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Investment, firm-specific uncertainty, and market power in South Africa

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  • Chortareas, Georgios
  • Noikokyris, Emmanouil
  • Rakeeb, Fathima Roshan

Abstract

We examine the role of firms’ market power in affecting the link between firm-specific uncertainty and corporate investment decisions in a small open economy with a pronounced degree of concentration and mark-ups. Using firm-level data from South African-listed firms, we find that corporate investment of firms with low market power and market share responds positively to idiosyncratic uncertainty. A high degree of market power, however, moderates this positive relationship, allowing for delayed investment under conditions of uncertainty. The results are robust to alternative measures of firm-specific uncertainty and firms’ competitive position. The finding of an association between firms’ market power/market share and their capital budgeting decisions under uncertainty calls for effective competition policies.

Suggested Citation

  • Chortareas, Georgios & Noikokyris, Emmanouil & Rakeeb, Fathima Roshan, 2021. "Investment, firm-specific uncertainty, and market power in South Africa," Economic Modelling, Elsevier, vol. 96(C), pages 389-395.
    • Handle: RePEc:eee:ecmode:v:96:y:2021:i:c:p:389-395
    DOI: 10.1016/j.econmod.2020.03.021
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    More about this item

    Keywords

    Corporate investment; Firm-specific uncertainty; Volatility; Market power; Market share;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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