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Large company capital formation and effects of market share turbulence : micro-data evidence from the PIMS database

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The possible effect of demand uncertainty on company investment decisions is investigated at the micro level. A standard investment function is employed and modified to incorporate demand uncertainty. The data comes from the PIMS data base on business units of large firms in concentrated markets. In dynamic panel data estimation, significance was found for a variable representing market share turbulence. In a number of industries, this variable causes a depressing effect on capital investment either on its own or in combination with indicators of vertical integration, which indicate insulation from demand uncertainty. The results constitute some of the best available evidence that demand uncertainty constraints capital investment.

Document Type: Research Article


Publication date: 1996-06-01

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