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Investment, firm-specific uncertainty, and market power in South Africa

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journal contribution
posted on 2020-04-16, 13:56 authored by G Chortareas, E Noikokyris, FR Rakeeb
We examine the role of firms’ market power in affecting the link between firm-specific uncertainty and corporate investment decisions in a small open economy with a pronounced degree of concentration and mark-ups. Using firm-level data from South African-listed firms, we find that corporate investment of firms with low market power and market share responds positively to idiosyncratic uncertainty. A high degree of market power, however, moderates this positive relationship, allowing for delayed investment under conditions of uncertainty. The results are robust to alternative measures of firm-specific uncertainty and firms’ competitive position. The finding of an association between firms’ market power/market share and their capital budgeting decisions under uncertainty calls for effective competition policies.

History

Citation

Economic Modelling, in press

Author affiliation

School of Business

Version

  • AM (Accepted Manuscript)

Published in

Economic Modelling

Publisher

Elsevier

issn

0264-9993

Acceptance date

2020-03-17

Copyright date

2020

Available date

2020-03-21

Publisher version

https://www.sciencedirect.com/science/article/pii/S0264999319314415#abs0015

Language

en

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