The Dynamic Effect of Uncertainty on Corporate Investment through Internal and External Financing

Hitoshi Inoue, Masayo Kani and Kiyotaka Nakashima

MPRA Paper from University Library of Munich, Germany

Abstract: Using firm-level data on the Japanese manufacturing industry, this study identifies the causal effect of uncertainty on the dynamic relation between corporate investment and financing conditions. It demonstrates that the cautionary effect is increasingly dominant under high uncertainty irrespective of the type of corporate investment—capital investment and R&D—and that this result remains even in the weak instrument robust inference. Hence, the dominance of the cautionary effect over the financing constraint effect makes actual corporate investment decisions under high uncertainty indifferent to the firm’s financing conditions.

Keywords: uncertainty shock; capital investment; R&D; sensitivity to internal and external financing; system GMM; weak instruments (search for similar items in EconPapers)
JEL-codes: G01 G31 G32 (search for similar items in EconPapers)
Date: 2019-12-27
New Economics Papers: this item is included in nep-cfn
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https://mpra.ub.uni-muenchen.de/98533/1/MPRA_paper_98533.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/99939/8/MPRA_paper_99939.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/109563/1/MPRA_paper_109563.pdf revised version (application/pdf)

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