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Using a large panel of firm-level data, this paper provides an analysis of how inflation shocks in the Baltics between 1997 and 2020 affected total factor productivity (TFP), gross profitability, and net fixed investment in nonfinancial sectors. First, we find that inflation and inflation volatility had mixed effects on TFP growth, profitability and net fixed investment spending in the first year as well as over the medium term, albeit at a dissipating rate. Second, focusing on subsamples, we find that inflation shocks had differential effects on large versus small firms. Third, we explore sectoral heterogeneity in how firms responded to inflation shocks and observe significant variation across tradable and non-tradable sectors. Finally, estimates from a state-dependent model suggest that firms’ response to inflation shocks varied with the state of the economy. The results suggest that nonfinancial firms in the Baltics have been agile in adjusting to inflation shocks, possibly by either transferring higher production costs to consumers or substituting inputs. Given the differences in the level and nature of the recent inflation shock and the sample period on which our analysis is based, empirical findings presented in this paper might not necessarily apply to the latest bout of inflation in the Baltics. [ABSTRACT FROM AUTHOR]

Using a comprehensive dataset of listed firms and detailed turnover data on top provincial leaders in China, we explore how political uncertainty affects a firm's portfolio choice. During political turnover, a firm decreases its fixed investment and increases its financial asset investment, but the promotional effect of political turnover on the financial asset investment of politically dependent enterprises (PDEs) is not obvious. We explain this finding through the mediating effect of stock price informativeness and degree of political dependence. Our results suggest that non‐PDEs rely on market information to make investment decisions, whereas PDEs are also affected by political resource information. [ABSTRACT FROM AUTHOR]

This paper applies panel data techniques to Austrian non-financial listed companies for investigating the managerial discretion hypothesis and asymmetric information. We analyse full population of non-financial companies listed on the Vienna Stock Exchange from 2007-2020. Equipment investment is susceptible to cash flows, providing evidence that over-investment leads to returns on investment lower than cost of capital. CFi,t-1/Ki,t-1 has a strongly positive effect in family-owned companies' constraints. Cash constraints prevent firms from attaining optimal investment level. CFi,t-1/Ki,t-1 positively affects investment providing strong evidence that state-owned companies' managers exercise discretion while investing cash flows in sub-optimal projects. The effect of voting rights (VR) of ultimate shareholders on performance is an inverted U-curve with turning point at 49.8% VR concentration. Beyond this point downward slope provides strong evidence of entrenchment hypothesis, with negative entrenchment effect dominating the incentive effect. Ultimate shareholders' expropriation is detrimental for minority shareholders. Large shareholders' detrimental behaviour slows down growth of financial markets. [ABSTRACT FROM AUTHOR]

The main aim of this article is to critically examine the interactions between Islamic banking and economic growth in Libya, also to find whether it influences economic growth and transforms the operation of the financial system and trade activities to enhance the Libyan economic sector in the long-run. The author discovered that in the short-run only fixed investment that cause Islamic banking to develop, where as in the long-run, there is evidence of a relationship between Islamic banking and fixed investment with a promising chance to strategically support gross domestic product (GDP) in Libya. Both qualitative and quantitative data collection methods were used while undertaken this research and the primarily results indicated that Islamic banking is the way forward to increase the turnover and profit margin in the short run. Meanwhile, the final results have revealed the significant relationship between Islamic banking and economic in the long run. However, more studies are needed to discover the unknown about the impact of Islamic banking on the Libyan economy. [ABSTRACT FROM AUTHOR]

The global economy is in the midst of an unprecedented slump caused by the coronavirus pandemic. This systemic risk like no other at a time of record-breaking debt levels, especially among non-financial firms across the world, could exacerbate corporate vulnerabilities, deepen macro-financial instability, and cause long-lasting damage to economic potential. Using data on more than 3.7 million non-financial firms from 58 countries during the period 1997–2019, we develop a two-pronged approach to investigate the relationship between corporate leverage and fixed investment spending. The empirical analysis, robust to a battery of sensitivity checks, confirm corporate leverage is highly vulnerable to disruptions in profitability and cash flow at the firm level and economic growth at the aggregate level. These findings imply that corporate debt overhang could become a strenuous burden on non-financial firms, especially if the COVID-19 pandemic lingers and global downturn becomes protracted. [ABSTRACT FROM AUTHOR]

The purpose of this study is to assess the three-factor production functions describing the dependence of the small enterprises (SEs) and microenterprises, which include turnover on the wages of their employees, investments in fixed capital and the entrepreneurial capital of a particular region. The authors propose the indicator that characterizes the level of entrepreneurial capital — the number of employees of large enterprises located in the respective regions. This study is based on the empirical spatial data specifying the activities of employees in all SEs and microenterprises, as well as a number of large enterprises. The official statistical information includes observations on business activity of 1,449 SEs and microenterprises in 80 Russian regions in 2015. The research determines the factors influencing the turnover of enterprises, proves the high quality of the source data approximation using the three-factor production functions and confirms the need for an increased number of small and microenterprises for the Russian regions' economy. The authors discover tools for the evaluation of production functions, which are of academic and practical importance. They can be used in studies of the regions' entrepreneurial sectors, for monitoring the efficiency of resource use, and the rationale for the entrepreneurship development programs. [ABSTRACT FROM AUTHOR]

This article is based on the results of a comprehensive study of the construction industry in Novosibirsk Oblast. Its purpose is to develop recommendations for encouraging investment in the construction of housing in the region and to propose ways of exiting the crisis currently facing the construction industry. [ABSTRACT FROM AUTHOR]

The purpose of this paper is twofold, first to examine the investment-cash flow sensitivity in fixed and working capital investments and second to determine the role played by working capital in smoothing fixed investment. The study is based on secondary financial data of 254 Indian manufacturing firms obtained from CAPITALINE database, pertaining to a period of 10 years. This study employs two-step AB difference GMM estimator proposed by Arellano and Bond (Rev Econ Stud 58(2):277-297, 1991) to arrive at results. Results of the study confirm that working capital investment is excessively sensitive to cash flow shocks. Further we found that both fixed and working capital investment in constrained firms are more sensitive to cash flow shocks when compared to unconstrained firm. Furthermore, the fixed investment smoothing is higher in case of constrained firms. The study is a pioneer in testing whether fixed and working capital investments are sensitive to cash flow shocks and how investment-cash flow sensitivity changes with financial constraints of Indian firms. In addition, this study tends to examine the role of working capital in smoothing the fixed investment. Furthermore, this study explains this phenomenon in more detail by focusing on investment smoothing across constrained and unconstrained firms. [ABSTRACT FROM AUTHOR]

Purpose The purpose of this paper is to provide new insights about investment-cash flow sensitivities (ICFS) as a representative of financial constraints, by examining panel data consisting of 288 listed firms in Pakistan.Design/methodology/approach This study uses a panel data methodology and first difference generalized method of moments to control the problems of heterogeneity and endogeneity. By five different criteria, estimations are made for full and pre-classified sub-samples. Sargan test and Arellano-Bond serial correlation statistic are used for identification and validation of instruments and model.Findings According to the results, the ICFS has increased monotonically with the level of financial constraints. Further, the results depict that ICFS for the constrained group is much higher as compared to the unconstrained group. Overall, the result illustrates positively significant ICFS.Practical implications This study confirms signs of imperfections in the capital market, which leads to financial markets inaccessibility preceded by high under-investment costs and low social and economic development. Thus, proper policy designing and instigation are necessary for the subsidies, taxation, and foreign direct investment and later for financial market development and promotion of private corporate investment.Originality/value Previous studies have mostly focused on developed countries where large listed companies work in well-developed financial markets and do not face severe financial constraints because of the greater market integration (Bekaert et al., 2011, 2013) and superior investor protection laws (Djankov et al., 2008; La porta et al., 1998). However, this study focuses on listed companies from the emerging Pakistani market, which will bring forth the interesting aspects of ICFS and will enhance the existing literature effectively. [ABSTRACT FROM AUTHOR]

We examine whether board attributes, including board age, gender diversity, board independence, CEO duality, and board size, explain investment herding by using a panel of 1155 Chinese-listed non-financial firms during 1999–2004. Investment herding is measured by the absolute value of the difference between the investment ratio of firmiin yeartand the average investment ratio of other firms in the same industry excluding firmiin year (t−1). We find that corporate boards that have more young directors, more female directors, more independent directors, a CEO who is not the chairman of the board, and a larger board are more likely to make investment decisions closer to their peers in the same industry. We also provide evidence that investment herding is positively related to firm performance, suggesting that investment herding does not necessarily hurt shareholders in the Chinese context. We identify that herding in making investment decisions is a possible channel through which some board attributes, such as board age diversity, gender diversity, and board independence, contribute to firm performance. [ABSTRACT FROM AUTHOR]

This study examines the impact of shocks to exchange rate and output uncertainty (volatility) on real private fixed investment (FI) in Canada, Germany, the United Kingdom and the United States. The analysis is conducted using vector autoregressive models that contain the price level, real output, the volatility of real output, the real exchange rate, the volatility of the real exchange rate, an interest rate and FI. The results yield important public policy implications with regard to the impact of output volatility of FI. Our analysis indicates that volatility shocks, measured as output volatility or exchange rate volatility, do not have a significant impact on FI for any country in our study. [ABSTRACT FROM AUTHOR]

We examine how state-ownership affects financial constraints on investment of Chinese-listed firms during 1999–2008. We find that although an average sample firm experiences some degree of financial constraints, state-ownership does not necessarily help in reducing the firm's financial constraints on investment. Further evidence shows that state-ownership does not lead to more borrowing from the Chinese banking sector, implying that state-ownership does not necessarily reduce the firm's financial constraints via the state-controlled banking sector. We consider not only the standard factors in the investment equation, but also the firm's equity financing behaviour explicitly. The result is robust to both the conventional proxy for financial constraints, i.e. the investment–cash-flow sensitivity, and a recently developed proxy for financial constraints, i.e. the KZ index. Our results suggest that China's corporatisation movement is effective in that soft budget constraints once enjoyed by former state-owned enterprises have been removed along with the progress of corporatisation. These firms, although still state-involved, can be seen as modern corporations operating in a market environment. [ABSTRACT FROM AUTHOR]

This paper sheds new light on the estimation of the long-run elasticity of the demand for business capital-for a measure of capital that includes both equipment and structures-to changes in its user cost using a quarterly panel of two-digit manufacturing industries from South Africa from 1970 to 2000. Highly significant estimates of the user cost elasticity that are in the vicinity of the -1.0 benchmark implied by a Cobb-Douglas production function are obtained using a variety of specifications, including panel cointegration techniques that correct for small sample bias. Unlike most previous studies, meaningful elasticity estimates are also obtained using stationary panel specifications. The robustness of these estimates may be due, in part, to the possibility that the capital demand curve is better identified in a small open economy where shocks to capital supply are more likely to be exogenous. The economic embargo imposed on South Africa from 1985 to early 1994 temporarily forced its economy to become more closed and therefore provides a unique opportunity to assess the importance of identification in the estimation of the user cost elasticity. User cost elasticity estimates using embargo and non-embargo period data are consistent with a substantial bias from endogeneity. [ABSTRACT FROM AUTHOR]

Present study is an endeavour to investigate growth pattern and productivity trends in small scale rubber and plastic products industry of Punjab. The growth of industry has been gauged in terms of variables - number of units, fixed investment, employment and production. Yearly growth rates have been computed to catch year- to- year fluctuations in growth and compound annual growth rates (CAGRs) have been worked out to ascertain the impact of the policies of liberalized regime on growth of this industry. Productivity trends have been sketched in terms of partial factor productivities of labour and capital. In order to understand the strengths and weaknesses of the industry, SWOT analysis has been conducted. The study revealed that the liberalisation has promoted the use of capital intensive and labour saving techniques of production leading to a dismal growth of employment and sluggish growth of number of units. [ABSTRACT FROM AUTHOR]

This article builds a simple theoretical model for the optimal expected length of a franchise contract. The main outcome is that fixed specific investment positively impacts contract duration confirming previous theoretical conjectures. Additionally, other variables such us the price–cost margin of the franchise, the brand name or the discount factor also play a relevant role. The empirical analysis using a large sample of franchises operating in Spain confirms the main conclusions of the model. However, the connection found between investment and duration, although statistically robust, is weak from an economic point of view. This result suggests the possibility that, in general, most franchisees are not in equilibrium because of the high standardization of this contract term across franchises. In these cases, the expectation of renewal is likely to be a crucial element of adjustment. [ABSTRACT FROM AUTHOR]

This paper assesses business investment appraisal techniques and expectations formation. The paper begins with a comparative analysis of the links between fixed asset investment theories and real world investment appraisal techniques, focusing on the underlying assumptions about rationality and expectations. In the empirical sections, these ideas are tested via an analysis of business behaviour based upon survey evidence from a sample of Cambridgeshire manufacturing firms. The statistical analysis focuses on hypothesis testing, ordered probit estimations and simulations. The evidence presented reveals that whilst conventional production function analysis does provide some explanatory power in describing the objective determinants of firm investment activity, subjective and behavioural factors are also important. [ABSTRACT FROM AUTHOR]

Irreversibility does not only raise the user cost of capital and discourage new investment but also hinders disinvestment because of the hangover effect. This paper derives a theoretical model that separates the impact of conventional convex adjustment costs from the impact of irreversibility, based on which we test the hangover effect of irreversibility by using a panel of Dutch listed firms during 1985–2000. We find that the sample firms cut both the capital stock and the inventory stock facing shocks to sales and cash flow, but they cut the inventory stock by a larger magnitude than they cut the capital stock. Given that fixed investment is more irreversible than inventory investment, the result suggests that the diminished impact of irreversibility provides the firm with more flexibility in responding to uncertainty, which lends support for the hangover effect of irreversibility on investment. [ABSTRACT FROM AUTHOR]