Files
Abstract
This paper examines the relationship between uncertainty and investment decisions by food and
non-food firms. Using hysteresis and the real options paradigm, we review why uncertainty
might cause firms to delay investment. In particular, our model looks for a negative relationship
between capital invested and uncertainty. In the alternative, if the relationship is positive, this
may be consistent with the exercise of growth options or competitive markets. Empirical results
are mixed. In one of the four models we present there is clear evidence of hysteresis, that is a
negative relationship between year over year investment and uncertainty. The remaining 3 models
indicate the opposite, a positive relationship between investment and risk. Although the
models differ, the first model is the stronger of the three. Nonetheless, the results are ambiguous.
Although we use a large cross sectional, time series panel set of data, we find nothing remarkable
about the food industry per se, except that across industries, their level of investment is about
in the middle.