1. FACTORS AFFECTING FIRM’S
INVESTMENT DECISION
NURSUHADA BINTI YACOB
2011652376

2. BACKGROUND OF THE STUDY
Leverage
Sales
Cash Flow
Liquidity
Profitability
Leverage
Sales
Cash Flow
Liquidity
Profitability
 Capital investment decision
 Long Term effects
 Generate stable returns and high growth
Trading and Services Company
5 years
80 companies

3. PROBLEM STATEMENT
Whether the selected firms use the
several factors in making investment
decisions.
Which factors will be the most affecting
the firm’s investment decision.

4. RESEARCH OBJECTIVES
To identify the significant relationship between
leverage, sales, cash flow, liquidity and
profitability with firm’s investment decision.
To examine the most significant factors.
To determine the correlation of the factors.

5. LITERATURE REVIEW
AUTHOR CITATION
Myers (1977) There is significant positive relationship between debt
ratio and investment.
Azzoni and Kalatzis
(2006)
Sales presented a positive and significant relationship
with investment in all cases.
Devereux and
Schiantarelli (1990)
Impact of cash flow on investment decision is greater for
larger firms.
Johnson (2003) Increase of liquidity risk, which is turn, negatively affects
the firm’s investment.
Bhattacharyya (2008) Profitability is related as one of the major determinants

6. RESEARCH QUESTIONS &
HYPOTHESES
RQa: Is there any significant relationship between leverage and
firm’s investment decision?
Ha0 : There is no significant relationship between leverage and
firm’s investment decision.
RQb: Is there any significant relationship between sales and
firm’s investment decision?
Hb0 : The significant relationship between sales and firm’s
investment decision is negative.

7. RQc: Is there any significant relationship between
cash flow and firm’s investment decision?
Hc0 : The significant relationship between cash flow
and firm’s investment decision is negative.
RQd: Is there any significant relationship between
liquidity and firm’s investment decision?
Hd0 : There is no significant relationship between
liquidity and firm’s investment decision.
RQe: Is there any significant relationship between
profitability and firm’s investment decision?
He0 : The significant relationship between profitability
and firm’s investment decision is negative.

8. THEORETICAL FRAMEWORK
Investment
Leverage
Sales
Cash Flow
Liquidity
Profitability
Independent Variables Dependent Variables

9. RESEARCH METHODOLGY
RESEARCH DESIGN
 Exploratory Research
 Descriptive Research
DATA COLLECTION METHOD
 Secondary Data
DATA PROCESSING ANALYSIS
 E-views 7.0
 Data Excel
REGRESSION MODEL
I / K= α + β1LEVERAGE + β2SALES+ β3CF + β4LIQ + β5PROFIT

10. VARIABLES
AUTHOR FORMULA
Aivazian, Ge et al. (2005) INVESTMENT = (Capital Expenditure –
Depreciation)
Net Fixed Asset
Peyer and Sivdasani (2001) &
Aivazian, Ge et al. (2005)
LEVERAGE = BV of Long Term Debt
BV of Total AssetAzzoni and Kalatzis (2006) SALES = Net Sales
Net Fixed Asset
Aivazian, Ge et al. (2005) CASH FLOW = Operating Income – Tax –
InterestMyers and Rajan (1998) LIQUIDITY = Current Asset

11. RESEARCH FINDINGS
DESCRIPTIVE STATISTICS
VARIABLE Mean Median Std.
Deviation
Skewness Kurtosis
INVESTMENT 15.00293 8.673500 18.66866 2.889300 12.44549
LEVERAGE 26.11445 25.92495 17.20584 0.274221 2.345714
SALES 2.862764 1.610000 3.998695 3.766501 19.97980
CASH FLOW 163.6207 33.93855 467.1769 5.686789 41.40855
LIQUIDITY 2.606507 1.796400 2.927755 3.785563 18.37448
PROFITABILITY 7.265853 6.420000 6.996398 1.234365 5.440486

12. CORRELATION RESULT
VARIABLE INVESTMEN
T
LEV SALES CFLOW LIQ PROFIT
INVESTMENT 1.000000 0.045503 0.023537 -0.111315 0.031330 0.261392
LEV 0.045503 1.000000 0.251870 0.098193 -0.253620 -0.162336
SALES 0.023537 0.251870 1.000000 0.211552 0.015007 0.335708
CFLOW -0.111315 0.098193 0.211552 1.000000 -0.081013 0.048818
LIQ 0.031330 -0.253620 0.015007 -0.081013 1.000000 0.000870
PROFIT 0.261392 -0.162336 0.335708 0.048818 0.000870 1.000000

13. REGRESSION RESULT
Variable Coefficient Std. Error t-Statistic Prob.
C 5.518179 2.366592 2.331699 0.0202
LEVERAGE 0.163078 0.057817 2.820590 0.0050
SALES -0.465930 0.256550 -1.816136 0.0701
CASH FLOW -0.004630 0.001958 -2.364836 0.0185
LIQUIDITY 0.390735 0.317470 1.230776 0.2191
PROFITABILITY 0.866930 0.140814 6.156553 0.0000
R-squared 0.104232 S.D. dependent var 18.66866
Adjusted R-squared 0.092864 Prob(F-statistic) 0.000000

14. HYPOTHESES SUMMARY

15. CONCLUSION
The significant factors of firm’s
investment decisions are leverage, cash
flow and profitability.