Abstract
Abstract Crude oil price behaviour has become more volatile since 1973 which has a significant impact on macroeconomic variables such as GDP, inflation and productivity. Studies considering the effects of oil price changes on decisions at the firm level are comparatively few. Oil price volatility represents a source of uncertainty for firm profitability, valuations and investment decisions. This study examines the effects of industry uncertainty and market instability on total investment expenditures in UK firms. Generalized method of moments estimation techniques are applied to a panel data set of UK firms over the period 1986–2011. Tobin′s Q theory is applied to estimate the investment model, which is augmented with measures for both macroeconomic and industry specific uncertainty. Stock price uncertainty seems to be positively related to investment. On the other hand, there is a U shaped relationship between oil price volatility and firm investment. The results will be useful to decision makers, investors, managers and policy makers who need to make investment decisions in an uncertain world.
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