Heterogeneous Effect of Uncertainty on Corporate Investment: Evidence from Listed Firms in the Republic of Korea

Publication | February 2022

This paper analyzes the effect of financial uncertainty on corporate investment using panel data on firms in the Republic of Korea and suggests policy responses.

It finds that financial uncertainty has a significant negative effect on corporate investment and the effects are mixed across firms of different sizes. Small firms and large firms are more exposed to the negative uncertainty effects than medium-sized firms. Financial constraints and investment irreversibility amplify the negative effects of uncertainty. Small and medium-sized firms are more financially constrained and large firms' investments are more irreversible in nature. The authors suggest that policies target the development of capital markets and bond markets for small and medium-sized firms and focus on competitiveness, not protection.


  • Introduction
  • Alternative Measures of Uncertainty, Investment Irreversibility, and Financial Constraints
  • Model and Data Description
  • Empirical Results
  • Magnitude of the Uncertainty Effect on Corporate Investment
  • Conclusion

Additional Details

  • Economics
  • Finance sector development
  • Financial markets and institutions
  • Korea, Republic of
  • 28
  • 8.5 x 11
  • WPS220044-2
  • 2313-6537 (print)
  • 2313-6545 (electronic)

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