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

Georgios Chortareas; Emmanouil Noikokyris; Fathima Roshan Rakeeb

doi:10.1016/j.econmod.2020.03.021

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

Georgios Chortareas^*, Emmanouil Noikokyris, Fathima Roshan Rakeeb

^*Corresponding author for this work

Economics

Research output: Contribution to journal › Article › peer-review

11 Citations (Scopus)

Abstract

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.

Original language	English
Journal	ECONOMIC MODELLING
DOIs	https://doi.org/10.1016/j.econmod.2020.03.021
Publication status	Accepted/In press - 1 Jan 2020

Keywords

Corporate investment
Firm-specific uncertainty
Market power
Market share
Volatility

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10.1016/j.econmod.2020.03.021

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

abstract = "We examine the role of firms{\textquoteright} 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{\textquoteright} competitive position. The finding of an association between firms{\textquoteright} market power/market share and their capital budgeting decisions under uncertainty calls for effective competition policies.",

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AU - Chortareas, Georgios

AU - Noikokyris, Emmanouil

AU - Rakeeb, Fathima Roshan

PY - 2020/1/1

Y1 - 2020/1/1

N2 - 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.

AB - 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.

KW - Corporate investment

KW - Firm-specific uncertainty

KW - Market power

KW - Market share

KW - Volatility

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DO - 10.1016/j.econmod.2020.03.021

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SN - 0264-9993

JO - ECONOMIC MODELLING

JF - ECONOMIC MODELLING

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

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Keywords

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