How does uncertainty affect corporate investment inefficiency? Evidence from Europe

Sagi Akron; Ender Demir; José María Díez-Esteban; Conrado Diego García-Gómez

doi:10.1016/j.ribaf.2022.101752

How does uncertainty affect corporate investment inefficiency? Evidence from Europe

Sagi Akron, Ender Demir, José María Díez-Esteban, Conrado Diego García-Gómez

School Of Business Administration

Research output: Contribution to journal › Article › peer-review

Abstract

We conduct a cross-country, firm-based analysis of the impact of uncertainty (World Uncertaınty Index–WUI) on corporate investment inefficiency. The analysis, conducted in the period 2012–2020 across 30 European region countries, demonstrates a negative impact of uncertainty on the absolute value of investment inefficiency. Specifically, there is a negative effect of uncertainty on investment inefficiency in cases of overinvestment, and a positive effect of uncertainty on investment inefficiency in cases of underinvestment. Thus, in both abnormal investment scenarios, uncertainty alleviates the investment inefficiency – namely, uncertainty may optimize investment decisions. The findings are robust to country, industry, and time fixed-effects; GMM; and different legal systems. Moreover, the findings shed important light on the exogenous uncertainty effect on asymmetric information and agency, generating investment decisions.

Original language	English
Article number	101752
Journal	Research in International Business and Finance
Volume	62
DOIs	https://doi.org/10.1016/j.ribaf.2022.101752
State	Published - 1 Dec 2022

Bibliographical note

Publisher Copyright:
© 2022 Elsevier B.V.

Keywords

Europe
Investment inefficiency
Optimal corporate investment
Overinvestment
Uncertainty
Underinvestment

ASJC Scopus subject areas

Business, Management and Accounting (miscellaneous)
Finance

Access to Document

10.1016/j.ribaf.2022.101752

Cite this

@article{c6a1add033614cc19a8aea9fbf1a2861,

title = "How does uncertainty affect corporate investment inefficiency? Evidence from Europe",

abstract = "We conduct a cross-country, firm-based analysis of the impact of uncertainty (World Uncertaınty Index–WUI) on corporate investment inefficiency. The analysis, conducted in the period 2012–2020 across 30 European region countries, demonstrates a negative impact of uncertainty on the absolute value of investment inefficiency. Specifically, there is a negative effect of uncertainty on investment inefficiency in cases of overinvestment, and a positive effect of uncertainty on investment inefficiency in cases of underinvestment. Thus, in both abnormal investment scenarios, uncertainty alleviates the investment inefficiency – namely, uncertainty may optimize investment decisions. The findings are robust to country, industry, and time fixed-effects; GMM; and different legal systems. Moreover, the findings shed important light on the exogenous uncertainty effect on asymmetric information and agency, generating investment decisions.",

keywords = "Europe, Investment inefficiency, Optimal corporate investment, Overinvestment, Uncertainty, Underinvestment",

author = "Sagi Akron and Ender Demir and D{\'i}ez-Esteban, {Jos{\'e} Mar{\'i}a} and Garc{\'i}a-G{\'o}mez, {Conrado Diego}",

note = "Publisher Copyright: {\textcopyright} 2022 Elsevier B.V.",

year = "2022",

month = dec,

day = "1",

doi = "10.1016/j.ribaf.2022.101752",

language = "English",

volume = "62",

journal = "Research in International Business and Finance",

issn = "0275-5319",

publisher = "Elsevier",

}

TY - JOUR

T1 - How does uncertainty affect corporate investment inefficiency? Evidence from Europe

AU - Akron, Sagi

AU - Demir, Ender

AU - Díez-Esteban, José María

AU - García-Gómez, Conrado Diego

PY - 2022/12/1

Y1 - 2022/12/1

N2 - We conduct a cross-country, firm-based analysis of the impact of uncertainty (World Uncertaınty Index–WUI) on corporate investment inefficiency. The analysis, conducted in the period 2012–2020 across 30 European region countries, demonstrates a negative impact of uncertainty on the absolute value of investment inefficiency. Specifically, there is a negative effect of uncertainty on investment inefficiency in cases of overinvestment, and a positive effect of uncertainty on investment inefficiency in cases of underinvestment. Thus, in both abnormal investment scenarios, uncertainty alleviates the investment inefficiency – namely, uncertainty may optimize investment decisions. The findings are robust to country, industry, and time fixed-effects; GMM; and different legal systems. Moreover, the findings shed important light on the exogenous uncertainty effect on asymmetric information and agency, generating investment decisions.

AB - We conduct a cross-country, firm-based analysis of the impact of uncertainty (World Uncertaınty Index–WUI) on corporate investment inefficiency. The analysis, conducted in the period 2012–2020 across 30 European region countries, demonstrates a negative impact of uncertainty on the absolute value of investment inefficiency. Specifically, there is a negative effect of uncertainty on investment inefficiency in cases of overinvestment, and a positive effect of uncertainty on investment inefficiency in cases of underinvestment. Thus, in both abnormal investment scenarios, uncertainty alleviates the investment inefficiency – namely, uncertainty may optimize investment decisions. The findings are robust to country, industry, and time fixed-effects; GMM; and different legal systems. Moreover, the findings shed important light on the exogenous uncertainty effect on asymmetric information and agency, generating investment decisions.

KW - Europe

KW - Investment inefficiency

KW - Optimal corporate investment

KW - Overinvestment

KW - Uncertainty

KW - Underinvestment

UR - http://www.scopus.com/inward/record.url?scp=85137099737&partnerID=8YFLogxK

U2 - 10.1016/j.ribaf.2022.101752

DO - 10.1016/j.ribaf.2022.101752

M3 - Article

AN - SCOPUS:85137099737

SN - 0275-5319

VL - 62

JO - Research in International Business and Finance

JF - Research in International Business and Finance

M1 - 101752

ER -

How does uncertainty affect corporate investment inefficiency? Evidence from Europe

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this