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Investment, uncertainty and irreversibility: evidence from belgian accounting data

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Author Info
Danny Cassimon () (University of Antwerp, Faculty of Applied Economics)
Peter-Jan Engelen () (University of Antwerp, Faculty of Applied Economics)
Hilde Meersman () (University of Antwerp, Faculty of Applied Economics)
Martine Van Wouwe () (University of Antwerp, Faculty of Applied Economics)

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Abstract

This paper investigates the effects of uncertainty on the investment behaviour using firm-level data for a sample of Belgian manufacturing firms. In general, the results confirm former analysis at the aggregate level, stating that uncertainty does matter but that the sign of the effect and its magnitude largely depend on which proxies are used and how they are defined. It is shown that uncertainty has mainly an impact on the decision to invest and to a much lesser extent on the amount invested. Furthermore, the difference between reversible and irreversible investment is crucial. The impact of volatility on irreversible investment is far more larger than on reversible investment. In some cases, the amount of reversible investment will increase with higher volatility.

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Publisher Info
Paper provided by National Bank of Belgium in its series Research series with number 200205-4.

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Length: 41 pages
Date of creation: May 2002
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Handle: RePEc:nbb:reswpp:200205-4

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Keywords: investment uncertainty irreversibility

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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  1. Bertola, Guiseppe & Caballero, Ricardo J, 1994. "Irreversibility and Aggregate Investment," Review of Economic Studies, Blackwell Publishing, vol. 61(2), pages 223-46, April. [Downloadable!] (restricted)
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  2. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  3. Robert S. Pindyck & Andres Solimano, 1993. "Economic Instability and Aggregate Investment," NBER Working Papers 4380, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. 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. [Downloadable!] (restricted)
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  5. Caballero, Ricardo J. & Pindyck, Robert S., 1992. "Uncertainty, investment, and industry evolution," Working papers 3460-92., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
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  6. Paul Butzen & Catherine Fuss & Philip Vermeulen, 2002. "The impact of uncertainty on investment plans," Research series 200205-5, National Bank of Belgium. [Downloadable!]
  7. Luigi Guiso & Giuseppe Parigi, 1999. "Investment And Demand Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 185-227, February. [Downloadable!] (restricted)
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  8. Catherine Pattillo, 1998. "Investment, Uncertainty, and Irreversibility in Ghana," IMF Staff Papers, Palgrave Macmillan Journals, vol. 45(3), pages 5. [Downloadable!] (restricted)
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