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Does demand and price uncertainty affect Belgian and Spanish corporate investment?

  • Peeters, Marga

Several recent studies have shown that uncertainty affects investment decisions. Specifically, demand and/or price uncertainty are found to depress corporate investment in e.g. the United States. This paper investigates whether similar results hold for Belgium and Spain, countries where financial markets are less developped and many firms evidently face financial constraints. Uncertainty of demand, output prices and investment prices are measured by the standard deviation of (pre-)filtered Belgian (1984-1992) and Spanish (1983-1993) panel data, and included as explanatory variables in the investment equations derived from a neo-classical model. The results indicate that investment behaviour towards uncertainty differs significantly between low- and high-leveraged firms in both Belgium and Spain.

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File URL: http://mpra.ub.uni-muenchen.de/23604/1/MPRA_paper_23604.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23604.

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Date of creation: 1997
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Handle: RePEc:pra:mprapa:23604
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  1. James Banks & Richard Blundell & Agar Brugiavini, 1995. "Income uncertainty and consumption growth in the UK," IFS Working Papers W95/13, Institute for Fiscal Studies.
  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. Abel, Andrew B. & Eberly, Janice C., 1999. "The effects of irreversibility and uncertainty on capital accumulation," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 339-377, December.
  4. 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.
  5. Alonso-Borrego, C., 1994. "Estimating Dynamic Investment Models with Financial Constraints," Papers 9418, Centro de Estudios Monetarios Y Financieros-.
  6. Vivek Ghosal & Prakash Loungani, 1995. "Product market competition and the impact of price uncertainty on investment: some evidence from U.S. manufacturing industries," International Finance Discussion Papers 517, Board of Governors of the Federal Reserve System (U.S.).
  7. Barran, Fernando & Peeters, Marga, 1998. "Internal finance and corporate investment: Belgian evidence with panel data," Economic Modelling, Elsevier, vol. 15(1), pages 67-89, January.
  8. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
  9. Whited, Toni M., 1994. "Problems with identifying adjustment costs from regressions of investment on q," Economics Letters, Elsevier, vol. 46(4), pages 327-332, December.
  10. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  11. Ángel Estrada & Javier Vallés, 1995. "Investment and Financial Costs: Spanish Evidence with Panel Data," Banco de Espa�a Working Papers 9506, Banco de Espa�a.
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