Macroeconomic conditions and a firm’s investment decisions

Jeon, Haejun; Nishihara, Michi

doi:10.1016/j.frl.2014.08.002

Cited by 13 publications

(12 citation statements)

References 31 publications

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“…As high loan rates decline the investment, a direct relationship can be expected between macroeconomic condition and corporate investment. Also, the cash flow (profit) generated from the firm also gets affected in the different stages of economic condition, which ultimately affects the ICFS (Jeon and Nishihara, 2014). We assume that the macroeconomic condition may change the role of internal cash flow of the firm in undertaking investment decisions as economic condition has direct impact on the cost of external finance.…”

Section: Introductionmentioning

confidence: 99%

The impact of macroeconomic condition on investment-cash flow sensitivity of Indian firms

Gupta

Mahakud

2019

SAJBS

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Purpose The purpose of this paper is to investigate the impact of the macroeconomic condition on investment-cash flow sensitivity (ICFS) of Indian firms and examine whether the effect of macroeconomic condition on ICFS depends on the size and group affiliation of the firm. Design/methodology/approach An empirical investigation is conducted using a dynamic panel data model or more specifically system generalized method of moments (GMM) estimation technique. Findings Empirical findings postulate that the availability of cash flow influences the investment decisions which depicts that Indian manufacturing firms are internally as well as externally financially constrained. This study finds that good economic condition (period of high GDP growth rate) reduces the ICFS, although this effect is stronger for small-sized and standalone firms than the large-sized and business group affiliated firms. The authors find that macroeconomic condition has a positive and significant effect on investment decisions. Research limitations/implications This study has considered only the non-financial sector. The future research could explore the effect of macroeconomic condition on ICFS might be affected by firm other characteristics such as firm age and firm capital structure. Social implications The government should provide loan on the low rate to the small-sized firms and standalone firms because it is very difficult for these firms to finance their investment during the bad economic condition (period of low high GDP growth rate). Originality/value This study contributes to the existing literature by analyzing the impact of the macroeconomic condition on ICFS as well as investment decisions of the Indian manufacturing firms, which is an unexplored issue from an emerging market perspective. To the best of my knowledge, this is a first-ever study which explores the effect of macroeconomic condition on investment decisions with respect to business group affiliation and firm size.

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Section: Introductionmentioning

confidence: 99%

The impact of macroeconomic condition on investment-cash flow sensitivity of Indian firms

Gupta

Mahakud

2019

SAJBS

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“…Fourth, as Dixit (1989) noted, the hysteresis of investment is affected by the macroeconomic conditions. As noted by McDonald and Siegel (1986) and Jeon and Nishihara (2014), investment costs follow a GBM. Elliott, Miao, and Yu (2007) underlined that a diffusion process of GBM is not suitable for modeling investment costs, unless the expected costs follow a controlled diffusion process.…”

Section: Research Problem Methodology and Assumptionsmentioning

confidence: 92%

“…Wong ( ) analyzed both options of investment and disinvestment at the same time (investment threshold if the firm is not invested and disinvestment if the form is invested). More recently, Jeon and Nishihara ( ) proposed a model regarding reversible investment with macroeconomic conditions based on the optimal switching of a diffusion regime. Other authors used a Markov chain methodology and considered business cycle fluctuations with additional triggers of investment and disinvestment determined endogenously in each state.…”

Section: Introductionmentioning

confidence: 99%

Optimal timing for a technology shift in mature markets of mobile communication

Adamauskas

Krušinskas

2017

Strategic Change

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The new‐generation 5G mobile technology will likely have a business cycle of approximately 24–25 years. Investment timing in the adoption of new technologies is becoming crucial for science and technology‐based companies to remain competitive. Further investment timing depends on the companies’ current financial state. Mobile technology‐based companies have their own resource lifecycle in which technological changes are inevitable and depend on the uncertainty of the market.

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“…In general, authors focus on the conception of technological innovations, their efficient models in different industries, and the aspects of value creation for the company. From a variety of optimal timing studies, different types of decision support models have been investigated by authors, such as Bar-Han & Maimon (1993), Benaroch and Kauffman (1999), Krušinskas and Vasiliauskaitė (2005), Kamarianakis and Xepapadeas (2006), Mukherji et al (2006), Ngwenyama et al (2007), Huang and Da (2007), Wickart and Madlener (2007), Pertile (2007), Wong (2010Wong ( , 2011, Moon (2010), Henderson (2010), Shibata and Nishihara (2011), Whalley (2011), Yagi and Takashima (2012, Bolton et al (2013), Wong and Yi (2013), Nishihata andShibata (2013), Feil andMusshoff (2013), Kim, Lee and Sohn (2014), Jeon and Nishihara (2014), and others.…”

Section: Literature Reviewmentioning

confidence: 99%

Mobile 5g Technology Adoption Investment Timing Decision Makers Clustering and Willingness to Invest Under Volatile Demand Changes

Adamauskas

Krušinskas

2016

CBUP

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Enterprises need to identify the optimal timing for technological change in order to increase competitiveness and increase the value of the company in an uncertain demanding environment. Investment decisions for adopting new technologies are costly and sometimes risky because technological investments are irreversible. To simulate the process, comprehensive technological adoption regarding investment timing was used in a management decision support model. The constructed model is structured as follows: 1) historical demand paths analysis; 2) application of statistical data validity tests; 3) the forecast of market parameters regarding data arrays using the geometric Brownian motion method, based on Monte Carlo simulation; 4) determination of technological life cycle using a Hodrick-Prescott filter; 5) technological adoption time-window determination; and 6) calculation of company net present values (NPV) based on change in free cash-flow. The model for mature 5G mobile markets, created and empirical tested, was performed in relation to 18 largest Europe mobile service providers, as potential decision makers operating across 33 countries. Results confirmed that selection of the technological investment time depends on companies' strategic financial decisions and financial state. The performed simulations revealed the consequence of 5G technology investment for investor roles, clustered according to financial data within a 5-year period (2010)(2011)(2012)(2013)(2014). The analyzed companies were assigned to roles of pioneers-innovators, pragmatics, followers, or laggards. Finally, it is assumed and argued that financial parameters indicate the willingness to adopt new technologies in a global technologically changing environment. JEL Classification Numbers: O16, O32, O33 DOI: http://dx

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Macroeconomic conditions and a firm’s investment decisions

Cited by 13 publications

References 31 publications

The impact of macroeconomic condition on investment-cash flow sensitivity of Indian firms

The impact of macroeconomic condition on investment-cash flow sensitivity of Indian firms

Optimal timing for a technology shift in mature markets of mobile communication

Mobile 5g Technology Adoption Investment Timing Decision Makers Clustering and Willingness to Invest Under Volatile Demand Changes

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