Determinants of firm investment: Evidence from Slovenian firm-level data

This paper examines the role of corporate balance sheet positions in determining Slovenian firms' investment behaviour. The analysis is based on the theoretical framework of the financial accelerator which suggests that firms' financial positions influence their real behaviour. The underlying hypotheses of the financial accelerator are tested, namely its asymmetric effect during crises and in respect to firms' size. In addition, the existence of differences in the relationship between the balance sheet variables and investment across various sectors is examined. The results indicate that indeed balance sheet strength is an important determinant of Slovenian firms' investment behaviour. Moreover, this relationship is affected by a firm's size but the effect of the crisis or its sectoral specialization do not seem to materially affect it.