Abstract
The article investigates the endogenous relationships between company investment decisions and performance, given macroeconomic cyclical fluctuations. The research employs annual company-level microdata from the Estonian Business Registry from 1996 to 2010, which encompass two major crisis episodes in 1998–99 and 2008–9. The reverse causality issues are handled with dynamic generalized method of moments (GMM) estimators, and the robustness of the study is backed by multiple definitions of performance as a dependent variable in both the difference and system GMM procedures. The investment decisions of a company are divided into short-term investments in current assets and long-term productivity-enhancing investments in tangible and intangible assets. Several noteworthy patterns are discovered for the impact of a company’s investment decisions conditioned on macroeconomic fluctuations in its performance, eventually having an impact on the company’s financial strength and sustainability.
Notes
1 Firm investments can be divided into three types: investments in current assets, in fixed assets, and in human capital. In the first two, the investment intensity can easily be derived from standard financial accounts, but the third may be less visible.
2 Shroder (2013) also argues that the US monetary/fiscal remedies for maintaining the flow of credit during deep recessions have been successful, whereas the measures aimed at stabilizing aggregate demand have remained insufficient.
Additional information
Notes on contributors
Kadri Männasoo
Kadri Männasoo, [email protected], corresponding author, is a professor in the department of finance and economics at the Tallinn University of Technology. Her recent research agenda relates mainly to companies’ investment patterns, including R&D investments, and their implications for long-term growth.
Peeter Maripuu
Peeter Maripuu is a Ph.D. candidate in department of finance and economics at Tallinn University of Technology. His recent research relates mainly to companies’ investment patterns and their implications on companies’ sustainability.