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This article applies the semi-parametric method to analyse the effects of economic reforms and some other factors on changes in the distribution of profitability of corporate firms in India. Comparing the two post-reform years (1994 and 2010) with the pre-reform year (1990), we observe a rightward shift in the distribution of profitability implying an across-the board increases in profitability of all firms after reforms. Two factors that explain the change are changes in interaction between capital structure and business group-affiliation, and changes in other firm characteristics such as size, age, growth opportunities and market share, which played the major role in explaining the changes in distribution of profitability of firms measured in terms of Tobin's q as well as Return On Assets (ROA). Two firm characteristics, namely size and market share, played a major role in explaining the changes in distribution of profitability of firms measured in terms of ROA but not in terms of Tobin's q. Our most important finding is that, profitability has increased both in the business group-affiliated firms and the stand-alone firms. Thus, our findings infer that, encouraging business group-affiliation is not necessarily a remedy to improve firm performance in an emerging market like India.
