New Capital Investment vs. Acquisitions: Is There a Trade-Off? Evidence from Russian Public Corporates

P. 55–62.

Sholomitskaya E.

Being one item by definition investment is actually not homogenous: generally, there are two major types – capital investment and investment in M&A deals. They are different from firm’s point of view and influence economic growth through different channels. In this paper, we examine the relationship between new capital investments and investments in acquisitions in Russia using data for more than one hundred companies in 2004-2014. The period is split into two sub-samples – period of rapid growth (before the global financial crisis of 2008) and post-crisis one (after 2009). Our results show that relationship between fixed investments and investments in acquisitions is opposite for two periods. In the first period, relationship between two types of investment was positive for non-state companies and insignificant for state ones that possibly means that companies did not face the choice of investment form. After the global financial crisis, when monetary conditions and access to external capital markets for Russia tightened considerably, the relationship between investment in new capital and investment in acquisitions became negative. It proves that companies faced a trade-off between two investment forms. Moreover, acquisitions became dependent on company’s profitability. Therefore, the trade-off can be more severe in developing economies since they are more dependent on external financing. These results can provide policy implications given the new understanding of financial constraint significance for investment.

Keywords: Russia, financial constraints, M&A, corporate investment, investment in fixed assets

In book

International Scientific Symposium “Economics, Business & Finance” Proceedings

Jurmala: IRIS-ALKONA, 2016.