The Impact of Perceived Expectations and Uncertainty on Firm Investment

Posted: 10 Nov 2009

See all articles by Mark J. Koetse

Mark J. Koetse

Free University of Amsterdam - Department of Spatial Economics

Arno J. van der Vlist

University of Groningen - Department of Economic Geography

Henri L. F. de Groot

VU University Amsterdam - Department of Spatial Economics; Tinbergen Institute

Date Written: 2006

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

Suggested Citation

Koetse, Mark J. and van der Vlist, Arno J. and de Groot, Henri L.F., The Impact of Perceived Expectations and Uncertainty on Firm Investment (2006). Small Business Economics, Vol. 26, Issue 4, p. 365-376 2006. Available at SSRN: https://ssrn.com/abstract=1503265

Mark J. Koetse (Contact Author)

Free University of Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
+31(0)20 598 6168 (Phone)
+31(0)20 598 6004 (Fax)

Arno J. Van der Vlist

University of Groningen - Department of Economic Geography ( email )

P.O. Box 800, 9700 AV
Groningen
Netherlands

HOME PAGE: http://www.rug.nl/research/ursi/rec/

Henri L.F. De Groot

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
+31 20 598 6168 (Phone)
+31 20 598 6004 (Fax)

Tinbergen Institute

Gustav Mahlerplein 17
Amsterdam, 1082 MS
Netherlands

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