To invest or not to invest? The factors that solve the question - in depth analysis of the manufacturing industry sector

Abstract

We examine macroeconomic and microeconomic factors that influence investment decisions taken by Portuguese SMEs. We find from a macroeconomic perspective, the EPU index, interest rate and inflation to be statistically significant and to drive down the investment rate, whereas the GDP growth rate has a positive impact. From a microeconomic perspective, we find lagged investment, EBITDA margin, lagged retention ratio, long-term debt, tangible collateralizable assets and firm size to be statistically significant factors positively influencing investment, whereas lagged effective tax rate and financing costs have a negative effect. In addition, motivated by the statistical relevance of collateralizable assets in explaining investments, we explore how bank financing can evolve within the context of a digital economy. Finally, an analysis of the manufacturing industry sector was performed. The findings show that different factors affect firms’ investment in this specific sector.