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.
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