Erschienen in:Bank of England Working Paper ; No. 753
Umfang:
1 Online-Ressource (35 p)
Sprache:
Englisch
DOI:
10.2139/ssrn.3240493
Identifikator:
Entstehung:
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 24, 2018 erstellt
Beschreibung:
The Lehman Brothers event in 2008 created a large uncertainty shock that triggered an economic slowdown lasting a decade. The macroeconomic effects are well documented, but the effect on business decisions much less so. In this paper, we explore corporate data to investigate how economic uncertainty affected investment, dividend payouts and cash holdings, based on over 10,000 UK firm-year observations. We offer new insights into the relationship between business decisions and uncertainty, by exploiting two surveys of macroeconomic uncertainty from professional forecasters and CFOs collected by the Bank of England. These data demonstrate that heightened economic uncertainty lowered investment even after controlling for investment opportunities, sales growth, and the firm's own stock volatility. Economic uncertainty also explains the rise in cash holdings and the fall in payouts. Hence, our results help explain why UK firms invested so little and held so much cash at a time of historically low interest rates, and also why they paid out smaller dividends. These results may help explain recent sluggish productivity in the UK economy, and they also are important, because they provide a benchmark for future studies of Brexit-related uncertainty