The Strategic Corporate Investment Cycle: Evidence from Slovenia

Abstract

The article examines strategic investments as the key source of value creation for owners and a central driver of corporate growth. Its main objective is to test three hypotheses: that strategic investments are the primary generator of company growth, that they increase company value through profit creation, and that they enhance productivity and overall business performance. The author develops a conceptual framework termed the strategic investment cycle, which links strategic investments, company growth, profit generation, equity growth, and the financing of new investments. Strategic investments stimulate growth through higher net sales revenues and added value. When investment decisions are rational and risks well managed, growth leads to profit, which-if retained-raises equity, firm value, and owners’ wealth. Retained earnings thus become an internal source for further strategic investments, closing the cycle. Based on an extensive literature review, the paper explains the individual constructs and their causal relationships. In the empirical section, the hypotheses are tested using statistical methods on primary and secondary data from a representative sample of medium-sized and large Slovenian companies over the period 2000-2017. All hypotheses are fully confirmed. The article concludes that strategic investment decisions have longterm effects on company performance and sustainable growth, with innovation, technological development, and managerial knowledge acting as key enablers of the strategic investment cycle.