THE ROLE OF ECONOMIC UNCERTAINTY ON CORPORATE INVESTMENT DECISION: AN EMPIRICAL STUDY OF LISTED NIGERIAN MANUFACTURING FIRMS

Opaleke Jeremiah Babajide

Abstract

In consideration of the challenges facing corporate executives in the area of investment decision and the implication (i.e., effect) of these challenges on corporate survival and growth, majorly in the face of global pandemic, this study is conducted to specifically verify the role(s) of economic factor: economic uncertainty, amongst other investment factors, on a growing firm’s investment decisions. But prior to the description of the methodology adopted for achieving this objective, some conceptual issues, theoretical expositions and empirical contributions that are most relevant to corporate investment decision were first reviewed in the quest to align the findings of this study with those in existence, and then highlight major gaps found in those studies. The methodologies adopted, in the main, are anchored on the Tobin’s Q theoretical framework while its coverage is the 35 listed Nigerian manufacturing firms on the Nigerian Stock Exchange (NSE) between the years 1990 and 2019 (which is a total of 29 years). All variables examined in this study were selected on the premise of a three economic logic that most empirical studies of recent times ignored viz: firm-specific factors, industrial-wide factors and economic factors. And being a quantitative type of study that focuses on a developing economy (Nigeria), the data employed are of unbalanced panel type, which is mainly secondary. To get the very best of results and un-biased inferences, these data are scientifically scrutinized and analyzed using the 3-Stage Least Square regression approach. Accordingly, capital investment is the study’s dependent variables, which is measured by the sample firm’s fixed assets data. Other variables tested on capital investment are: finance, dividend payout, firm’s share market value (Q), the net cash flow, change in corporate product’ sales and stock market volatility (SMV), which is an economic uncertainty indicator. In the quest to avoid spurious regression result, a multivariate econometric model is specified to capture all the study’s intended joint variables. On the premise of this findings, the study then recommend that corporate executives and concerned government authorities should develop and/or adopt the economists’ suggested mechanisms as a scientific approach to managing the multiplier effect of the economic uncertainty in particular, when considering capital investment projects.