Ciaran Driver

Large company capital formation and effects of market share turbulence : micro-data evidence from the PIMS database

The possible effect of demand uncertainty on company investment decisions is investigated at the micro level. A standard investment function is employed and modified to incorporate demand uncertainty. The data comes from the PIMS data base on business units of large firms in concentrated markets. In dynamic panel data estimation, significance was found for a variable representing market share turbulence. In a number of industries, this variable causes a depressing effect on capital investment either on its own or in combination with indicators of vertical integration, which indicate insulation from demand uncertainty. The results constitute some of the best available evidence that demand uncertainty constraints capital investment.

The influence of uncertainty on investment in the UK: A macro or micro phenomenon?

While the theory examining the relationship between uncertainty and investment has suggested new research avenues, it has not had strong predictive power. Nevertheless, at the policy level the benefits for investment of a more stable economic climate are being emphasised. These considerations point to the need for empirical work. Accordingly, this paper draws on industry level panel data, obtained by marrying the UK Census of Production with the CBI Industrial Trends Survey, and applies dynamic panel data methods to distinguish between macro and micro sources of uncertainty and to consider the role of financial factors. It is found that both sources of uncertainty exert a considerable negative impact on investment, while financial factors may be important in some industries. Copyright 2001 by Scottish Economic Society.

Capacity Utilisation and Excess Capacity: Theory, Evidence, and Policy

This paper models capacity utilisation as a cyclical variable that reflects both the value of precautionary capacity and the desire to hold strategic excess capacity. Business unit data from the Profit Impact on Marketing Strategy (PIMS) database of large, predominantly US, companies are used. Separate estimation is carried out for a number of SIC industry groups. Panel data estimation in first difference instrumental variable form is employed. Unlike many previous studies the utilisation variable is well determined. The results show significance for precautionary and strategic effects in particular industries. The paper discusses the reasons for the industry specificity of the results. Policy implications are discussed.

Linking Technological, Market & Financial Indicators Of Innovation

This paper describes the results of a feasibility study to develop a national Innovation Scoreboard to measure and track the innovative performance of companies in the UK. It begins with a review of potential technological, market and financial indicators of innovation, and using data in the public domain, develops a trial Innovation Scoreboard based on 40 firms from five different sectors. The preliminary findings suggest that product announcements made in the specialist press may be a viable indicator of innovation at the level of the firm. Specifically, the evidence suggests that product announcements represent a useful measure of innovative output, which combined with expenditure on research and development provide a measure of research efficiency. This measure of research efficiency is shown to be associated with higher market to book values.

The effect of business risk on manufacturing investment ☆: Sectoral survey evidence from Ireland

Abstract This paper analyses the results of a special sample survey on risk and investment carried out using the European Union investment survey sampling frame for Ireland. The paper looks at decision-making by large manufacturing firms located in Ireland to see whether their investment decisions can be understood within the various models of risk that economists use. Equilibrium and disequilibrium models are examined to see what best explains the behaviour revealed by the firms’ responses. The paper develops a categorisation of the main theoretical channels of influence from risk to investment. In the light of this theory, the survey replies of Irish firms are used to assess the importance of the different channels of influence.

Contrasts Between Types of Assets in Fixed Investment Equations as a Way of Testing Real Options Theory

This article tests the power of real options theory to explain investment under uncertainty, exploiting differences in the degrees of irreversibility and expandability between machinery and buildings. It reports estimates of investment equations for each asset class using a large sample of U.K. manufacturing industries, with results that are consistent with the predictions of real options theory. In addition, using a specially constructed industry-specific measure of irreversibility for machinery investment, the article provides further confirmation of the empirical relevance of real options.

Investment under Demand Uncertainty, Ex- Ante Pricing, and Oligopoly*

This paper considers the capacity choice of duopolists who set price ex-ante under demand uncertainty with risk-neutrality. The duopolists compete for market shares on the basis of availability of supply, rather than by price competition. Collusive pricing coexists with Cournot–Nash capacity choice. A formal model is presented, where the market share of each firm may deviate from the certainty share due to rationing. With shares reflecting different costs, capacity utilisation for the lower cost firm is expected to be substantially lower. The implications for the price-cost margin and capacity formation are also explored.

Structural Change in the UK Economy.

This text offers inter-related contributions tracing the causes and effects of structural change in the UK in the 1970s and 1980s. Themes include de-industrialization, the extent to which economic relationships have become unstable, the extent of mismatch in factor markets and more.

The effects of income distribution on consumer imports

The aim of this paper is to examine empirically the proposition that disaggregated income is important in determining the imports of consumer goods. An estimable equation is derived and tested using annual data (1962–84). The technique of Autoregressive Generalized Least Squares is used throughout along with tests for statistical bias. The results are supportive of the main hypothesis of the paper that income distribution exerts a powerful and statistically significant influence on the imports of consumer durables. Finally, the implications of income distribution on the balance of payments are discussed.

Persistence of Capacity Shortage and the Role of Adjustment Costs

This paper finds that plant capital constraints on output in UK industry tend to persist for surprisingly long periods, reflecting a slow response of capital investment. The paper examines the conventional view that this response pattern may be explained by cost of adjustment. Using UK time-series data for a small number of industry groups, it is shown that the observed dynamics of capital constraints (capital shortage) are not fully explained by a quadratic adjustment cost model or by alternative forms of adjustment cost. Copyright 2001 by Scottish Economic Society.