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Measuring the Effects of Firm Uncertainty on Economic Activity: New Evidence from One Million Documents


  • Kyle Handley
  • J. Frank Li


We construct a new measure of firm-level uncertainty from analyzing the text of mandatory reports filed with the U.S. Securities and Exchange Commission. Using firm and establishment level panel data on investment margins and employment dynamics, we find our uncertainty measure has large effects on investment even after controlling for industry and time-varying shocks. Periods of high firm uncertainty (1) reduce investment rates by 0.5% and attenuate the response to positive sales shocks by about half and (2) reduce employment growth rates by 1.4% and the response to positive sales shocks by 30%. Firms are less responsive to demand shocks at the firm level and across establishments within the firm. Consistent with “wait and see” dynamics, uncertainty affects new investment activity, e.g. plant births and acquisition, more than disinvestment margins.

Suggested Citation

  • Kyle Handley & J. Frank Li, 2020. "Measuring the Effects of Firm Uncertainty on Economic Activity: New Evidence from One Million Documents," NBER Working Papers 27896, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27896
    Note: CF EFG PR

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    Cited by:

    1. Xianbo Zhou & Zhuoran Chen, 2023. "The Impact of Uncertainty Shocks to Consumption under Different Confidence Regimes Based on a Stochastic Uncertainty-in-Mean TVAR Model," Sustainability, MDPI, vol. 15(4), pages 1-20, February.
    2. Nicholas Bloom & Steven J. Davis & Lucia Foster & Scott Ohlmacher & Itay Saporta-Eksten, 2022. "Investment and Subjective Uncertainty," Working Papers 22-52, Center for Economic Studies, U.S. Census Bureau.
    3. Dou, Bin & Guo, SongLin & Chang, XiaoChen & Wang, Yong, 2023. "Corporate digital transformation and labor structure upgrading," International Review of Financial Analysis, Elsevier, vol. 90(C).
    4. Maximilian Konradt, 2023. "Do pension funds reach for yield? Evidence from a new database," IHEID Working Papers 01-2023, Economics Section, The Graduate Institute of International Studies.
    5. Davidmac O. Ekeocha & Jonathan E. Ogbuabor & Oliver E. Ogbonna & Anthony Orji, 2023. "Economic policy uncertainty, governance institutions and economic performance in Africa: are there regional differences?," Economic Change and Restructuring, Springer, vol. 56(3), pages 1367-1431, June.
    6. Jeon, Chunmi & Mun, Seongjae & Han, Seung Hun, 2022. "Firm-level political risk, liquidity management, and managerial attributes," International Review of Financial Analysis, Elsevier, vol. 83(C).
    7. Saten Kumar & Yuriy Gorodnichenko & Olivier Coibion, 2023. "The Effect of Macroeconomic Uncertainty on Firm Decisions," Econometrica, Econometric Society, vol. 91(4), pages 1297-1332, July.
    8. Wenting Song & Samuel Stern, 2022. "Firm Inattention and the Efficacy of Monetary Policy: A Text-Based Approach," Staff Working Papers 22-3, Bank of Canada.
    9. Najah Attig & Wenyao Hu & Mohammad M. Rahaman & Ashraf Al Zaman, 2023. "Overselling corporate social responsibility," Financial Management, Financial Management Association International, vol. 52(3), pages 573-610, September.
    10. Cao, Jing & Ho, Mun S. & Ma, Rong & Teng, Fei, 2021. "When carbon emission trading meets a regulated industry: Evidence from the electricity sector of China," Journal of Public Economics, Elsevier, vol. 200(C).

    More about this item

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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