The Impact of Perceived Expectations and Uncertainty on Firm Investment

Abstract

The effects of perceived expectations and uncertaintyon firm investment decisions are analyzed. After a review of the literature onthe relationship between investment and uncertainty, data from a 1998 survey of135 plants in the Netherlands are used to estimate a model of the impact ofperceived expectations and uncertainty on firm investment in general andinvestment in energy-saving technologies. Analysis of the model reveals that perceived expectations and uncertaintyhave a substantial effect on investment spending. The specific effect dependson firm size and type of investment. Uncertainty appears to have a greaterinfluence on decision making in small firms than in large firms. However,differences between the two size classes are related to the specific source ofuncertainty. In small firms, input and output uncertainty have a differential impact onboth aggregate and energy-saving investments. Moreover, increased uncertaintyabout wages shifts attention away from investment in energy-savingtechnologies. Therefore, the adoption of energy-saving technologies in smallfirms may be enhanced by a more stable environment. (SAA)

Keywords: Investment decisions, Market expectations, Costs, Prices, Investments, Chemical industry, Construction industry, Metals industry, Textile industry, Food industry, Uncertainty, Wages & salaries, Firm size, Expectations, Energy management