Macro-drivers and Over-investment of Russian Companies

Вестник Санкт-Петербургского университета. Серия 5. Экономика. 2019. Vol. 35. No. 4. P. 658–681.

Cherkasova V. A., Piankova Y.

Consideration of investment activity of companies in relation to macroeconomic factors suggests that they have an optimal investment policy. In the majority of works devoted to the analysis of investment activity of companies, attention has been mainly focused on the influence of internal factors as they are manageable, and less has been paid to external factors. In the Russian reality, since it may result in a companies’ bankruptcy, over-investment occurs less frequently than under-investment. Therefore, the priority question is — what has a bigger impact on over-investment, is it macroeconomic factors, or internal factors? The goal of our study is to establish the macro-drivers having the strongest impact on the likelihood of over-investment in Russian companies. For measuring the influence of macro-drivers, a binary choice regression model is estimated on the basis of panel data. The results reveal that the biggest impact on the probability of over-investment, has the oil price volatility decreasing it by 38%, the volatility of the exchange rate takes second place (–29%) and the  growth rate of the Gross Domestic Product and the inflation rate have an inconsequential influence (7% and less than –1% respectively). At the end of the paper, the analysis of the speed of adjustment to target levels of investment, shows that in the macroeconomic environment Russia experienced in 2012–2017, companies would have target levels of investment, adjustment to which would occur gradually, over a period of around 2 to 5 years depending on the industry.

Keywords: investment policy, agency conflict, speed of adjustment, over-investment, under-investment, target level of investment