Estimation of the Euler Investment Equation for Thailand

This paper employs the dynamic Arellano-Bond GMM estimator to estimate the basic Euler investment equation of the type used by Bond and Meghir (1994) to investigate the role of cash flow, sales and indebtedness to firms’ investment. The Euler investment equation includes both positive and negative investments. Thus, disinvestments can also be examined. The model is tested on firm-level panel data for a sample of selected companies in the Stock Exchange of Thailand for the period before the global subprime debt crisis. The results demonstrate that the important role of cash flow and sales in the determination of private fixed investment expenditure and show that indebtedness would have a negative impact on investment decisions.