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Exploring the role of uncertainty for corporate investment decisions in Germany

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Author Info
Ulf von Kalckreuth

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Abstract

This paper studies the impact of sales uncertainty on firms' investment outlays using the database of the Deutsche Bundesbank's corporate balance sheet statistics. The sample used for estimation is a panel of 4'234 west German manufacturing firms with 33'217 observations, covering the years 1987-1997. In 1996, these firms accounted for 49.3% of the total turnover of German incorporated manufacturers. As uncertainty indicators, we construct firm-specific, time varying volatility measures. Using Within estimators and GMM techniques, we find a moderately strong and consistently negative effect of uncertainty on investment. If the uncertainty indicator is increased by one standard deviation, the predicted investment demand will fall by about 3.7 % of its mean.

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Publisher Info
Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 139 (2003)
Issue (Month): II (June)
Pages: 173-206
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Handle: RePEc:ses:arsjes:2003-ii-3

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Related research
Keywords: Investment; Uncertainty; Panel Estimation;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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  8. Nicholas Bloom & Steve Bond & John Van Reenen, 2001. "The dynamics of investment under uncertainty," IFS Working Papers W01/05, Institute for Fiscal Studies. [Downloadable!]
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  10. von Kalckreuth, Ulf, 2000. "Exploring the role of uncertainty for corporate investment decisions in Germany," Discussion Paper Series 1: Economic Studies 2000,05, Deutsche Bundesbank, Research Centre. [Downloadable!]
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  18. Minton, Bernadette A. & Schrand, Catherine, 1999. "The impact of cash flow volatility on discretionary investment and the costs of debt and equity financing," Journal of Financial Economics, Elsevier, vol. 54(3), pages 423-460, December. [Downloadable!] (restricted)
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  21. Carruth, Alan & Dickerson, Andrew & Henley, Andrew, 2000. " What Do We Know about Investment under Uncertainty?," Journal of Economic Surveys, Blackwell Publishing, vol. 14(2), pages 119-53, April. [Downloadable!] (restricted)
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  22. Bo, Hong, 2002. "Idiosyncratic Uncertainty and Firm Investment," Australian Economic Papers, Blackwell Publishing, vol. 41(1), pages 1-14, March. [Downloadable!] (restricted)
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  24. Ulf von Kalckreuth, 2001. "Monetary transmission in Germany: new perspectives on financial constraints and investment spending," Working Paper Series 109, European Central Bank. [Downloadable!]
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  31. von Kalckreuth, Ulf & Chirinko, Robert S., 2002. "Further Evidence On The Relationship Between Firm Investment And Financial Status," Discussion Paper Series 1: Economic Studies 2002,28, Deutsche Bundesbank, Research Centre. [Downloadable!]
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  32. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Benoît Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, 09. [Downloadable!] (restricted)
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    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Robert Chirinko & Ulf von Kalckreuth, 2003. "On the German Monetary Transmission Mechanism: Interest Rate and Credit Channels for Investment Spending," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  2. Dirk Czarnitzki & Andrew Toole, 2007. "Business R&D and the Interplay of R&D Subsidies and Product Market Uncertainty," Review of Industrial Organization, Springer, vol. 31(3), pages 169-181, November. [Downloadable!] (restricted)
  3. Ulf von Kalckreuth, 2003. "Exploring the role of uncertainty for corporate investment decisions in Germany," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(II), pages 173-206, June. [Downloadable!]
    Other versions:
  4. Jochem, Axel, 2008. "International financial competitiveness and incentives to foreign direct investment," Discussion Paper Series 1: Economic Studies 2008,29, Deutsche Bundesbank, Research Centre. [Downloadable!]
  5. Christopher F. Baum & Dorothea Schäfer & Oleksandr Talavera, 2006. "The Effects of Industry-Level Uncertainty on Cash Holdings: The Case of Germany," Boston College Working Papers in Economics 637, Boston College Department of Economics, revised 05 Aug 2006. [Downloadable!]
    Other versions:
  6. Oleksandr Talavera & Christopher Baum & Mustafa Caglayan & Andreas Stephan, 2005. "Uncertainty Determinants of Corporate Liquidity," Money Macro and Finance (MMF) Research Group Conference 2005 73, Money Macro and Finance Research Group. [Downloadable!]
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  7. Czarnitzki, Dirk & Toole, Andrew A., 2006. "Business R&D and the Interplay of R&D Subsidies and Market Uncertainty," ZEW Discussion Papers 06-55, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  8. Jan Hendrik Fisch, 2008. "Real call options to enlarge foreign subsidiaries – The moderating effect of irreversibility on the influence of economic volatility and political instability on subsequent FDI," Diskussionsreihe "Global Business Management" 2, University of Augsburg, competence center for global business management. [Downloadable!]
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