Studying Firm Investments
Financial reports are primarily used by financial institutions and banks for their investors as well as for other business purposes. They are prepared based on accounting principles and frameworks and may be prepared in different formats such as: single-entry bookkeeping books, journals, ledgers, journals, and software. The purpose of these reports is mainly to facilitate decision making by the financial institution or bank in relation to current affairs. Therefore, they play an important role in financial markets by providing information regarding financial transactions. However, these reports have certain limitations that need to be considered before they are used by the financial institution or the bank.
Financial reports analysis on the effect of market friction on investment decisions is primarily done by financial market researchers who are not employed by the listed firms. Financial market researchers’ research is based on theoretical understanding of market mechanisms and factors that can affect firms’ investment decisions. The research also includes measures of firms’ investment strategies, identification of investment opportunities and allocation of capital among listed firms using mathematical models.
An alternative approach to financial market research is the use of domestic monetary policy instruments to evaluate firms’ investments. By conducting a series of experiments using different governmental interventions, researchers attempt to identify the effects of government interventions on firm investment efficiency. These monetary policy instruments include central bank interventions, interest rates, fiscal stimulus package, debt purchases, and other programs directed at stabilizing or increasing aggregate demand. Government interventions that are implemented in different countries can have widely varying effects on firms’ investments across countries, and the evaluation of these impacts requires the expertise of a research economist.
Other types of economic stimulus package that could have a bearing on firms’ investment decisions are exchange rate reduction programs, infrastructure development programs, tax rebate programs, and other direct measures that provide immediate savings to households. The analysis of these policies is therefore directed towards identifying the effects of exchange rate changes, for example, on domestic production. Similarly, researchers study the impact of government-induced fiscal stimulus package on firms’ investments, looking at both the short-run and long-run implications. Finally, another area of direct economic stimulus package research is the effect of increases in bank lending standards on firms’ investment decisions.
All these techniques allow researchers to study investment decisions at the firm level, as well as the role of the state during the recovery process. During the crisis period, fiscal policy initiatives are likely to have a large effect on investment decisions. However, changes in bank lending rules or other financial regulations will not likely have a large effect on firm investments across sectors and products until after the recession period, when the effects of government intervention are likely to be more prominent.
Some recent studies suggest that firms with human capital are less sensitive to shocks to investment as compared to other firms. Furthermore, these findings imply that firms with human capital are more liquid. In addition to this, empirical evidence suggests that firms with human capital are less likely to close down in response to shocks to investment. This suggests that firms with human capital have more time to adjust to changes in fiscal policy and capital structures. More importantly, human capital is also more responsive to shocks to investment as compared to other types of assets.
