Business Decision-Making under Uncertainty: Evidence from Employment and Number of Businesses
AbstractUsing the framework provided by the asymmetric-information and real-options theories, we examine the impact of uncertainty on firms’ decisions and market outcomes. We construct alternative measures of uncertainty based on survey of professional forecasters and our estimation of regression-based forecasting models for GDP growth, inflation, S&P500 stock price index, and fuel prices. Our results indicate that greater uncertainty has a negative impact on growth of employment and the number of businesses, and the effects are primarily felt by relatively smaller businesses. The impact on large businesses are generally non-existent or weaker. Our results suggest that to truly understand the effects of uncertainty on firms’ decisions, we need to focus on the relatively smaller and entrepreneurial businesses. We discuss some implications for framing of policy.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4312.
Date of creation: 2013
Date of revision:
uncertainty; small businesses; entrepreneurship; employment; number of businesses; financing-constraints; real-options;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
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