Corporate Profits and Investment in Light of Institutional and Stock Market Turmoil: New Evidence from the Warsaw Stock Exchange

Abstract

: Using a new quarterly panel of corporate, institutional, and macroeconomic data, we investigate the impact of economic property rights, stock market returns and stock market realized volatility as well as macroeconomic controls on corporate profitability and investment capacities for a sample of 238 firms quoted on the Warsaw Stock Exchange between 2007–2015. The obtained results indicated that both economic property rights and equity market realized volatility impacted firm profits and investment capacities in a negative fashion. Furthermore, we identified detrimental effects of domestic economic growth and global crisis, both of which dwarfed the beneficial effects of firm size and stock returns in the period under consideration. Given Polish public companies limited international engagement, they were isolated from long-term interest rate changes in the euro area. On the other hand, the domestic banking sector and foreign direct investment flows appear to have mitigated Polish firms’ business performance and growth.