentage of SOEs that achieve financial sustainability remains very low. This is due to the fact that the core objective of SOEs is not profit-making but to serve society. However, not-for-profit does not mean loss. There are certain SOEs that report superior performance, and in a few cases, SOEs outperform their private-sector competitors.

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