Determinants of corporate investment decisions: the case study of Vietnam

Abstract

The purpose of this study is to examine the impact of cash flow, investment opportunities, and other financial factors on corporate investment decisions using panel data for Vietnamese listed firm from 2006-2010. This research adopts static model employing Fixed Effects which the most appropriate model in analyzing panel data through specification tests. The findings indicate that cash flow is a key determinant of corporate investment decisions. However, investment opportunities are positive and insignificant related to investment decisions. Other financial factors such as fixed capital intensity, business risk, firm size, leverage are all significant in predicting corporate investment decision. Moreover, the study also adopts dynamic model utilizing Generalized Method of Moments. The results confirm that cash flow is a main element in making corporate investment decisions. Nevertheless, investment opportunities are not significant in determining enterprises investment decisions. Besides, the lagged level of investment is negative and statistically significant correlated with investment decisions at firm level. Other financial factors, namely fixed capital intensity, sales growth, firm size and leverage are all significant in influencing corporate investment decisions.