Investment Strategies, Perceived Competition and Firm Performance of Micro Firms: the Case of Trento
This paper investigates how competition affects firm propensity to invest in different types of investment and how these investment decisions made by entrepreneurs affect firm performance. Two measures of the intensity of competition have been used in our analyses: perception-based indicator of the intensity of competition and the market volatility indicator. Using a unique longitudinal Italian database we evaluated the impact of competition on firms' propensity to invest in 2010 in five types of investment: investment in land and buildings, investment in machinery and equipment, investment in training, investment in innovation, and investment in marketing and advertising. We found that those firms that suppose that there is competition have higher propensity to invest in machinery and equipment and in marketing and advertising. In addition, our results show that higher market volatility reduces firms' propensity to invest in machinery and equipment, innovation, and training.
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