The Influence of Financial Risks on the Investment Decision of Enterprises

The financial risks on investment decisions of enterprises risks cover not only the restrictions of financing in the form of interest impacts and credit restrictions usually mentioned in literature, but especially the risk of not being able to serve raised credits any longer.
The author describes the existing theoretical or empirical pieces of work, which include financial risks in the business investment calculation; however, the risk of bankruptcy is neglected nearly without exception. Afterwards, he deduces an empirically revisable investment function in the context of the neoclassical model, which explicitly contains this risk of bankruptcy.
Subsequently, this investment function is estimated with regard to West German enterprise data taken from the balance data base of the German Federal Bank.
At the same time, various panel-econometrical procedures are used. It is shown that the risk of bankruptcy of enterprices has a significant influence on their investment decision. Therefore, the risk may not be ignored regarding the economical modelling of investment decisions.