What Drives Capital Flow In Business Finance Essay

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Date added: 17-06-26

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This capital inflow is also very helpful when it comes to rectifying the savings and investment gap for the capital-scarce economies like that of India. The capital is a very crucial part of the economy as it brings in the modern technology which enhance the development in the financial sectors through the capital inflow . Capital inflow is also crucial for the Capital flows that can bring in an increase in the growth and productivity of those countries which can get enough skilled workers along with a good infrastructure .Capital flows can bring in the governments support to follow the macroeconomic policies . Capital inflow is also crucial for the Capital flows in two major ways: -Portfolio equity investment: This is one parameter where the buying company shares, which have been taken form the stock markets, will be taken without a good control. Portfolio debt investment, is primarily dealing with the covers bonds and long-term borrowing that come form banks and multilateral institutions, such as the World Bank. Here the Capital inflow , takes into consideration the forging long-term ties with firms among the foreign countries.

1.1 Aim of the research:

The basic aim of this research is the M&A and related parameters understanding which has been done by the study of concepts and factors effecting of M&A in the countries like the Indian economy. This has been done in the best possible way so as to relate the concept of M&A to employment, inflation, GDP etc and see its effect on the Indian industry for the same.

1.2 Research objective

The researcher is trying to work on the aspect of M&A and related factor of the economy like employment, inflation, GDP etc in India. The main objectives of the research are given below: Study of the Indian economy and its growth at present FDI growth in India and that of other economies of the world Study of the parameters like employment ,inflation, GDP etc which effect the M&A Role of government in the growth of M&A The advantages and disadvantages of M&A increase in a country like India Effect of M&A in the economies of countries like India

1.3 Hypothesis:

The major two hypothesis that we are assessing here are that : Deep Financial markets in the acquisition countries are positively associated with cross border Mergers & Acquisitions. The difference among the 'Developed to Developed' and 'Developed to Developing' M&A flows.

3. LITERATURE REVIEW

How to get capital inflow:

 When we take into consideration a well-developed and also the extensively surveyed empirical research of Caves 1996; Markusen 1995 which explains the reason of the multinational corporations which are brought up in the overseas in contrast to the export directly or other forms of collaborations like the license of their product or technology. Thus it has been seen as the most persuasive way of explaining given by Holger Görg and David Greenaway who stress on the coexistence of proprietary knowledge and also the role of market failures for protecting that knowledge. Here it is understood that the firm internalizes some of its transactions for the protection of the brand, technology, and also that of its marketing advantages(Wang, Jian-Ye, and Magnus Blomström. 1992) . Here the main motives are based on the existence of a type of firm-specific asset, which could be some kind of technological advantage, which could also entail the innovative management along with the organizational processes and also the new production methods and technologies. Here the most important point then is the choice of a particular location, and its advantages as it is to the local economy by these firms in the same industry. Here the most important point then is the potential transmission channels which will play host economy and have similar characteristics which bring in benefits from spillovers . (Wang, Jian-Ye, and Magnus Blomström. 1992). FDI in china and India: Foreign direct investment in India could would be possible in many a ways. One way could be the parent companies bringing in the equity capital which can be done by purchasing shares of the foreign companies. Another way could be reinvesting the affiliate's earnings. Yet another might be the short- or long-term lending which might happen among the parents company and the affiliates(David Besanko, David Dranove, Mark T. Shanley 1996).. Thus when one has to name a company as a multinational enterprise to be in the category of FOREIGN DIRECT INVESTMENT data, the parent company will have to have a minimum equity stake in the company of about the range of 10 percent in the affiliate. (Levine, R., N. Loayza, and T. Beck. 2000) When we talk of making the foreign affiliates this would include the new production facilities which can also be addressed as Greenfield investments which entail the acquiring and control in the present entities by cross-border mergers or acquisitions(David Besanko, David Dranove, Mark T. Shanley 1996).. Recent years have seen a marked shift toward international mergers and acquisitions. One of them that is that of HP and Compaq have also been covered in the case study in the research. Thus in the case of the developing nations, the equity investments take place as per the percentage of gross national income seen in the present and past years.. Here one more parameter that is Debt flows, of the countries like India have increased since 2002 from zero as seen in the first two years. Also FOREIGN DIRECT INVESTMENT with respect to the GDP has increased so as to becomes the largest source of capital which comes form the developed nations to developing ones like Indian . (Levine, R., N. Loayza, and T. Beck. 2000) Diagram 1 Shown in the chart 1 above is the growing FDI of India since the past 10 years. In the year 1990 to 2005, many a developing economies like that of India and like countries saw a vast FOREIGN DIRECT INVESTMENT inflows which increased form about 18 % to 36%.. Also with this the geographical composition in the structuring of the FOREIGN DIRECT INVESTMENT took a turnover in the past 40 yrs.. Here it can be noticed that Latin America's share in the FOREIGN DIRECT INVESTMENT fell with a huge margin of 52 percent as it was in the 1970s to 33 percent in 1990s.If we talk of the continent of Asia, its share of inflows increased from 25 % to 60 % in that same time period. (Levine, R., N. Loayza, and T. Beck. 2000) Privilege given to countries like China and India in terms of FOREIGN DIRECT INVESTMENT shows that there is a shift on the higher side of the source of development finance. Thus the capital inflows make an effect on the economy of the receiving countries' and their economic performance which will entail their trade, savings, stability, investment along with their growth.

FDI in developing Nations:

Korea is another country which has shown tremendous progress in its FDI. In the Republic of Korea the FDI got raised from $5.2 billion in 1998 to $10.2 billion in 2000. This country that is Republic of Korea has done well in the field of FDI where it is ahead of many developing in the ASEAN arena.It but could not leave behind in progress countries like Hong Kong (China) and China. According to FDI figures the Korean economy, has made a good performance.. It but still is lagging behind form Malaysia, Thailand, China, Hong Kong (China), and Singapore .Most of the FDI is due to the currency devaluation which brought in a good business environment.( World Investment Report 2002) Viet Nam also is improving in foreign direct investment (FDI) with a figure of 5.8 billion USD in 2005.this is the highest in last eight years. Here the huge four billion USD is a result of the 771 recently licensed FDI projects .In 2005 Viet Nam's foreign investors saw a whooping , revenue of , 20 billion USD .

4.  METHEDOLOGYÂ

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Here the methodology of the research is based on the gravity model as is relation to the factors of  GDP, Employment, Inflation (WPI), Industrial Production and Market Capitalization of stocks and FDI as major factors of capital inflow.

3.1Research Design

Here this approach of the research design which will be based on the aim the FDI research will be crucial for the study. This will help the researcher to clearly define the aim of the research and then base the research design, on that basis as and when required. . Here I have taken up the research on a particular topic which is the M&A and its effects on the Indian economy capital inflow which has been in many ways been important and needs the best and suitable methods for its analysis and progression.

3.2 Research Purpose

Here one factor is very important. This parameter is the Time Horizon which is critical for the researcher for the knowledge of the right type of research which has to be done in a fixed time limit . . When we list the research ,it could be of primarily two types which pertain to the factor of time horizon studies .These are the cross-sectional and longitudinal studies. When we take the Cross-sectional it entails a situation of time ,at the same time the longitudinal study looks at the series of events in a long period of time. Survey: The strategy of survey has been resorted to study the different industries in India where capital inflow is coming from the M&A.

3.3 Case Study:

It has been seen and critically analyzed that case study of India and its economy was a vital part to be studied here. Robson (2002) explains the case study as a "strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence."

3.4 Data collection :

Here the relevance of and the importance of the factors like the primary and secondary data also becomes important form the different sources:

1. Primary Data :

It has been seen and critically analyzed that the primary data was collected form the employees of various industries which have been giving crucial information for the further quantitative analysis of the factors of  GDP, Employment, Inflation (WPI), Industrial Production and Market Capitalization of stocks and FDI as major factors of capital inflow.

2. Secondary research:

The secondary data has been taken form many a sources like journals internet and books.

3.5 Validity and Reliability:

"Validity is defined as the degree to which the researcher has measured what he has set out to measure." Here when we talk of the quantitative data one also has to see to it that its is the valid data. The regression analysis had to take factors which were relevant to the aim of the research for making this research a research with validity of the information . Here the relevance of and the importance of the factors like the reliability and validity of the research has been taken into account carefully. (Yin. R.K (2003)

3.6 Limitation of the research

There is no major problems as such except for the fact that some of the Macro economic factors like employment etc. did not cover the whole period of study i.e. from 1990-91 to 2008 - 09.

6. CONCLUSION

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When we talk of the distance between or the gap of the globe in terms of the rich and poor countries this would basically entail to the financial along with the physical assets that bring in the country's wealth.. Many a countries with developed economies have a larger amount of the capital as compared to countries like India ,Pakistan etc. This is also because countries like Japan and Korea are economics which have more advanced technologies. Thus when we have to judge a country on the parameter of economic advancement the counties which are under developed are the ones who have to get more capital and thus enhance themselves technologically. Many a emerging economies which have tried to enhance the capital formation have been unsuccessful. This is also because the globalization, is today very much reliant on the foreign capital. When we talk of the capital flows of the developing economies it has increased from a whooping $104 billion to a huge $472 billion in 2005.The idea of enhancement through foreign capital is great as this is one way to get the enormous benefits for the developing nations like India.
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