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Exploring the role of uncertainty for corporate investment decisions in Germany

Listed author(s):
  • Ulf von Kalckreuth

This paper studies the impact of sales uncertainty on firms' investment outlays using the database of the Deutsche Bundesbank's corporate balance sheet statistics. The sample used for estimation is a panel of 4'234 west German manufacturing firms with 33'217 observations, covering the years 1987-1997. In 1996, these firms accounted for 49.3% of the total turnover of German incorporated manufacturers. As uncertainty indicators, we construct firm-specific, time varying volatility measures. Using Within estimators and GMM techniques, we find a moderately strong and consistently negative effect of uncertainty on investment. If the uncertainty indicator is increased by one standard deviation, the predicted investment demand will fall by about 3.7 % of its mean.

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Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 139 (2003)
Issue (Month): II (June)
Pages: 173-206

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Handle: RePEc:ses:arsjes:2003-ii-3
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  9. Joerg Breitung & Robert Chirinko & Ulf von Kalckreuth, 2003. "A Vectorautoregressive Investment Model (VIM) and Monetary Policy Transmission: Panel Evidence from German Firms," Emory Economics 0307, Department of Economics, Emory University (Atlanta).
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  13. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  14. Lensink, Robert & Sterken, Elmer, 2000. "Capital Market Imperfections, Uncertainty and Corporate Investment in the Czech Republic," Economic Change and Restructuring, Springer, vol. 33(1-2), pages 53-70.
  15. Ricardo J. Caballero & Eduardo M. R. A. Engel, 1999. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," Econometrica, Econometric Society, vol. 67(4), pages 783-826, July.
  16. Carruth, Alan & Dickerson, Andrew & Henley, Andrew, 2000. " What Do We Know about Investment under Uncertainty?," Journal of Economic Surveys, Wiley Blackwell, vol. 14(2), pages 119-153, April.
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  18. von Kalckreuth, Ulf, 2001. "Monetary transmission in Germany: New Perspectives on Financial Constraints and Investment Spending," Discussion Paper Series 1: Economic Studies 2001,19, Deutsche Bundesbank, Research Centre.
  19. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-581, June.
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  22. Andrew B. Abel & Janice C. Eberly, 1996. "Optimal Investment with Costly Reversibility," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 581-593.
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  26. Ciaran Driver & Paul Temple & Giovanni Urga, 2005. "Explaining the Diversity of Industry Investment Responses to Uncertainty Using Long Run Panel Survey Data," School of Economics Discussion Papers 0405, School of Economics, University of Surrey.
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  28. 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), vol. 139(II), pages 173-206, June.
  29. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
  30. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  31. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-674, August.
  32. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-233, March.
  33. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
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  35. Minton, Bernadette A. & Schrand, Catherine, 1999. "The impact of cash flow volatility on discretionary investment and the costs of debt and equity financing," Journal of Financial Economics, Elsevier, vol. 54(3), pages 423-460, December.
  36. Bo, Hong, 2002. "Idiosyncratic Uncertainty and Firm Investment," Australian Economic Papers, Wiley Blackwell, vol. 41(1), pages 1-14, March.
  37. Chirinko, Robert S. & Fazzari, Steven M. & Meyer, Andrew P., 1999. "How responsive is business capital formation to its user cost?: An exploration with micro data," Journal of Public Economics, Elsevier, vol. 74(1), pages 53-80, October.
  38. Vivek Ghosal & Prakash Loungani, 2000. "The Differential Impact of Uncertainty on Investment in Small and Large Businesses," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 338-343, May.
  39. Chirinko, Robert S. & Schaller, Huntley, 2009. "The irreversibility premium," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 390-408, April.
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  41. repec:adr:anecst:y:1999:i:55-56 is not listed on IDEAS
  42. Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 1-54.
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