Abstract
Theoretical and empirical studies have focused on discretionary investments such as research and development (R&D) and advertisement as value-creating activities. This empirical research article examines the determinants of the discretionary investment policy of food sector firms in India. The study aims to analyze the impact of financial policies and firm characteristics on the discretionary investment strategy of the food industry firms. The article uses the partial least squares structural equation modeling (PLS-SEM) to understand the drivers of discretionary investment policy of food sector firms. The study finds that investment policy of firms is a major determinant of profitability of food sector firms. Higher investments in capital expenditures and working capital result in higher profitability. Management efficiency significantly influences firm profitability. The results suggest that riskier firms in food sector might focus on R&D investments as a strategy to generate more cash flows. Size of firm is negatively related to R&D intensity. Smaller firms in food sector tend to invest more in R&D. The study does not provide evidence to suggest that profitable firms invest more in R&D activities.
Highlights
Firms undertake innovation to create value for stakeholders
The study assumes that the discretionary investment policy of food sector firms in the form of research and development (R&D) expenses and advertising expenses is a function of critical financial characteristics of the firm such as size, growth, financial leverage, risk characteristics, investment decision policy, asset utilization efficiency, cash flow measures, and profitability
This study explores the determinants of discretionary expenses using PLS method
Summary
Firms undertake innovation to create value for stakeholders. Sustainable process-driven innovation transforms ideas into vital intellectual property which leads to shareholder value creation through increased revenues. It can be stated that R&D investment strategy of food sector firms are a function of profitability, size, liquidity, leverage, cash flow, and other external characteristics. The study assumes that the discretionary investment policy of food sector firms in the form of R&D expenses and advertising expenses is a function of critical financial characteristics of the firm such as size, growth, financial leverage, risk characteristics, investment decision policy, asset utilization efficiency, cash flow measures, and profitability. It is assumed these financial characteristics determine the R&D investment policy of food-based firms. These firms by no means represent the whole food industry but the availability of firm-level data restricted the study to confine with the existing sample which remains the limitation of the study
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
