Abstract
This article investigates the extent to which inflation perceptions affect firms’ innovation input and investment expenditure. We adopt dummy variables data to quantify the firm inflation perceptions of China’s listed manufacturing companies from corporate annual reports during the period from 2008–2018. Results reveal that inflation perceptions have a positive Tobin effect on investment spending decisions of the firms whose inflation perceive risen, vice versa. Besides, the investment expenditure of large manufacturing/ SOEs enterprises are more sensitive than small/non-SOEs firms when inflation perceptions have risen, and small/non-SOEs companies tend to reduce much more investment spending when inflation perceptions decline. Our results have significant implications for policymakers and firm managers.
Highlights
Since the rational expectations revolution in macroeconomics, inflation expectations play a central role in economists’ analysis of inflation dynamics
The comparison results show that the corporate investment expenditure of SOEs manufacturing enterprises in China are more sensitive than non-SOEs firms when inflation perceptions have risen, and nonSOEs companies tend to reduce much more investment spending when inflation perceptions decline
The research results indicate that inflation perceptions have a positive Tobin effect on investment decision behaviours
Summary
Since the rational expectations revolution in macroeconomics, inflation expectations play a central role in economists’ analysis of inflation dynamics. Georganas et al (2014) suggest that perceptions of inflation play a central role in macroeconomic analyses because they directly affect the decisions of individuals, organizations and states [1]. Ranyard et al (2008) suggest that individual perception of inflation is influenced by both the individual’s direct experience of price changes in the economy and by the media and the social amplification mechanism that is word of mouth [2]. Personal inflation perception is affected by personal income. Del et al (2016) investigate two factors—product accessibility and attitudes towards inflation—that are expected to play a significant role in global judgments of perceived inflation [4]. Stanisławska (2019) shows that consumers’ perception of inflation is affected by the inflationary environment [7]. The inflation perception is distorted during the deflationary period, leading to a smaller perception bias
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