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Does demand and price uncertainty affect Belgian and Spanish corporate investment?

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  • Peeters, Marga

Abstract

Several recent studies have shown that uncertainty affects investment decisions. Specifically, demand and/or price uncertainty are found to depress corporate investment in e.g. the United States. This paper investigates whether similar results hold for Belgium and Spain, countries where financial markets are less developped and many firms evidently face financial constraints. Uncertainty of demand, output prices and investment prices are measured by the standard deviation of (pre-)filtered Belgian (1984-1992) and Spanish (1983-1993) panel data, and included as explanatory variables in the investment equations derived from a neo-classical model. The results indicate that investment behaviour towards uncertainty differs significantly between low- and high-leveraged firms in both Belgium and Spain.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23604.

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Date of creation: 1997
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Handle: RePEc:pra:mprapa:23604

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Keywords: corporate investment; uncertainty; neo-classical;

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References

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  1. Robert S. Pindyck & Andrés Solimano, 1993. "Economic Instability and Aggregate Investment," NBER Chapters, in: NBER Macroeconomics Annual 1993, Volume 8, pages 259-318 National Bureau of Economic Research, Inc.
  2. Abel, Andrew B. & Eberly, Janice C., 1999. "The effects of irreversibility and uncertainty on capital accumulation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 44(3), pages 339-377, December.
  3. Ghosal, Vivek & Loungani, Prakash, 1996. "Product Market Competition and the Impact of Price Uncertainty on Investment: Some Evidence from US Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 217-28, June.
  4. John V. Leahy & Toni M. Whited, 1995. "The Effect of Uncertainty on Investment: Some Stylized Facts," NBER Working Papers 4986, National Bureau of Economic Research, Inc.
  5. repec:fth:baesse:9506 is not listed on IDEAS
  6. Whited, Toni M., 1994. "Problems with identifying adjustment costs from regressions of investment on q," Economics Letters, Elsevier, Elsevier, vol. 46(4), pages 327-332, December.
  7. 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, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  8. James Banks & Richard Blundell & Agar Brugiavini, 1995. "Income uncertainty and consumption growth in the UK," IFS Working Papers, Institute for Fiscal Studies W95/13, Institute for Fiscal Studies.
  9. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, Elsevier, vol. 5(2), pages 258-266, October.
  10. Alonso-Borrego, C., 1994. "Estimating Dynamic Investment Models with Financial Constraints," Papers, Centro de Estudios Monetarios Y Financieros- 9418, Centro de Estudios Monetarios Y Financieros-.
  11. Ángel Estrada & Javier Vallés, 1995. "Investment and Financial Costs: Spanish Evidence with Panel Data," Banco de Espa�a Working Papers 9506, Banco de Espa�a.
  12. Barran, Fernando & Peeters, Marga, 1998. "Internal finance and corporate investment: Belgian evidence with panel data," MPRA Paper 28504, University Library of Munich, Germany.
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Cited by:
  1. Ansgar Belke & Ralph Setzer, 2003. "Exchange Rate Variability and Labor Market Performance in the Visegrád Countries," Economic Change and Restructuring, Springer, Springer, vol. 36(2), pages 153-175, June.
  2. 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), Swiss Society of Economics and Statistics (SSES), vol. 139(II), pages 173-206, June.
  3. Ansgar Belke, 2002. "EU Enlargement, Exchange Rate Variability and Labor Market Performance," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim, Department of Economics, University of Hohenheim, Germany 213/2002, Department of Economics, University of Hohenheim, Germany.
  4. Lensink, Robert & Sterken, Elmer, 2000. " Capital Market Imperfections, Uncertainty and Corporate Investment in the Czech Republic," Economic Change and Restructuring, Springer, Springer, vol. 33(1-2), pages 53-70.
  5. Lensink, Robert & Bo, Hong & Sterken, Elmer, 1999. "Does uncertainty affect economic growth? : an empirical analysis," CCSO Working Papers, University of Groningen, CCSO Centre for Economic Research 199902, University of Groningen, CCSO Centre for Economic Research.
  6. repec:dgr:uvatin:2006060 is not listed on IDEAS
  7. Mark J. Koetse & Henri L.F. de Groot & Raymond J.G.M. Florax, 2006. "The Impact of Uncertainty on Investment: A Meta-Analysis," Tinbergen Institute Discussion Papers 06-060/3, Tinbergen Institute.
  8. Van Els, Peter & Peeters, Marga, 1999. "De baten van een gemeenschappelijke Europese munt
    [The benefits of a common European currency]
    ," MPRA Paper 28714, University Library of Munich, Germany.
  9. Lensink, Robert & Steen, Paul van der & Sterken, Elmer, 2000. "Uncertainty and growth of the firm," CCSO Working Papers, University of Groningen, CCSO Centre for Economic Research 200014, University of Groningen, CCSO Centre for Economic Research.
  10. Lensink, Robert & Steen, Paul van & Sterken, Elmer, 2000. "Is size important for the investment-uncertainty relationship? : an empirical analyses for Dutch firms," Research Report 00E03, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

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