Firms' investment decisions in response to demand and price uncertainty

Catherine Fuss and Philip Vermeulen

No 45, Working Paper Research from National Bank of Belgium

Abstract: We estimate the effect of demand and price uncertainty on firms' investment decisions from a panel of manufacturing firms. Uncertainty measures are derived from firms' subjective qualitative expectations. They are close to their theoretical counterparts, the variances of future demand and price shocks. We find that demand uncertainty depresses planned and realized investment, while price uncertainty is insignificant. This is consistent with the behavior of monopolistic firms with irreversible capital (Caballero, 1991). Further, firms revise their investment plans very little. They may do so in response to new information on sales growth, but not as a result of reduced uncertainty.

Keywords: investment; uncertainty; real options; survey data; panel data (search for similar items in EconPapers)
JEL-codes: C23 D21 D24 D81 D92 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2004-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://www.nbb.be/doc/ts/publications/wp/wp45en.pdf (application/pdf)

Related works:
Journal Article: Firms' investment decisions in response to demand and price uncertainty (2008)
Working Paper: Firms' investment decisions in response to demand and price uncertainty (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:200404-2

Access Statistics for this paper

More papers in Working Paper Research from National Bank of Belgium Contact information at EDIRC.
Bibliographic data for series maintained by ().