Working Paper: NBER ID: w27896
Authors: Kyle Handley; J Frank Li
Abstract: We construct a new measure of firm-level uncertainty from analyzing the text of mandatory reports filed with the U.S. Securities and Exchange Commission. Using firm and establishment level panel data on investment margins and employment dynamics, we find our uncertainty measure has large effects on investment even after controlling for industry and time-varying shocks. Periods of high firm uncertainty (1) reduce investment rates by 0.5% and attenuate the response to positive sales shocks by about half and (2) reduce employment growth rates by 1.4% and the response to positive sales shocks by 30%. Firms are less responsive to demand shocks at the firm level and across establishments within the firm. Consistent with “wait and see” dynamics, uncertainty affects new investment activity, e.g. plant births and acquisition, more than disinvestment margins.
Keywords: firm uncertainty; economic activity; investment; employment; SEC filings
JEL Codes: D81; E22; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm-level uncertainty (D89) | investment rates (G31) |
| firm-level uncertainty (D89) | employment growth rates (O49) |
| high firm uncertainty (D89) | response to positive sales shocks (C69) |
| firm-level uncertainty (D89) | new investment activity (G24) |
| firm-level uncertainty (D89) | disinvestment margins (G31) |