Imports and finance: first empirical evidence for Indian manufacturing firms

Purpose This study aims to investigate the impact of importing on firm profitability in India, an emerging economy, from 2002 to 2019 while also examining how liquidity and debt levels influence this relationship. Design/methodology/approach A two-step methodology that combines propensity score matching (PSM) with fixed-effects models is applied to address selection bias and unobserved heterogeneity. Additionally, a system generalized method of moments estimator is employed to ensure the robustness of the results. Findings The results indicate that imports significantly improve firm profitability across multiple measures, including earnings before interest, taxes, depreciation, and amortization (EBITDA), profit after tax (PAT) and cash profits. Firms with lower liquidity benefit the most from importing. While the impact on EBITDA is consistent across debt levels, high-debt firms experience stronger improvements in PAT and low-debt firms see greater gains in cash profits. Practical implications The findings not only expand our understanding of the financial benefits of importing but also provide practical insights for firms in emerging markets seeking to enhance profitability through international trade. Originality/value This study contributes to the literature by examining the link between importing and firm financial performance, emphasizing profitability. This is a valuable addition, as most prior studies have primarily focused on productivity metrics, often overlooking financial indicators. Additionally, it explores how importing affects profitability across firms with varying liquidity and debt levels, a largely unexplored issue. Advanced empirical techniques ensure precise estimation of the import effect.