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The Differential Impact of Uncertainty on Investment in Small and Large Businesses

Vivek Ghosal^1,2; Prakash Loungani³

¹ United States Department of Justice · ² Analysis Group (United States) · ³ International Monetary Fund

We study the impact of profit uncertainty on investment and whether or not this response is different in industries that are dominated by small firms versus those that are dominated by relatively larger firms. Our key findings are that the sign of the investment-uncertainty relationship is negative, and that the quantitative negative impact is substantially greater in industries dominated by small firms. These results are robust to accounting for potential endogeneity of the uncertainty measure, alternate procedures for measuring uncertainty, and alternate ways of segmenting industries into small- and large-firm groups.

DOI

10.1162/003465300558722

Volume

82 (2)

Pages

338-343

Language

en

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BibTeX

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