Investment of Large Caps and Growth Companies in the 1990 S I

This paper contributes to the large field of research on investment behavior. In contrast to most studies, which are based on US data, we examine investment activities of European companies with panel data from the 1990s. We analyze four different drivers of investment output, liquidity, cost of capital and expectations and derive hypotheses for investment behavior in general and expected differences between large caps and growth companies. All variables significantly explain investment, however, there are differences in their explanatory power. Two of the most remarkable findings concern the role of cash flow and Tobin's q for investment. In contradiction to a large part albeit not all of the previous research, cash flow is more important for large and q more important for growth companies. These findings are consistent for investment in different balance sheet items, in off-balance sheet assets, as well as in human capital.