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Policy uncertainty and corporate investment: public versus private firms

Author

Listed:
  • Christian Dreyer

    (University of Muenster)

  • Oliver Schulz

    (University of Muenster)

Abstract

Using a sample of comparably sized public listed and private firms from nine European countries, we show that public firms reduce their investments by about 50% more than private firms in response to an increase in policy-related uncertainty. We find suggestive evidence that this can be explained by public firms’ management being typically subject to greater shareholder scrutiny than private firms’ management. Furthermore, only public firms invest more efficiently when confronted with uncertainty. Thus, private firms may benefit from emulating the decision-making processes of public firms in uncertain times.

Suggested Citation

  • Christian Dreyer & Oliver Schulz, 2023. "Policy uncertainty and corporate investment: public versus private firms," Review of Managerial Science, Springer, vol. 17(5), pages 1863-1898, July.
    • Handle: RePEc:spr:rvmgts:v:17:y:2023:i:5:d:10.1007_s11846-022-00603-y
    DOI: 10.1007/s11846-022-00603-y
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    More about this item

    Keywords

    Uncertainty; Investment; Public versus private firms; Shareholder scrutiny;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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