Investment and Performance of Firms: Correlation or Causality?

Almas Heshmati () and Hans Lööf ()

No 72, Working Paper Series in Economics and Institutions of Innovation from Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: The purpose of this paper is to provide empirical analysis of the two-way causal relationship between some important investment and performance indicators at the firm level, in particular controlling for differences in these relationships between two cohorts of small and middle-sized firms and large firms respectively. Investigated performance variables include sales, value added, profit, cash flow, capital structure and employment. A multivariate vector autoregressive approach is applied to a panel of Swedish firms observed between 1992 and 2000. In particular, an attempt is made to investigate whether causal relationships between R&D and firm performance are of a transitory nature and whether the causal relationships are similar for small and medium-sized and large firms. Results show evidence of some two way causal relationships, which are mainly transitory in character. Significant heterogeneity is observed in the firms’ investment and performance behavior by their size.

Keywords: R&D investment; productivity growth; financial constraints; panel data (search for similar items in EconPapers)
JEL-codes: C23 C33 G32 L19 O33 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2006-08-03
New Economics Papers: this item is included in nep-cfn, nep-eff and nep-ent
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://static.sys.kth.se/itm/wp/cesis/cesiswp72.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:cesisp:0072

Access Statistics for this paper

More papers in Working Paper Series in Economics and Institutions of Innovation from Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Vardan Hovsepyan ().