Corporate Decision-Making under Uncertainty: Review and Future Research Directions

Uncertainty over future business conditions lies at the heart of firm decision-making. Uncertainty can arise from a myriad of sources and is difficult to measure. We present a simple conceptual framework showing how several key corporate decisions are affected by uncertainty. We also highlight recen...

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Bibliographic Details
Published in:NBER Working Paper Series 2022-12
Main Authors: Campello, Murillo, Kankanhalli, Gaurav
Format: Article
Language:English
Subjects:
Decision making
Economic policy
Economic theory
Tax regulations
Online Access:Get full text
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Summary:Uncertainty over future business conditions lies at the heart of firm decision-making. Uncertainty can arise from a myriad of sources and is difficult to measure. We present a simple conceptual framework showing how several key corporate decisions are affected by uncertainty. We also highlight recent advances in the measurement of uncertainty, distinguishing between approaches that gauge aggregate uncertainty and those that capture different dimensions of firm-specific uncertainty. These approaches incorporate information obtained from market prices, big data, machine learning techniques, surveys, and more. We then review the growing body of empirical work that studies the role played by uncertainty in shaping outcomes ranging across corporate investment, asset base composition, innovation, liquidity management, payouts, and mergers. Our review outlines several opportunities for future research.
ISSN:0898-2937
DOI:10.3386/w30733