Macro-drivers and Over-investment of Russian Companies

Abstract

A consideration of investment activity in relation to macroeconomic factors suggests that companies have an optimal investment policy. In the majority of studies that analyze companies’ investment activities, attention has been focused mainly on the influence of internal factors as they are manageable, and less has been paid to external factors. In the Russian reality, since this may result in bankruptcy, over-investment occurs less frequently than underinvestment. Therefore, the main question is: What has a bigger impact on over-investment, macroeconomic factors or internal factors? The goal of our study is to establish macro-drivers as having the strongest impact on the likelihood of over-investment in Russian companies. To measure 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 was oil price volatility, decreasing it by 38 %. Exchange rate volatility was second place (–29 %), and GDP growth rate and inflation have an inconsequential influence (7 % and less than –1 % respectively). 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.