Investment, uncertainty and irreversibility |
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Authors: | Le Khuong Ninh Niels Hermes Ger Lanjouw |
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Institution: | SEBA, University of Cantho, Vietnam; Faculty of Management and Organisation, University of Groningen, The Netherlands; Faculty of Economics, University of Groningen |
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Abstract: | This paper investigates the irreversibility of investments and the impact this has on the nature of the relationship between investment and uncertainty. The empirical analysis uses firm‐level data and is based on a survey of 210 rice‐milling firms in the Mekong River Delta in Vietnam, which was carried out during the year 2000. We show that uncertainty reduces investment of rice millers in the presence of irreversibility, as is predicted by the real options approach to investment. We do not find evidence that the negative association between uncertainty and investment is influenced by the degree of irreversibility. |
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Keywords: | Firm-level investment uncertainty irreversibility Vietnam |
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