Company Performance, Investment Decision, and Cyclical Sensitivity: A Dynamic Estimation on Company Microdata

摘要

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.