IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v46y2014i34p4231-4241.html
   My bibliography  Save this article

Determinants of firms' investment behaviour: a multilevel approach

Author

Listed:
  • K. Farla

Abstract

This article investigates the determinants of firms' investment behaviour using firm data from 101 developing and emerging economies. A substantial number of firms does not invest in fixed capital or invests little relative to sales revenue. Using a multilevel probit model we study what factors trigger investment, and using a multilevel Heckman selection model we study what factors influence a firm's investment-to-sales ratio. We find that firms' investment behaviour has relatively little dependency on a country's macroeconomic setting. Additionally, we find that, on average, firms that are completely foreign-owned have a relatively lower investment-to-sales ratio. Finally, we find evidence which suggests that the probability of investing is higher for firms located in countries with more control of corruption and we find some evidence which suggests that partially foreign-owned firms located in countries with relatively less corruption have a relatively higher investment-to-sales ratio.

Suggested Citation

  • K. Farla, 2014. "Determinants of firms' investment behaviour: a multilevel approach," Applied Economics, Taylor & Francis Journals, vol. 46(34), pages 4231-4241, December.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:34:p:4231-4241
    DOI: 10.1080/00036846.2014.955167
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2014.955167
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2014.955167?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andrew B. Abel & Avinash K. Dixit & Janice C. Eberly & Robert S. Pindyck, 1996. "Options, the Value of Capital, and Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 753-777.
    2. Martin Srholec, 2010. "A Multilevel Approach to Geography of Innovation," Regional Studies, Taylor & Francis Journals, vol. 44(9), pages 1207-1220.
    3. Koen De Backer & Leo Sleuwaegen, 2003. "Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 67-84, February.
    4. Jaewoon Koo & Kyunghee Maeng, 2006. "Foreign ownership and investment: evidence from Korea," Applied Economics, Taylor & Francis Journals, vol. 38(20), pages 2405-2414.
    5. Brian J. Aitken & Ann E. Harrison, 2022. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 6, pages 139-152, World Scientific Publishing Co. Pte. Ltd..
    6. Manuel Agosin & Roberto Machado, 2005. "Foreign Investment in Developing Countries: Does it Crowd in Domestic Investment?," Oxford Development Studies, Taylor & Francis Journals, vol. 33(2), pages 149-162.
    7. Gaviria, Alejandro, 2002. "Assessing the effects of corruption and crime on firm performance: evidence from Latin America," Emerging Markets Review, Elsevier, vol. 3(3), pages 245-268, September.
    8. Hawawini, Gabriel & Subramanian, Venkat & Verdin, Paul, 2004. "The home country in the age of globalization: how much does it matter for firm performance?," Journal of World Business, Elsevier, vol. 39(2), pages 121-135, May.
    9. Christian Daude & Ernesto Stein, 2007. "The Quality Of Institutions And Foreign Direct Investment," Economics and Politics, Wiley Blackwell, vol. 19(3), pages 317-344, November.
    10. Abdul-Haque & Shaoping, Wang, 2008. "Uncertainty and investment evidence from a panel of Chinese firms," Structural Change and Economic Dynamics, Elsevier, vol. 19(3), pages 237-248, September.
    11. Javorcik, Beata S. & Wei, Shang-Jin, 2009. "Corruption and cross-border investment in emerging markets: Firm-level evidence," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 605-624, June.
    12. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-1148, September.
    13. Alan Carruth & Andy Dickerson & Andrew Henley, 2000. "What do We Know About Investment Under Uncertainty?," Journal of Economic Surveys, Wiley Blackwell, vol. 14(2), pages 119-154, April.
    14. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 85-106.
    15. Catherine Pattillo, 1998. "Investment, Uncertainty, and Irreversibility in Ghana," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 522-553, September.
    16. Mark J. Koetse & Henri L.F. de Groot & Raymond J.G.M. Florax, 2009. "A Meta-Analysis of the Investment-Uncertainty Relationship," Southern Economic Journal, John Wiley & Sons, vol. 76(1), pages 283-306, July.
    17. Luigi Guiso & Giuseppe Parigi, 1999. "Investment and Demand Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 185-227.
    18. Bigsten Arne & Collier Paul & Dercon Stefan & Fafchamps Marcel & Gauthier Bernard & Gunning Jan Willem & Oostendorp Remco & Pattillo Catherine & Söderbom Måns & Teal Francis, 2005. "Adjustment Costs and Irreversibility as Determinants of Investment: Evidence from African Manufacturing," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-27, October.
    19. Wolassa L. Kumo, 2006. "Macroeconomic Uncertainty And Aggregate Private Investment In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 74(2), pages 190-204, June.
    20. Goedhuys, Micheline & Srholec, Martin, 2010. "Understanding multilevel interactions in economic development," MERIT Working Papers 2010-003, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    21. Aparna Mathur & Kartikeya Singh, 2013. "Foreign direct investment, corruption and democracy," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 991-1002, March.
    22. Catherine Fuss & Philip Vermeulen, 2008. "Firms' investment decisions in response to demand and price uncertainty," Applied Economics, Taylor & Francis Journals, vol. 40(18), pages 2337-2351.
    23. Kesternich, Iris & Schnitzer, Monika, 2010. "Who is afraid of political risk? Multinational firms and their choice of capital structure," Journal of International Economics, Elsevier, vol. 82(2), pages 208-218, November.
    24. Arne Bigsten & Paul Collier & Stefan Dercon & Bernard Gauthier & Jan Willem Gunning & Anders Isaksson & Abena Oduro & Remco Oostendorp & Cathy Pattilo & Mans Soderbom & Michel Sylvain & Francis Teal &, 1999. "Investment in Africa's Manufacturing Sector: A Four Country Panel Data Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 489-512, November.
    25. repec:bla:econom:v:66:y:1999:i:262:p:157-79 is not listed on IDEAS
    26. Asiedu, Elizabeth & Lien, Donald, 2011. "Democracy, foreign direct investment and natural resources," Journal of International Economics, Elsevier, vol. 84(1), pages 99-111, May.
    27. Bo, Hong & Zhang, Zhihai, 2002. "The impact of uncertainty on firm investment: evidence from machinery industry in Liaoning province of China," Economic Systems, Elsevier, vol. 26(4), pages 335-352, December.
    28. Le Khuong Ninh & Niels Hermes & Ger Lanjouw, 2004. "Investment, uncertainty and irreversibility," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(2), pages 307-332, June.
    29. Stephen Everhart & Jorge Martinez- Vazquez & Robert McNab, 2009. "Corruption, governance, investment and growth in emerging markets," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1579-1594.
    30. James R. Hines, Jr., 1995. "Forbidden Payment: Foreign Bribery and American Business After 1977," NBER Working Papers 5266, National Bureau of Economic Research, Inc.
    31. Kinda, Tidiane, 2010. "Investment Climate and FDI in Developing Countries: Firm-Level Evidence," World Development, Elsevier, vol. 38(4), pages 498-513, April.
    32. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
    33. Gebreeyesus, Mulu, 2009. "Inactions and Spikes of Investment in Ethiopian Manufacturing Firms: Empirical Evidence on Irreversibility and Non-convexities," MERIT Working Papers 2009-061, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    34. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    35. Geeta Batra & Daniel Kaufmann & Andrew H. W. Stone, 2003. "Investment Climate Around the World : Voices of the Firms from the World Business Environment Survey," World Bank Publications - Books, The World Bank Group, number 15143.
    36. repec:bla:jecsur:v:14:y:2000:i:2:p:119-53 is not listed on IDEAS
    37. Robert Lensink & Paul Steen & Elmer Sterken, 2005. "Uncertainty and Growth of the Firm," Small Business Economics, Springer, vol. 24(4), pages 381-391, May.
    38. Green, Christopher J. & Lensink, Robert & Murinde, Victor, 2001. "Demand uncertainty and the capital-labour ratio in Poland," Emerging Markets Review, Elsevier, vol. 2(2), pages 184-197, June.
    39. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    40. Henisz, Witold J, 2000. "The Institutional Environment for Multinational Investment," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 16(2), pages 334-364, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joël Cariolle & Petros G Sekeris, 2021. "How export shocks corrupt: theory and evidence," Working Papers hal-03164648, HAL.
    2. Claudiu Tiberiu Albulescu, 2020. "Investment Behaviour and Firms’ Financial Performance: A Comparative Analysis Using Firm-Level Data from the Wine Industry," International Journal of Management, Knowledge and Learning, International School for Social and Business Studies, Celje, Slovenia, vol. 9(1), pages 75-94.
    3. Joël CARIOLLE, 2018. "Corruption determinants in developing and transition economies: Insights from a multi-level analysis," Working Papers P229, FERDI.
    4. Samyukta Bhupatiraju, 2020. "Multi-level Determinants of Inward FDI Ownership," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(2), pages 327-358, June.
    5. Claudiu Tiberiu Albulescu & Matei Tămășilă & Ilie Mihai Tăucean, 2021. "The Nonlinear Relationship Between Firm Size and Growth in the Automotive Industry," Journal of Industry, Competition and Trade, Springer, vol. 21(3), pages 445-463, September.
    6. Joël CARIOLLE, 2016. "The voracity and scarcity effects of export booms and busts on bribery," Working Papers P146, FERDI.
    7. Maria Magdalena Turek Rahoveanu & Adrian Turek Rahoveanu & Cristian Popescu & Gheorghe Adrian Zugravu, 2015. "Entrepreneurial Potential In The Territory Gal Microregion Horezu Village From The Perspective Of 2014-2020," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 397-408.
    8. Claudiu Tiberiu Albulescu & Şerban Miclea & Simina Silvana Suciu & Matei Tămăşilă, 2018. "Firm-level investment in the extractive industry from CEE countries: the role of macroeconomic uncertainty and internal conditions," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(2), pages 193-208, June.
    9. Valeriya Azarova & Mathias Mier, 2021. "Investor Type Heterogeneity in Bottom-Up Optimization Models," ifo Working Paper Series 362, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    10. Stelian STANCU & Eugenia GRECU & Mirela Ionela ACELEANU & Daniela Livia TRAŞCĂ & Claudiu Tiberiu ALBULESCU, 2021. "Does Firm Size Matters for Firm Growth? Evidence from the Romanian Health Sector," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 17-31, December.
    11. Vojtěch Olbrecht, 2016. "Multilevel Modeling in Exploring Institutional Effects on Performance," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 64(6), pages 2087-2094.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ibrahim, Mansor H. & Ahmed, Huson Joher Ali, 2014. "Permanent and transitory oil volatility and aggregate investment in Malaysia," Energy Policy, Elsevier, vol. 67(C), pages 552-563.
    2. Farla, Kristine & de Crombrugghe, Denis & Verspagen, Bart, 2016. "Institutions, Foreign Direct Investment, and Domestic Investment: Crowding Out or Crowding In?," World Development, Elsevier, vol. 88(C), pages 1-9.
    3. Le, K.N. & Hermes, N. & Lanjouw, G., 2003. "Irreversible investment and uncertainty : an empirical study of rice mills in the Mekong river delta, Vietnam," Research Report 03E40, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    4. Federico Carril-Caccia & Juliette Milgram-Baleix & Jordi Paniagua, 2019. "Foreign Direct Investment in oil-abundant countries: The role of institutions," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-23, April.
    5. John A. List & Michael S. Haigh, 2010. "Investment Under Uncertainty: Testing the Options Model with Professional Traders," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 974-984, November.
    6. Bontempi, Maria Elena & Golinelli, Roberto & Parigi, Giuseppe, 2010. "Why demand uncertainty curbs investment: Evidence from a panel of Italian manufacturing firms," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 218-238, March.
    7. Ahsan Abbas & Eatzaz Ahmed & Fazal Husain, 2019. "Political and Economic Uncertainty and Investment Behaviour in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 58(3), pages 307-331.
    8. Mark J. Koetse & Henri L.F. de Groot & Raymond J.G.M. Florax, 2011. "A Meta-Regression Analysis of the Investment–Uncertainty Relationship," Chapters, in: Raymond J.G.M. Florax & Henri L.F. de Groot & Peter Mulder (ed.), Improving Energy Efficiency through Technology, chapter 7, Edward Elgar Publishing.
    9. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "The foreign direct investment-institution nexus in oil-abundant countries," Working Papers 1903, Department of Applied Economics II, Universidad de Valencia.
    10. repec:dgr:rugsom:03e40 is not listed on IDEAS
    11. Adiya Belgibayeva & Alexander Plekhanov, 2019. "Does corruption matter for sources of foreign direct investment?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(3), pages 487-510, August.
    12. Morikawa, Masayuki, 2016. "Business uncertainty and investment: Evidence from Japanese companies," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 224-236.
    13. Caruso, Massimo, 2001. "Investment and the persistence of price uncertainty," Research in Economics, Elsevier, vol. 55(2), pages 189-217, June.
    14. Sena, Vania & Duygun, Meryem & Lubrano, Giuseppe & Marra, Marianna & Shaban, Mohamed, 2018. "Board independence, corruption and innovation. Some evidence on UK subsidiaries," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 22-43.
    15. Suborna Barua & Junnatun Naym & Hazera-Tun-Nessa, 2017. "Economic Climate, Infrastructure and FDI: Global Evidence with New Dimensions," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 16(1), pages 31-48, June.
    16. Philipp Harms & Pierre-Guillaume Méon, 2013. "The Composition of FDI in the MENA Region and Other Countries: Econometric Investigation and Implications for MENA Countries," Working Papers 793, Economic Research Forum, revised Nov 2013.
    17. Henriques, Irene & Sadorsky, Perry, 2011. "The effect of oil price volatility on strategic investment," Energy Economics, Elsevier, vol. 33(1), pages 79-87, January.
    18. Gabriel P. Mathy, 2020. "How much did uncertainty shocks matter in the Great Depression?," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 14(2), pages 283-323, May.
    19. Ahmed, Walid M.A., 2020. "Corruption and equity market performance: International comparative evidence," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    20. Cao Hong Minh, 2019. "Institutional Quality and Foreign Direct Investment Inflows: The Case of Vietnam," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(5), pages 630-641, May.
    21. Binding, Garret & Dibiasi, Andreas, 2017. "Exchange rate uncertainty and firm investment plans evidence from Swiss survey data," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 1-27.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:46:y:2014:i:34:p:4231-4241. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.