Investment, Expectations and Uncertainty: Empirical Evidence on the Relevance of Firm Size

Abstract

This paper analyses the effect of uncertainty on investment spending. We analyse two types of investment, i.e. aggregate investment and investment in energy saving technologies, using subjective evaluations of expectations and uncertainty of Dutch firms in 1997. We estimate several models distinguishing between small and large firms. The results suggest that investments in energy saving technologies in small firms are largely cost driven, whereas in large firms they are an integral part of general investment spending. Furthermore, expectations and uncertainty have important although different effects on investment spending in small and large firms. We find evidence, at least for small firms, that there are important differences between the effects of uncertainty around input and output variables.