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The Impact of Market Sentiment on Business Fixed Investment in Malaysia

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Contemporary Issues in Finance, Investment and Banking in Malaysia

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Abstract

Understanding how market sentiment reflects the firm investment decision (capital expenditure) is crucial for businesses to make a proper investment strategy. This is because investor sentiment and firms’ investment decision-making lie behind the reasoning that a firm’s investment selection forms the most crucial part of its overall business decisions. Thus, this study examines how market sentiment, measured by Business Condition Index (BCI) and Consumer Sentiment Index (CSI), reflects Malaysian firms’ investment from 2000 to 2018. This study applies a system generalised method of moment (GMM) technique with 673 firms’ unbalanced panel data. Due to global uncertainty and market downturn, an investor’s confidence level can change from optimism to infectious pessimism. When the market is pessimistic, investors’ confidence becomes negative, leading to a decline in capital expenditure (CAPEX). The findings show that both market sentiment indicators significantly influence private firms’ investment. Higher market sentiment indices create optimism for firms and increase business fixed investment.

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Acknowledgements

Thankfully, the authors acknowledge financial support from the University Kebangsaan Malaysia (UKM) research grant (Grant number: EP-2020-005, YTI-UKM).

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Authors and Affiliations

  1. Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi, Selangor, Malaysia

    Zulkefly Abdul Karim & Norlin Khalid

  2. Ministry of Finance Malaysia, Putrajaya, Malaysia

    Ahmad Yusmadi Yusoff

  3. Faculty of Business and Economics, Universiti Malaysia Sarawak, Kota Samarahan, Sarawak, Malaysia

    Bakri Abdul Karim

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  1. Zulkefly Abdul Karim
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  2. Ahmad Yusmadi Yusoff
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  3. Bakri Abdul Karim
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  4. Norlin Khalid
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Correspondence to Zulkefly Abdul Karim .

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Editors and Affiliations

  1. Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi, Selangor, Malaysia

    Zulkefly Abdul Karim

  2. Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi, Selangor, Malaysia

    Ruzita Abdul Rahim

  3. Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi, Selangor, Malaysia

    Wai Yan Wong

  4. Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi, Selangor, Malaysia

    Siti Farah Dilla Zakaria

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Karim, Z.A., Yusoff, A.Y., Karim, B.A., Khalid, N. (2024). The Impact of Market Sentiment on Business Fixed Investment in Malaysia. In: Abdul Karim, Z., Abdul Rahim, R., Wong, W.Y., Zakaria, S.F.D. (eds) Contemporary Issues in Finance, Investment and Banking in Malaysia. Springer, Singapore. https://doi.org/10.1007/978-981-99-5447-6_2

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