Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries

Grazzi, Marco; Jacoby, Nadia; Treibich, Tania

doi:10.2139/ssrn.2217594

Cited by 10 publications

(5 citation statements)

References 53 publications

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“…(It is a normalized measure (with respect to value added) since the amount of investments greatly depends on the size of the firm). The dynamics of firms' investment and its relation to performance are analyzed at length in Grazzi et al (2013a) on the same set of data, finding a rather small, but positive and significant relation between so-called investment spikes and firms' productivity. Some explanation is required for the patent dummy variable.…”

Section: Selection Into Export Marketsmentioning

confidence: 99%

Technology and costs in international competitiveness: From countries and sectors to firms

2015

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This paper examines the determinants of international competitiveness at the level of sectors and firms. First, we address the relation between cost-related and technological competition in a sample of fifteen OECD countries. Results suggest that the countries' sectoral market shares are indeed mainly shaped by technological factors (proxied by investment intensity and patents) while cost advantages/disadvantages do not seem to play any significant role. Next, we attempt to identify the underlying dynamics at the firm level. We do that for a single country, Italy, using a large panel of Italian firms, over nearly two decades. Results show that also at micro level in most sectors investments and patents correlate positively both with the probability of being an exporter and with the capacity to acquire and to increase export market shares. The evidence on costs is more mixed. A simple measure like total labour compensation is positively correlated with the probability of being an exporter, while unit labour costs show a negative correlation only in some manufacturing sectors.

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Section: Selection Into Export Marketsmentioning

confidence: 99%

Technology and costs in international competitiveness: From countries and sectors to firms

2015

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“…Consequently, a decline in production would signal economic difficulties. Besides, a reduction in investments will decrease future profits ( (Baumol & Wolff 1983); (Grazzi et al 2013); (Pakes & Griliches 1984), (Weill 1992)) but also the economic difficulties faced by the company may have a negative impact on investments (Heshmati & Lööf 2008) since in a context of reduced performance and profits, the resources available for investment decrease. Hence, when a plant observes that investment has decreased it may be a clear signal that the firm is facing economic difficulties.…”

Section: Measures: Independent Variablesmentioning

confidence: 99%

Entrepreneurial orientation in family firms: the moderating role of technological intensity and performance

et al. 2014

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This paper examines how socio-emotional factors can influence family firms' commitment to entrepreneurially-oriented activities, and how their level of commitment is moderated by the technological intensity of the sector and firm performance. We find that, while family firms are less entrepreneurially-oriented than nonfamily firms, this gap closes with increasing technological intensity of the sector. We find no evidence, however, to suggest any change in entrepreneurial orientation in family firms resulting from a drop in firm performance.

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“…To constrain such a discretionary behaviour, investors incur great costs of monitoring their representatives to align the interests between the two sides. Both ineffective investment decisions and expensive monitoring costs deteriorate firm performance (Jensen, 1986;Shima, 2010;Grazzi et al, 2016;Gu, 2013).…”

Section: Introductionmentioning

confidence: 99%

Firm performance: the moderation impact of debt and dividend policies on overinvestment

Nguyen‐Trong

Nguyen

2020

JABES

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PurposeDebt, dividend and investment policy constitutes a company's important financial decisions to determine firm performance. The research emphasizes on the problem of overinvestment, a phenomenon that worsens firm operation. Furthermore, it clarifies the moderation role of debt and dividend policy in mitigating the negative effect of overinvestment on firm performance in the case of Vietnamese listed companies.Design/methodology/approachThe research uses all financial statement of non-financial Vietnamese listed companies on Ho Chi Minh and Hanoi Stock Exchange in the period of 2008–2018. The data are collected from Thomson Reuters Eikon. The final data set is comprised of 669 listed companies. The study measures overinvestment though investment demand function and HP filter. Moreover, the research employs the dynamic model, so it has to apply the SGMM method to deal with the problem of endogeneity caused by the lagged dependent variable.FindingsThe research finds that overinvestment is negatively associated with firm performance. Debt or dividend policy separately can moderate the negative effect of overinvestment on firm performance. However, when these two policies are combined, they lessen the positive interaction impact of each policy due to the substitution between debt and dividend policy.Research limitations/implicationsThe research may have two limitations. Firstly, the research measures overinvestment indirectly through investment demand function and HP filter. These two measures only help identify the sign that companies may have the problem of overinvestment because we cannot determine whether they overinvest or not in reality. Secondly, when using interaction variables, the problem of multicollinearity may be higher, and this may adjust the signs and significance level of variables in the models.Practical implicationsPractically, the research proposes three policy recommendations. Firstly, a company can exploit debt or dividend policy to limit excessive free cash flow in order to constrain the problem of overinvestment. Secondly, a company should enhance its corporate governance to resolve agency problems. Thirdly, the government should make the financial sector more transparent and effective to improve monitoring functions of various parties in the capital market.Social implicationsOverinvestment sometimes can cause social issues. Overinvestment means that companies make ineffective investment. If they continue this situation over a long time, companies may have financial distress or even go bankruptcy. As a result, it will slow down economic growth and increase unemployment in the economy.Originality/valueThe research is supposed to make two great contributions to the existing empirical studies in two aspects. Firstly, it is the first attempt to take into consideration the interaction between overinvestment and financial policies. Secondly, it helps enhance the fundamental stance of the agency theory, which supports the interdependence of debt, dividend and investment policy.

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Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries

Cited by 10 publications

References 53 publications

Technology and costs in international competitiveness: From countries and sectors to firms

Technology and costs in international competitiveness: From countries and sectors to firms

Entrepreneurial orientation in family firms: the moderating role of technological intensity and performance

Firm performance: the moderation impact of debt and dividend policies on overinvestment

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