The impact of uncertainty on investment plans

Arbeitspapier

In this paper we investigate how demand and output price uncertainty affect investment plans of Belgian manufacturing firms. We obtain time-varying uncertainty measures at the firm and industry level from the Belgian monthly business cycle survey and investment plans from the half-yearly investment survey. Using investment plans instead of realised investment data, e.g. annual accounts data, is, from an informative point of view, superior since it is more likely to reveal the features of the decision formation process and, therefore, it is most closely related to economic theory. Business investment is normally planned well in advance, because it involves time and costs to implement, and theory describes the behaviour of firms at the moment of their decision, which can be assumed to be fully captured in survey data. In order to find robust predictions we estimate three different specifications, each of which can be considered as a benchmark in the literature: two reduced form equations and a structural Euler equation. Our results show that uncertainty depresses investment. These results hold for industry- as well as for firmspecific demand uncertainty. Moreover, referring to Euler equation, uncertainty postpones investment today in favour of investment tomorrow. This effect is stronger for firms with more irreversible investment. Hence, our results seem to confirm to predictions of the real option theory.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: NBB Working Paper ; No. 24

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Investment; Capital; Intangible Capital; Capacity ; Asymmetric and Private Information; Mechanism Design ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
• Thema: investment ; uncertainty ; irreversibility ; real options ; survey data ; Investitionsentscheidung ; Investitionsrisiko ; Belgien

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Butzen, Paul ; Fuss, Catherine ; Vermeulen, Philip
• Ereignis: Veröffentlichung
• (wer): National Bank of Belgium
• (wo): Brussels
• (wann): 2002

Weitere Informationen

• Handle: http://hdl.handle.net/10419/144238
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ