Idiosyncratic Uncertainty and Firm Investment
We test the impact of idiosyncratic demand uncertainty on investment using a panel of 82 Dutch listed manufacturing firms in the period 1984-95. The measure of uncertainty is constructed by estimating a state space model at the firm level to isolate idiosyncratic uncertainty from other unobserved components. Generalised Method of Moments estimators show that demand uncertainty, which is specific to the firm, depresses firm investment. More interestingly, we find that idiosyncratic uncertainty is more important in explaining firm investment than total uncertainty that mixes idiosyncratic uncertainty with other sources of uncertainty. Copyright 2002 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia
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Volume (Year): 41 (2002)
Issue (Month): 1 (March)
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