Determinants of firms' investment behaviour: A multilevel approach
Kristine Farla
#2013-055
This paper investigates micro and macro determinants of firms'
investment behaviour using firm data from 101 developing and emerging
economies. A substantial number of firms in our sample 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. Although we find that both
micro and macro determinants explain investment behaviour, firms'
investment behaviour is heterogeneous in nature and has little
dependency on a country's macroeconomic setting. In addition, we find
that, on average, firms which 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 property rights protection and control of
corruption and we find some evidence which suggests that foreign owned
firms located in countries with `good' institutions invest relatively
more.
Keywords: Multilevel, Investment, Foreign ownership, Institutions
JEL Classification: E22, F20, O11, O12, O43