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Making Bad Decisions: firm size and investment under uncertainty

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  • Alexander Cobham

Abstract

This paper presents a 'real options' model of investment under uncertainty, which incorporates the assumption of a financial market characterised by asymmetric information and which can explain the stylised facts of firm growth. The decision-making situation faced by small and medium-sized enterprises (SMEs) features much greater constraints on the ability to gather information in order to reduce uncertainty about their investment opportunities, compared with that faced by large companies (LCs). This necessarily causes relatively poor decision-making by SMEs, and explains their substantial death rates.

Suggested Citation

  • Alexander Cobham, "undated". "Making Bad Decisions: firm size and investment under uncertainty," QEH Working Papers qehwps39, Queen Elizabeth House, University of Oxford.
    • Handle: RePEc:qeh:qehwps:qehwps39
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    File URL: http://workingpapers.qeh.ox.ac.uk/RePEc/qeh/qehwps/qehwps39.pdf
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    References listed on IDEAS

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    Cited by:

    1. Joseph Owusu1 & Emmanuel Kwabena Anin & Solomon Gbene Zaato, 2013. "An Assessment of the Operations of Rotational Savings and Credit Association in the Kumasi Metropolis, Ghana," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 3(7), pages 150-159, July.
    2. Alexander Cobham, "undated". "Capital Account Liberalisation and Poverty," QEH Working Papers qehwps70, Queen Elizabeth House, University of Oxford.

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