Corporate Decision-Making under Uncertainty: Review and Future Research Directions

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See all articles by Murillo Campello

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Gaurav Kankanhalli

University of Pittsburgh - Katz Graduate School of Business

Date Written: November 15, 2022

Abstract

Uncertainty over future business conditions lies at the heart of corporate decision-making. Uncertainty can arise from a myriad of sources and is often difficult to measure. We present a simple conceptual framework showing how several key corporate decisions are affected by uncertainty. We also highlight recent advances in the measurement of uncertainty, distinguishing between approaches that gauge aggregate uncertainty and those that capture different dimensions of firm-specific uncertainty. These approaches incorporate information obtained from market prices, machine learning techniques, surveys, and more. We then review the growing body of empirical work that studies the role played by uncertainty in shaping outcomes ranging across corporate investment, asset base composition, innovation, liquidity management, payouts, and mergers. Our review outlines several opportunities for future research.

Keywords: Uncertainty, irreversibility, real options, investment, disinvestment, innovation

JEL Classification: G30, G31, G32, D81

Suggested Citation

Campello, Murillo and Kankanhalli, Gaurav, Corporate Decision-Making under Uncertainty: Review and Future Research Directions (November 15, 2022). Available at SSRN: https://ssrn.com/abstract=

Murillo Campello (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Gaurav Kankanhalli

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

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