On investment strategy of the company adjusted to the state monetary policy

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Abstract

The author examines the impact of the policy of the Bank of Russia, information asymmetry and business profitability on the investment agenda of Russian public companies. The tight monetary policy of the state is a restraining factor in the economy and is caused by a reduction in corporate investment. Faced with increased funding and external sanctions, Russian companies are forced to focus on internal sources of investment financing.

Using the analysis of panel data, the author substantiates that companies act in line with a precautionary motive, saving some money for subsequent financing of capital investments. Low information asymmetry makes debt financing a less expensive procedure.

The tangibility of assets is an indicator or hallmark when a company evaluates the cost of raising capital. The author chose a regression model with fixed effects to prove the impact of the increase in the cost of funding on the investment opportunities of the company. The unobservable individual effect may include various indicators, in particular, the quality of corporate governance, fluctuations in financial markets. Share price growth is directly related to the return on assets. An increase in the key interest rate worsens the company’s investment prospects. To save money the company can turn to debt financing in conditions of low information asymmetry. Tangible assets can serve as collateral, and debt is a fairly inexpensive financing option, even under financial constraints. To expand investment demand in the context of the main objectives of the National Security Strategy of the Russian Federation it is necessary to link the key interest rate of the Bank of Russia to profitability in key sectors of the economy.

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About the authors

Sergey Lutsenko

Institute of Economic Strategies, Department of Social Sciences, RAS; Council of the State Duma Defense Committee of the Federal Assembly of the Russian Federation

Author for correspondence.
Email: scorp_ante@rambler.ru

Director of the Center for Economic Analysis of Law and Problems of Law Enforcement, Member of the Expert

Russian Federation, Moscow; Moscow

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