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Regional market uncertainty and corporate investment

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  • Song, Jeongseop
  • Zhang, Fan

Abstract

Does the regional market matter for firms’ investment decisions? This study is the first to examine the effect of regional market uncertainty on corporate investment. We use textual analysis of annual financial reports (10-K filings) to construct firm-level exposure to uncertainty from individual states and find that firms significantly reduce investments when their economically relevant regions face higher uncertainty. The negative impacts come from both headquartered states and other relevant states. Notably, we find the effects of regional uncertainty to be stronger for firms with higher investment irreversibility at the regional level as well as firm level. We further demonstrate that the degree of investment reduction under regional uncertainty is greater for financially constrained firms. Overall, the findings of this study suggest that uncertainty in regions of firms’ economic interest is an important component of preventive delays in investment decisions.

Suggested Citation

  • Song, Jeongseop & Zhang, Fan, 2024. "Regional market uncertainty and corporate investment," The North American Journal of Economics and Finance, Elsevier, vol. 69(PB).
    • Handle: RePEc:eee:ecofin:v:69:y:2024:i:pb:s1062940823001365
    DOI: 10.1016/j.najef.2023.102013
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    More about this item

    Keywords

    Corporate investment; Regional uncertainty; Location; 10-K filings; Investment irreversibility;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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