Determinants of Profitability in the Indian Inorganic Chemical Sector: An ARDL Empirical Analysis

This research study into the impact of various factors on the profitability of India's crucial inorganic chemical industry, examining the interplay between a company's profitability and key variables such as Research and Development Intensity (RDI), net fixed asset turnover ratio, leverage, Export Intensity, and net working capital requirement. Utilizing data from the Prowess financial database spanning from 1998 to 2021, using the autoregressive distributed lag (ARDL) method, to assess both the short-term and long-term dynamics between return on assets (ROA) and these independent variables. Findings from the ARDL analysis reveals a short-term negative impact of RDI, net fixed asset turnover ratio, and leverage on ROA, whereas export intensity and net working capital requirement positively influence profitability. Over the long term, RDI continues to exert a negative effect on ROA, whereas positive impacts are observed from export intensity and net working capital requirement on profitability. The empirical investigation within the inorganic chemical sector, this study sheds light on how strategic financial management of factors such as RDI, asset turnover, leverage, export intensity, and working capital can significantly bolster a firm's financial performance, offering valuable insights for companies use to refine their strategies and enhance profitability.