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Volume 70, Issue 4 Special Issue: Contemporary Issues in Empirical Finance

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Asymmetric Effects of Firm Investment Determinants: Evidence from Post-Transformation Economies

Bakova, Klara; Kapounek, Svatopluk

Year: 2020   Volume: 70   Issue: 4 Special Issue: Contemporary Issues in Empirical Finance   Pages: 373-384

Abstract: The paper investigates asymmetric effects of liquidity and profitability on the investment behavior of publicly traded firms in post-transformation economies. We show that firms in post-transformation economies face more restrictive access to external sources of funds stemming from underdeveloped capital markets. We confirm that management of firms uses free cash flow to increase firm investment activities. On the contrary, liquidity decreases do not affect investment decision making processes of firms. We also confirm positive effects of increasing profitability and negative effects of decreasing profitability on the firm investment behavior. However, our results are robust only for the firms with financial leverage reported between 1 % and 50 %. Investment behavior of over indebted firms and low indebted firms is affected mostly by aggregate economic activity.

JEL classification: D21, G30, C23

Keywords: financial leverage, cash flow, profitability, post-transformation economies, Visegrad countries

RePEc: https://ideas.repec.org/a/fau/fauart/v70y2020i4p373-384.html

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