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Navigating Investment Waters: Uncovering the Impact of Financial Factors on Business Behavior in Small Economies

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  • Ieva StatkeviÄ iÅ«tÄ—
  • Egidijus Bikas
  • Viktorija Cohen

Abstract

Using companies listed on the Nasdaq Baltic Stock Exchange (2017–2021), we analyze the influence of financial factors on the investment behavior of businesses in small economies. We run a panel regression to examine which financial factors influence corporate investment and study how business investment is affected by the previous year’s cash flow, leverage ratio, asset turnover, liquidity, and sales volume. Our findings reveal robust evidence that the level of the investment of firms is negatively affected by the leverage ratio and positively affected by the asset turnover ratio. We also find that the cash flow to asset ratio has a negative but statistically insignificant affection investment. This implies that businesses in small economies are not interested in the capital market. Companies should consider taking the leverage ratio into account and incorporating it in their investment decision-making models.

Suggested Citation

  • Ieva StatkeviÄ iÅ«tÄ— & Egidijus Bikas & Viktorija Cohen, 2025. "Navigating Investment Waters: Uncovering the Impact of Financial Factors on Business Behavior in Small Economies," Review of European Studies, Canadian Center of Science and Education, vol. 16(1), pages 1-16, January.
  • Handle: RePEc:ibn:resjnl:v:16:y:2025:i:1:p:16
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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