Determinants of Firm Investment in Romania, Serbia, and Russia
The determinants of firm investment are discussed in this article. The authors analyse four countries, Romania, Moldova, and Russia, and include data from 170 firms for each. Profitability, size, and cash holdings were found to influence firm investment in all countries, but only in Romania and Serbia. Larger firms are more likely to invest in their business as they have more resources to invest. In other words, firms with a larger scale tend to invest more money in their operations.
Financial leverage is found to be negatively related to firm investment, but is not significant for firms that are privately held. A large number of publicly traded firms have negative returns on their capital stocks. In contrast, high-growth firms experience positive returns on their investments. In general, higher levels of firm investment are associated with greater levels of financial leverage. However, there is no clear cut relationship between financial leverage and firm investment. The authors suggest that these differences may be due to the different nature of firms.
The results also indicate that financial leverage influences firm investment in different sectors. For example, firm investment is negatively related to financial leverage when the firms are publicly traded. In contrast, when the firms are privately held, the relationship is negative. The authors point out that higher returns from financial leverage lead to lower returns for firm investment. Hence, it is important to understand the determinants of firm investment to make a more informed decision. Further, the analysis shows that firms with high financial leverage are more likely to invest more in capital and less in people.
The authors find that profitability negatively affects firm investment. This finding is consistent with the investor’s risk-averse view. Moreover, firms with lower financial leverage tend to invest more in human capital. Ultimately, the return on investment is higher than the return on physical capital. For these reasons, this is an interesting study for firms that are considering a capital allocation. These findings suggest that firm training is a good investment. This type of capital may provide better returns than physical capital.
A third factor influencing firm investment is financial leverage. While firm investment is positively related to financial leverage in publicly traded firms, it negatively affects investment in privately held firms. Thus, the return on formal job training is a better investment than physical capital. The implication of this study is that higher training leads to more innovation. The researchers’ findings have implications for the future of public and private investments in Moldova. They note that this is a strong indicator of economic growth in the country.
Among the determinants of firm investment, financial leverage is the largest determining factor in the service sector. In fact, firms with high levels of financial leverage are more likely to invest in the service sector. The relationship between leverage and firm investment is most pronounced in the real estate sector. This finding suggests that the relationship between profitability and firm investment is significant for low-growth firms, but it is weak for firms that have a large number of employees.
