Firm-specific forecast errors and asymmetric investment propensity

Manuel Buchholz; Lena Tonzer; Julian Berner

doi:10.1111/ecin.13045

Firm-specific forecast errors and asymmetric investment propensity

Manuel Buchholz
, Lena Tonzer^*
, Julian Berner

^*Corresponding author for this work

Finance

Research output: Contribution to Journal › Article › Academic › peer-review

Abstract

This paper analyzes how firm-specific forecast errors derived from survey data of German manufacturing firms over 2007–2011 relate to firms' investment propensity. Our findings reveal that asymmetries arise depending on the size and direction of the forecast error. The investment propensity declines if the realized situation is worse than expected. However, firms do not adjust investment if the realized situation is better than expected suggesting that the uncertainty component of the forecast error counteracts good surprises of unexpectedly favorable business conditions. This asymmetric mechanism can be one explanation behind slow recovery following crises.

Original language	English
Pages (from-to)	764-793
Number of pages	30
Journal	Economic Inquiry
Volume	60
Issue number	2
Early online date	21 Oct 2021
DOIs	https://doi.org/10.1111/ecin.13045
Publication status	Published - Apr 2022

Bibliographical note

Publisher Copyright:
© 2021 The Authors. Economic Inquiry published by Wiley Periodicals LLC on behalf of Western Economic Association International.

Funding

We thank four anonymous referees, Emmanuelle Auriol, Claudia M. Buch, Andrea Caggese, Valeriya Dinger, Steffen Elstner, Reint Gropp, Michael Koetter, Inge van den Bijgaart and seminar participants at the University of Osnabrück, the Martin-Luther-University Halle, the University of Magdeburg, the University of Duisburg-Essen, and the Annual Meeting of the German Economic Association 2016 for helpful comments as well as the Halle Institute for Economic Research for providing the data. Hannes Böhm and Friederike Güttner have provided very efficient research assistance. All errors and inconsistencies are solely in our own responsibility. Open access funding enabled and organized by Projekt DEAL.

Funders
Halle Institute for Economic Research
University of Magdeburg
Universität Duisburg-Essen

Keywords

firm investment
forecast errors
microeconomic survey data
risk climate
uncertainty

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KW - microeconomic survey data

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Firm-specific forecast errors and asymmetric investment propensity

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