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Do the macroeconomic factors influence the firm's investment decisions? A generalized method of moments (GMM) approach

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  • Umar Farooq
  • Jaleel Ahmed
  • Shamshair Khan

Abstract

The study checks association between the macroeconomic factors and corporate investment decision by using 10 years of data (2007–2016) of 12 Asian countries. There exist the series of studies, which discuss the firm‐level determinants of investment but very few studies have found the relationship between macroeconomic factors and corporate investment. So, with specific data set, this study is an attempt to fill this instant gap by exploring the relationship between macroeconomic factors and firm capital investment. GMM approach uses for estimation purposes. The results imply that increases in inflation rate decrease the investment due to increment in future cost of investment. Similarly, high interest rate decreases the corporate capital investment due to opportunistic options of early returns by investing in high interest income securities. The firms from high GDP growth countries carry higher investment level owing to business acceleration. However, the firms from high FDI inflow countries bear the low investment opportunities attributed to suppressed fierce competition. The countries having developed financial sector encourage their firms to invest more in banking securities instead of investing in physical long‐term investment, that is, investment in fixed assets due to professional management of funds by financial institutions and low substantial risks. Briefly, the findings of the study recommend that the corporate managers should focus on economic sensitivity while making decisions about any potential investment.

Suggested Citation

  • Umar Farooq & Jaleel Ahmed & Shamshair Khan, 2021. "Do the macroeconomic factors influence the firm's investment decisions? A generalized method of moments (GMM) approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 790-801, January.
    • Handle: RePEc:wly:ijfiec:v:26:y:2021:i:1:p:790-801
    DOI: 10.1002/ijfe.1820
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    Cited by:

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    2. Bilal Haider Subhani & Umar Farooq & M. Ishaq Bhatti & Muhammad Asif Khan, 2021. "Economic Policy Uncertainty, National Culture, and Corporate Debt Financing," Sustainability, MDPI, vol. 13(20), pages 1-15, October.
    3. Wen, Jun & Farooq, Umar & Tabash, Mosab I. & El Refae, Ghaleb A. & Ahmed, Jaleel & Subhani, Bilal Haider, 2021. "Government green environmental concerns and corporate real investment decisions: Does financial sector development matter?," Energy Policy, Elsevier, vol. 158(C).
    4. Amy Kahn & Atoko Kasongo & Moses M. Sithole & Kgabo Hector Ramoroka, 2024. "An analysis of the micro- and macro-economic determinants of firm R&D intensity in the South African business sector," African Journal of Science, Technology, Innovation and Development, Taylor & Francis Journals, vol. 16(3), pages 297-308, April.
    5. Jun Wen & Umar Farooq & Suhaib Anagreh & Mosab I. Tabash, 2022. "Quality of governance and corporate real investment: Assessing the impact of foreign aid," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1115-1134, October.
    6. He, Xinao & Xu, Runguo & Sun, Kai & Wang, Jian, 2024. "Population intensity, location choice, and investment portfolio selection: A case of emerging economies," International Review of Financial Analysis, Elsevier, vol. 94(C).
    7. Farooq, Umar & Wen, Jun & Tabash, Mosab I. & Fadoul, Modawi, 2024. "Environmental regulations and capital investment: Does green innovation allow to grow?," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 878-893.
    8. Umar FAROOQ, 2023. "Trade Liberalization and Real Sector Investment Decisions: A Panel Data Evidence from Selected Economies of Asia," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 52-71, June.
    9. Zhou, Zheng & Chau, Ka Yin & Sibghatullah, Amena & Moslehpour, Massoud & Tien, Nguyen Hoang & Nizomjon Shukurullaevich, Khajimuratov, 2024. "The role of green finance, environmental benefits, fintech development, and natural resource management in advancing sustainability," Resources Policy, Elsevier, vol. 92(C).
    10. Tabash, Mosab I. & Mesagan, Ekundayo Peter & Farooq, Umar, 2022. "Dynamic linkage between natural resources, economic complexity, and economic growth: Empirical evidence from Africa," Resources Policy, Elsevier, vol. 78(C).

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