Investment, firm-specific uncertainty, and market power in South Africa

Georgios Chortareas, Emmanouil Noikokyris and Fathima Roshan Rakeeb

Economic Modelling, 2021, vol. 96, issue C, 389-395

Abstract: We examine the role of firms’ market power in affecting the link between firm-specific uncertainty and corporate investment decisions in a small open economy with a pronounced degree of concentration and mark-ups. Using firm-level data from South African-listed firms, we find that corporate investment of firms with low market power and market share responds positively to idiosyncratic uncertainty. A high degree of market power, however, moderates this positive relationship, allowing for delayed investment under conditions of uncertainty. The results are robust to alternative measures of firm-specific uncertainty and firms’ competitive position. The finding of an association between firms’ market power/market share and their capital budgeting decisions under uncertainty calls for effective competition policies.

Keywords: Corporate investment; Firm-specific uncertainty; Volatility; Market power; Market share (search for similar items in EconPapers)
JEL-codes: D81 E22 G31 L11 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:96:y:2021:i:c:p:389-395

DOI: 10.1016/j.econmod.2020.03.021

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