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The impact of financial crises and tolerance for uncertainty

  • Inklaar, Robert
  • Yang, Jing

Financial crises can have severe negative effects on investment. One reason for this is that financial crises increase uncertainty, increasing the real option value of delaying investment. In this paper, we show that the negative effect of crises on investment differs significantly across countries: in countries with low tolerance for uncertainty, the negative effect is strong. The negative effect is absent in countries that are more tolerant of uncertainty. These findings are similar across different types of financial crisis; they vary as predicted across type of investor, asset and industry; and they are not driven by uncertainty-averse countries adopting more rigid institutions.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 97 (2012)
Issue (Month): 2 ()
Pages: 466-480

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Handle: RePEc:eee:deveco:v:97:y:2012:i:2:p:466-480
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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