The Inverted-U hypothesis for the effect of uncertainty on investment: Evidence from UK firms

Robert Lensink and Victor Murinde

The European Journal of Finance, 2006, vol. 12, issue 2, 95-105

Abstract: This paper offers the first attempt to test the inverted-U hypothesis for the effect of uncertainty on investment, implied by a number of recent theoretical studies, using a panel of UK firms. It is found that the effect of uncertainty on corporate investment is indeed approximated by an inverted-U shaped relationship: at low levels of uncertainty the effect is positive, but it becomes negative at high levels of uncertainty. This result represents the first empirical verification of the hypothesis with respect to UK firms.

Keywords: Inverted-U hypothesis; corporate investment and uncertainty; UK firms (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (4)

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DOI: 10.1080/13518470500145928

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