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Investment and uncertainty: Are large firms different from small ones?

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  • Panagiotidis, Theodore
  • Printzis, Panagiotis

Abstract

We examine the effect of uncertainty on investment by employing panel data from 25,000 Greek firms’ balance sheets. The sample period allows us to consider turbulent and tranquil periods. Uncertainty is proxied by a dynamic factor model. We explore the heterogeneity among the sectors within a panel quantile estimation framework. This allows us to differentiate between relatively low and relatively high values of investment. We reveal the different responses between and within sectors. At aggregate level the effect of uncertainty is negative. This negative effect increases substantially when the firm's investment rate is relatively high. The negative impact of uncertainty is more profound for smaller firms.

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  • Panagiotidis, Theodore & Printzis, Panagiotis, 2021. "Investment and uncertainty: Are large firms different from small ones?," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 302-317.
    • Handle: RePEc:eee:jeborg:v:184:y:2021:i:c:p:302-317
    DOI: 10.1016/j.jebo.2021.01.011
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    More about this item

    Keywords

    Greek firms; Uncertainty; Volatility; Quantile regression; Panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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