Abstract
<p>This paper examines the determinants of firm investment decision. Our study analysed four countries: Moldova, Romania, Russia and Serbia. The sample contains 170 firms for each country for a period of 8 years from 2003 to 2010. Using the data panels method, the empirical results indicate that profitability positively and significantly influences the firm investments for the markets of Moldova and Romania under two alternatives, and for the other countries under one specification. However, the positive effect of cash holdings is only observed for the firms of Moldova and Serbia. Furthermore, the higher the size of the firms of all countries is, the more the managers are encouraged to invest more. Finally, the sensitivity analysis of our models on activity sectors, shows differences in the factors explaining the investment decision for the market of Moldova. Indeed, profitability significantly and positively explains firm investment for the service and real estate sectors. This result is found for other countries for two sectors. In contrast, for country Russia, an increase in the profitability for mining and agriculture firms, does not stimulate managers to invest more.</p>
Highlights
The investment decision is a very important financial decision for the firm (Aghion & Howitt, 1992)
They conclude that the effect of cash flows on investment decision is independent of activity sectors of firms
For the country of Romania : 32 firms in services sector, 21 companies in the real estate sector, 6 firms in professional activities, 33 firms in mining and agriculture and 78 industrial companies. These results show that for the country of Romania, most firms belongs to the mining, agriculture and industrial sectors
Summary
The investment decision is a very important financial decision for the firm (Aghion & Howitt, 1992). The empirical validation was done on three countries; Taiwan, Korea and Japan They conclude that, for the cases of Japan and Korea, non-statistically significant effects of profitability and capital structure on investment decision. To the work of Bond and Meghir (1994); Bond et al (2003); Brown et al (2009); James Brown, Bruce, and Petersen (2014) identify the determinants of firm investment They consider as independent variables, sales, cash holdings, cash flows, changes in cash holdings and equity issues. The empirical results highlight significant influences of cash flow and cash holdings on firm investment. The section will review the main studies that highlight the factors explaining the investment decision.
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