Testing Uncertainty's Effect in Real Options with Multiple Capital Goods

The irreversible investment theory with heterogeneous capital predicts a negative relationship between uncertainty and the investment extensive margin. We empirically explore this prediction using plant-level data for investment across multiple fixed assets, and employ a discrete ordered choice model. Our results indicate that uncertainty, even after controlling for financial constraints, induces a negative effect on the extensive margin, thereby decreasing the likelihood of investment triggering in more types of capital. This effect takes the form of both a higher probability of investment inactivity but also a lower probability of investment triggering in a higher number of capital types

Capital (architecture) · Capital formation · Capital good · Capital investment · Econometrics · Economics · Financial capital · Fixed investment · Investment (military) · Margin (machine learning) · Microeconomics · Monetary economics · Public good · Capital Investment and Risk Analysis · Computer Science · Economic theories and models · Finance · Market Dynamics and Volatility

• Investment under Uncertainty

  Avinash K Dixit, Avinash Dixit et al.•Investment under Uncertainty•1994

  Añadir item

• The Value of Waiting to Invest

  Robert L Mcdonald, Robert Mcdonald et al.•The Quarterly Journal of Economics•1986

  Añadir item

• Fitting autoregressive models for prediction

  Open Access•Hirotugu Akaike•Annals of the Institute of…•1969

  Añadir item

• Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation

  Robert F Engle•Econometrica•1982

  Añadir item

• Monotone Comparative Statics

  Paul Milgrom, Chris Shannon•Econometrica•1994

  Añadir item

• Uncertainty and Investment Dynamics

  Nick Bloom, Stephen Bond et al.•The Review of Economic Studies•2007

  Añadir item

• Financing Constraints and Corporate Investment

  Steven M Fazzari, R Glenn Hubbard et al.•Brookings Papers on Economic…•1988

  Añadir item

• Generalized autoregressive conditional heteroskedasticity

  Open Access•Tim Bollerslev•Journal of Econometrics•1986

  Añadir item

• Contrasts Between Types of Assets in Fixed Investment Equations as a Way of Testing Real Options Theory

  Ciaran Driver, Paul Temple et al.•Journal of Business and Economic…•2006

  Añadir item

• Market Concentration, Contestability, and Sunk Costs

  Ioannis N Kessides•The Review of Economics and…•1990

  Añadir item

• Investment and Capital Market Imperfections

  Xiaoqiang Hu, Fabio Schiantarelli•The Review of Economics and…•1998

  Añadir item

• Fixed Capital Adjustment

  Gastón Gelos, R Gaston Gelos et al.•The Review of Economics and…•2001

  Añadir item

• The Differential Impact of Uncertainty on Investment in Small and Large Businesses

  Vivek Ghosal, Prakash Loungani•The Review of Economics and…•2000

  Añadir item

• A New Look at Firm Market Value, Investment, and Adjustment Costs

  Steven Barnett, Steven A Barnett et al.•The Review of Economics and…•1999

  Añadir item

• Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom

  Stephen Bond, Julie Ann Elston et al.•The Review of Economics and…•2003

  Añadir item

• Zeros and Lumps in Investment

  Øivind Anti Nilsen, Fabio Schiantarelli•The Review of Economics and…•2003

  Añadir item