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The investment decision: a re-examination of competing theories using panel data

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  • Cherian Samuel

Abstract

A re-examination of the competing theories of investment using panel data for US manufacturing firms finds that the time-series regressions rank the neoclassical model as the best and the cross-section and fixed effects regressions give the number 1 spot to the cash flow model. If the results from cross-section regressions are viewed as representing the long-run equilibrium, the single-most important determinant of capital expenditures appears to be cash flows. These results are consistent with earlier findings in the literature, support the need for an eclectic approach to the study of capital expenditure decisions at the firm level, and vindicate the choice of the firm as the basic unit of analysis in the study.

Suggested Citation

  • Cherian Samuel, 1998. "The investment decision: a re-examination of competing theories using panel data," Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 95-104.
    • Handle: RePEc:taf:applec:v:30:y:1998:i:1:p:95-104
    DOI: 10.1080/000368498326182
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    References listed on IDEAS

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    1. Robert Eisner, 1978. "Factors in Business Investment," NBER Books, National Bureau of Economic Research, Inc, number eisn78-1.
    2. Rhee, C. & Rhee, W., 1991. "Fundamental Value and Investment: Micro Data Evidence," RCER Working Papers 282, University of Rochester - Center for Economic Research (RCER).
    3. Samuel, Cherian, 1996. "Stock market and investment : the signaling role of the market," Policy Research Working Paper Series 1612, The World Bank.
    4. Samuel, Cherian, 1996. "Stock market and investment : the governance role of the market," Policy Research Working Paper Series 1578, The World Bank.
    5. Robert Eisner, 1978. "Introduction to "Factors in Business Investment"," NBER Chapters, in: Factors in Business Investment, pages 1-16, National Bureau of Economic Research, Inc.
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    Cited by:

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    2. Behr Andreas, 2005. "Investment, Q and Liquidity / Investitionen, Q und Liquidität: Evidence for Germany Using Firm Level Balance Sheet Data / Empirische Ergebnisse auf Basis von Unternehmensdaten," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 225(1), pages 2-21, February.
    3. Abdallah, Abed AL-Nasser & Abdallah, Wissam, 2017. "Does cross-listing increase managers' propensity to listen to the market in M&A deals?," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 97-120.
    4. Abdallah, Abed AL-Nasser & Abdallah, Wissam, 2019. "Does cross-listing in the US improve investment efficiency? Evidence from UK firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 215-231.

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