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Uncertainty and investment evidence from a panel of Chinese firms

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  • Abdul-Haque
  • Shaoping, Wang
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    Abstract

    Using data from various Chinese companies for the period 1994-2005 and applying GMM (System) technique, we report some stylized facts regarding the link between uncertainty and investment, where uncertainty is measured as the volatility of daily stock market returns. Controlling for the short- and long-run investment dynamics, we discover important effects of measured uncertainty on firm-level investment. Our study consistently indicates a positive and statistically significant effect of uncertainty on the company investment. Further more the macroeconomic and firm-specific components of uncertainty also have a significant positive effect on their own. Higher risk perception leading to higher investment, and in turn stronger aspirations of reinvestment.

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    Bibliographic Info

    Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

    Volume (Year): 19 (2008)
    Issue (Month): 3 (September)
    Pages: 237-248

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    Handle: RePEc:eee:streco:v:19:y:2008:i:3:p:237-248

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    Web page: http://www.elsevier.com/locate/inca/525148

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    1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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    10. Leahy, John V & Whited, Toni M, 1996. "The Effect of Uncertainty on Investment: Some Stylized Facts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 64-83, February.
    11. John Van Reenen & Nick Bloom & Steve Bond, 2006. "Uncertainty and investment dynamics," LSE Research Online Documents on Economics 2645, London School of Economics and Political Science, LSE Library.
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    Cited by:
    1. Ibrahim, Mansor H. & Ahmed, Huson Joher Ali, 2014. "Permanent and transitory oil volatility and aggregate investment in Malaysia," Energy Policy, Elsevier, vol. 67(C), pages 552-563.

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