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Government Buyers Protects Firms’ Investments From Fluctuations

Firm Investment

Government Buyers Protects Firms’ Investments From Fluctuations

The relationship between firm investment attractiveness and firm expansion has been examined using an experimental firm Investor model. Data was statistically collected over a five year period and a robust regression model was estimated using several different investment policies, including those involving private equity and venture capital. The results showed that firm investment attractiveness and firm expansion were strongly related to each other. The model also explained that this relationship was largely due to the fact that expansion typically generates higher returns than investment in a firm that is simply growing at a rate that is consistent with its historical performance.

The results of this study provide the empirical support that is needed for firms to utilize the benefits of the economic stimulus package in order to increase the attractiveness of their capital structure. Stimulus package gave both big and small firms more money, but only those firms able to use it effectively could sustain their gains. As such, this has encouraged both small and large firms to invest more in their enterprise. This has given them the financial incentive to enhance their attractiveness, leading to the current economic crisis.

However, there is still doubt whether the recent economic stimulus program can really affect the firm investment attractiveness of a firm. This question is mostly asked by firms that are not directly affected by the fiscal policy of the US. However, as it is clear that fiscal policy is one of the major drivers behind the crisis, it is likely that any deviation from the path of the current economic stimulus program will have serious repercussions on firms across the country. The recent economic crisis has led to huge losses at hedge funds and other financial institutions. While the government can mitigate losses through the actions taken during the economic stimulus package, firms need to take their own initiative to avoid financial crisis.

One possible way of counteracting the effect of the fiscal policy on firm investments is through increased use of leverage. Leverage is defined as the total present value of all future cash inflows less the present value of all cash disbursements. If the government intervention is able to reduce the interest rates or to haircut high-risk credit debts, the firms may be able to absorb some of the loss and increase their profitability. However, it is highly unlikely that the government intervention will be able to completely mitigate the impact of the crisis period on investment decisions, because any such action would also reduce liquidity.

Another hypothesis predicts that firm misvaluation-induced losses will only start after the initial two-year lag period during which the stocks experienced very little change. However, this hypothesis is not consistent with the other indicators that the stock prices showed substantial changes. To conclude, the current crisis period is not going to impact significantly on firm investments. However, it is important for companies to take appropriate measures to protect themselves from any misvaluation-induced losses.

According to the macroeconomic theory, the government intervention will not only help firms’ investments but also will help reduce overall economic volatility. Furthermore, this policy will help the economy recover from the recession faster. The policy will thus support investment efficiency and market liquidity. Finally, the rise in unemployment levels will be temporary and will normalize as the economy begins to improve.