Endogenous Uncertainty: Does Investment Inefficiency Contributes to Uncertainty?

Rita Juliana (), Irwan Adi Ekaputra (), Zaäfri Ananto Husodo () and Sung suk Kim ()
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Rita Juliana: Universitas Pelita Harapan, Indonesia
Irwan Adi Ekaputra: Universitas Indonesia, Indonesia
Zaäfri Ananto Husodo: Universitas Indonesia, Indonesia
Sung suk Kim: Universitas Pelita Harapan, Indonesia

Bulletin of Monetary Economics and Banking, 2024, vol. 27, issue 2, 265-298

Abstract: We investigate the endogenous relationship between firm-level investments and macro-level uncertainty for U.S publicly listed firms from 1996 Q1 to 2019 Q4. Based on the Vector AutoRegressive analysis, we learn that underinvestment tends to increase news-based Economic Policy Uncertainty (EPU); overinvestment increases macroeconomic uncertainty; and both under- and over-investment lead to increasing financial uncertainty. Furthermore, the information flow explanation is closely linked to a positive relationship between underinvestment and EPU. Meanwhile, the positive relationship between overinvestment and macroeconomic uncertainty is related to the excessive growth speculation explanation. The small (large) firm subsample analysis also reiterates the explanation of the information flow (excessive growth speculation).

Keywords: Economic policy uncertainty; Financial uncertainty; Macroeconomic uncertainty; Overinvestment; Underinvestment; VAR (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:27:y:2024:i:2d:p:265-298

DOI: 10.59091/2460-9196.2275

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