Accounting and Macroeconomic Variables Explaining Investment: An Empirical Study with Panel Data in the Portuguese Textile Sector

Abstract

This study analyses the variables that influence investment in a sample of small, labour-intensive companies in a sector that is highly dependent on external demand and the world economy. The aim is to test the three traditional theories of investment (neoclassical theory, free cash flow theory and agency theory), as well as consider the existence of other variables endogenous and exogenous to the company, in order to obtain a model that is appropriate to the reality of the companies in the sample, which consists of 3859 companies in the Portuguese textile sector, for the period from 2010 to 2022. Although there are many studies on the subject, the sample of companies used is different from the others, presenting a unique perspective for understanding investment dynamics in this type of company. The methodology used involves estimating panel data models using the GMM method. The results show that there is a statistically significant and negative relationship between liquidity and asset turnover and investment, so the free cash flow and neoclassical theories, respectively, are partially verified. The agency theory is not confirmed. Other variables are significant in explaining investment: the debt structure is statistically negative, while the size of the company, the GDP and the interest rate are statistically positive. Return on assets proved not to be statistically significant in explaining investment. To summarise, the study highlights the need for financial strategies adapted to the unique characteristics of small businesses.