Employment, Corporate Investment and Cash Flow Uncertainty

46 Pages Posted: 8 Sep 2011 Last revised: 2 May 2013

Sanjai Bhagat

University of Colorado at Boulder - Department of Finance

Iulian Obreja

SEC

Date Written: April 26, 2013

Abstract

The effect of uncertainty on equilibrium wage rates causes uncertainty to have a negative impact on marginal q. In turn, uncertainty reduces corporate investment and employment. Using a novel firm-level measure of cash flow uncertainty, we find empirically that uncertainty has a strong negative impact on corporate employment and investment in both tangible and intangible assets. Economically, if uncertainty were to revert to pre-crisis levels, employment would increase by 3.35 million jobs, investment in tangibles would increase by 1.54%, and investment in intangibles would increase by1.29%. Our findings are robust to alternative measures of uncertainty and different estimation techniques.

Keywords: corporate investment, uncertainty, intangible capital, employment

JEL Classification: E22, E24, G31

Suggested Citation

Bhagat, Sanjai and Obreja, Iulian, Employment, Corporate Investment and Cash Flow Uncertainty (April 26, 2013). Available at SSRN: https://ssrn.com/abstract=1923829 or http://dx.doi.org/10.2139/ssrn.1923829

Sanjai Bhagat

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States
303-492-7821 (Phone)

Iulian Obreja (Contact Author)

SEC ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

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