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Investment and Performance of Firms: Correlation or Causality?
KTH, School of Industrial Engineering and Management (ITM), Centres, Centre of Excellence for Science and Innovation Studies, CESIS. KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Economics.ORCID iD: 0000-0002-5871-8571
2006 (English)Report (Other academic)
Abstract [en]

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

Place, publisher, year, edition, pages
CESIS, KTH Royal Institute of Technology , 2006. , 34 p.
CESIS Working Paper Series in Economics and Institutions of Innovation, 72
Keyword [en]
R&D investment, productivity growth, financial constraints, panel data
National Category
URN: urn:nbn:se:kth:diva-72299OAI: diva2:487432
QC 20120208Available from: 2012-02-08 Created: 2012-01-31 Last updated: 2012-02-08Bibliographically approved

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