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Corporate investment in an uncertain environment: evidence from an emerging economy

Author

Listed:
  • Abdul Haque
  • Muhammad Ali Jibran Qamar
  • Muhammad Shahid Abbas

Abstract

This paper investigates how idiosyncratic and macro uncertainty influence corporate investment. The study employs an augmented dynamic accelerator model (a.k.a. error correction model of investment method) over a panel of 327 non-financial Pakistani firms during the sample period 2007-2017. The study finds that both the idiosyncratic and macro types of uncertainty significantly affect the investment pattern of firms. Idiosyncratic uncertainty, measured through product demand, exerts a positive effect on investment, while share price uncertainty has a negative effect on investment. While two measures of macro uncertainty: stock market volatility and macro uncertainty index have positive and negative effects, respectively. However, the idiosyncratic uncertainty moderates the negative effect of the macro uncertainty index. Moreover, the cash flow has a significant positive effect, while sales growth also increases the investment of firms and thus confirms the standard accelerator principle.

Suggested Citation

  • Abdul Haque & Muhammad Ali Jibran Qamar & Muhammad Shahid Abbas, 2023. "Corporate investment in an uncertain environment: evidence from an emerging economy," International Journal of Business Excellence, Inderscience Enterprises Ltd, vol. 31(3), pages 428-449.
    • Handle: RePEc:ids:ijbexc:v:31:y:2023:i:3:p:428-449
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