Investment and Corporate Financial Constraints: The Case of European Union Listed Companies

Abstract

The purpose of this study is to identify the factors that influence the investment decisions of companies. Particular focus is put on the direction of the relationships studied, taking into account the division between companies that may face financial constraints and those that have no problem with access to capital. The examined entities are non-financial companies listed on stock exchanges in 26 European Union countries between 2011 and 2019. Panel data models were used to empirically identify factors influencing investment decisions. The results indicate that factors such as cash flow size, debt, share of fixed assets in total assets, growth opportunities, operational risk, or country economic growth have a positive impact on corporate investment, while company size has a negative impact. However, when the entire research sample is divided into financially constrained and unconstrained companies, the direction of the relationship reverses in financially constrained companies for cash flow and debt. The study contributes to the literature with strong evidence of a change in the relationship between cash flow and investment volume depending on the financial situation of companies in European countries. Similar studies have been conducted on a countrywide basis. The presented study covers a large block of countries that are of particular importance to the global economy.