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Uncertainty and Growth of the Firm

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  • Robert Lensink

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  • Paul Steen
  • Elmer Sterken

Abstract

Using data from a survey of 1,097 small and medium-sized non-listed Dutch firms we investigate the relation between growth of the firm and uncertainty. We focus on the impact of sales uncertainty on various types of investment. We find that sales uncertainty, measured by the conditional variance, has a mixed impact on various investment decisions. We include an analysis of the relevance of financial structure and firm size on the growth-uncertainty relation. Copyright Springer 2005

Suggested Citation

  • Robert Lensink & Paul Steen & Elmer Sterken, 2005. "Uncertainty and Growth of the Firm," Small Business Economics, Springer, vol. 24(4), pages 381-391, May.
  • Handle: RePEc:kap:sbusec:v:24:y:2005:i:4:p:381-391
    DOI: 10.1007/s11187-005-7121-z
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    References listed on IDEAS

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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. 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.
    3. Pindyck, Robert S., 1986. "Capital risk and models of investment behavior," Working papers 1819-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    4. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
    5. Sarkar, Sudipto, 2000. "On the investment-uncertainty relationship in a real options model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 219-225, February.
    6. Caballero, Ricardo J & Pindyck, Robert S, 1996. "Uncertainty, Investment, and Industry Evolution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 641-662, August.
    7. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-1148, September.
    8. Gregory K. Bell & José M. Campa, 1997. "Irreversible Investments And Volatile Markets: A Study Of The Chemical Processing Industry," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 79-87, February.
    9. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
    10. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    11. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-233, March.
    12. Catherine Pattillo, 1998. "Investment, Uncertainty, and Irreversibility in Ghana," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 522-553, September.
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    Cited by:

    1. K. Farla, 2014. "Determinants of firms' investment behaviour: a multilevel approach," Applied Economics, Taylor & Francis Journals, vol. 46(34), pages 4231-4241, December.
    2. Vivek Ghosal & Yang Ye, 2015. "Uncertainty and the employment dynamics of small and large businesses," Small Business Economics, Springer, vol. 44(3), pages 529-558, March.
    3. D.B. Audretsch & L. Klomp & E. Santarelli & A.R. Thurik, 2004. "Gibrat's Law: Are the Services Different?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 24(3), pages 301-324, May.
    4. Bontempi, Maria Elena & Golinelli, Roberto & Parigi, Giuseppe, 2010. "Why demand uncertainty curbs investment: Evidence from a panel of Italian manufacturing firms," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 218-238, March.
    5. Ravi Dhar & William Goetzmann, 2005. "Institutional Perspectives on Real Estate Investing: The Role of Risk and Uncertainty," Yale School of Management Working Papers ysm457, Yale School of Management, revised 01 Jul 2005.
    6. Zélia Serrasqueiro & Paulo Maçãs Nunes, 2008. "Performance and size: empirical evidence from Portuguese SMEs," Small Business Economics, Springer, vol. 31(2), pages 195-217, August.
    7. Ghosh, Saibal, 2009. "Do productivity and ownership really matter for growth? Firm-level evidence," Economic Modelling, Elsevier, vol. 26(6), pages 1403-1413, November.
    8. Mark J. Koetse & Henri L.F. de Groot & Raymond J.G.M. Florax, 2011. "A Meta-Regression Analysis of the Investment–Uncertainty Relationship," Chapters,in: Improving Energy Efficiency through Technology, chapter 7 Edward Elgar Publishing.
    9. Dirk Burghardt & Marco Helm, 2015. "Firm growth in the course of mergers and acquisitions," Small Business Economics, Springer, vol. 44(4), pages 889-904, April.
    10. Vieira, Elizabeth S. & Lepori, Benedetto, 2016. "The growth process of higher education institutions and public policies," Journal of Informetrics, Elsevier, vol. 10(1), pages 286-298.
    11. Bilitis Schoonjans & Philippe Cauwenberge & Heidi Bauwhede, 2013. "Formal business networking and SME growth," Small Business Economics, Springer, vol. 41(1), pages 169-181, June.
    12. Skuras, Dimitris & Tsegenidi, Kyriaki & Tsekouras, Kostas, 2008. "Product innovation and the decision to invest in fixed capital assets: Evidence from an SME survey in six European Union member states," Research Policy, Elsevier, vol. 37(10), pages 1778-1789, December.
    13. repec:bis:bisifc:45-17 is not listed on IDEAS
    14. Vivek Ghosal & Yang Ye, 2013. "Business Decision-Making under Uncertainty: Evidence from Employment and Number of Businesses," CESifo Working Paper Series 4312, CESifo Group Munich.
    15. Kounetas, Kostas & Skuras, Dimitris & Tsekouras, Kostas, 2011. "Promoting energy efficiency policies over the information barrier," Information Economics and Policy, Elsevier, vol. 23(1), pages 72-84, March.

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    Keywords

    firm size; uncertainty;

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