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The purpose of this paper is twofold. First, based on the value optimization problem of the firm, the authors proposed a theoretical model for firms’ investment decisions, which incorporates the effects of both idiosyncratic (firm specific) and macroeconomic uncertainty/risk. Second, the authors empirically estimate the proposed model for Pakistan.

The authors utilize an unbalanced firm-level panel data covering the period 1988-2013. To generate time-variant firm-specific uncertainty, the authors estimate the autoregressive model on firm sales for each firm included in the sample over the examined period. Firm-specific risk is also measured based on the square of the residuals of firms’ sales. Two measures of macroeconomic uncertainty are computed using the conditional variance obtained by estimating the ARCH model for consumer price index and industrial production index. Several alternative measures of both types of uncertainties are used to ensure the robustness of uncertainty effects. To mitigate the problem of endogeneity, the robust two-step system-generalized method of moments estimator is used to estimate the empirical model.

The results indicate that firms are likely to cut down their level of investment spending when either type of uncertainty increases. The results also reveal that the sensitivity of firms’ investment decisions to macroeconomic (aggregate) uncertainty is higher as compared to the firm-specific uncertainty. The authors show that these findings are robust to different uncertainty measures used in the analysis. The results related to firm characteristics suggest that the firm-specific variables namely the debt to assets ratio, the costs of debt to assets ratio, and the sales to assets ratio are also equally important in the determination of investment decisions of corporate manufacturing firms.

The empirical findings of the paper are useful for firm managers, investors, and government authority. Specifically, the results help firm managers and investors to understand how firm-specific and macroeconomic uncertainty affects firms’ investment decisions. The finding that firms cut their investment spending in times of macroeconomic instability implies that declines in firms’ investment spending during the periods of macroeconomic turmoil may delay the process of recovery. Therefore, the policy makers should design such policies that encourage firms to invest more in economic crisis periods, which, in turn, would enhance the growth of the economy and help to overcome the problem of downturn/recession.

The authors first propose a theoretical model for firms’ investment decisions based on the value optimization problem of the firm by incorporating the role of both firm-specific and macroeconomic uncertainty. Next, unlike most of previous studies, they estimate the proposed model for non-financial firms operating in Pakistan. The authors predict that a higher exposure to both idiosyncratic and macroeconomic uncertainties leads to lower investment in Pakistani manufacturing firms. Further, the authors hypothesize that both types of uncertainties have differential effects on firms’ investment decisions.

Taking advantage of distinctive text-based measures of climate policy uncertainty and firm-specific exposure to climate change, this study aims to examine the impact of firm-specific vulnerability on dividend policy.

To mitigate endogeneity, the authors apply an instrumental-variable analysis based on climate policy uncertainty as well as use additional analysis using propensity score matching and entropy balancing.

The authors show that an increase in climate policy uncertainty exacerbates firm-specific exposure considerably. Exploiting climate policy uncertainty to generate exogenous variation in firm-specific exposure, the authors demonstrate that companies more susceptible to climate change are significantly less likely to pay dividends and those that do pay dividends pay significantly smaller dividends. For instance, a rise in firm-specific exposure by one standard deviation weakens the propensity to pay dividends by 5.11%. Climate policy uncertainty originates at the national level, beyond the control of individual firms and is thus plausibly exogenous, making endogeneity less likely.

To the best of the authors’ knowledge, this study is the first attempt in the literature to investigate the effect of firm-specific exposure on dividend policy using a rigorous empirical framework that is less vulnerable to endogeneity and is more likely to show a causal influence, rather than a mere correlation.

The objective of this paper is threefold. First, it aims to empirically study whether firm-specific/idiosyncratic uncertainty, macroeconomic/aggregate uncertainty and political uncertainty have an adverse influence on firms' investment decisions in Pakistan. After establishing this, it scrutinizes whether the uncertainty effects on investment are different for firms of different sizes. Finally, it investigates whether any heterogeneity exists in the uncertainty impacts across different industries.

The empirical analysis is based on an unbalanced panel data of 468 nonfinancial firms listed at the Pakistan Stock Exchange (PSX) during the period 2000–2018. Departing from the literature, the paper builds a time-varying composite volatility/uncertainty index based on the principal component analysis (PCA) by utilizing the constructed volatility series for sales, cash flows and return on assets to gauge firm-specific uncertainty for each firm included in the analysis. Likewise, the paper develops a PCA-based composite index for macroeconomic uncertainty by using the conditional variance series of consumer price index (CPI), industrial production index (IPI), the interest rate and the exchange rate obtained by estimating the (generalized) autoregressive conditional heteroscedastic, (G)ARCH, models. Finally, political uncertainty is measured by political risk components maintained by the Political Risk Services Group. The empirical framework of the paper augments the standard investment equation by incorporating all three types of uncertainty. Firms are grouped into small, medium and large categories based on firms' total assets and the size indicators are generated. Next, the indicators are multiplied by each uncertainty measure to quantify the differential effects of uncertainty across firm size. Firms are also differentiated by sectors to explore the sector-based asymmetries in the uncertainty effects. The “robust two-step system generalized method of moments (2SYS GMM) (dynamic panel data) estimator” is applied to estimate the empirical models.

The results provide robust and strong evidence of the detrimental influence of all three types of uncertainty on investment. Yet, it is observed that the strength of the influence considerably varies across uncertainty types. In particular, compared to firm-specific uncertainty, both macroeconomic and political uncertainties have more unfavorable effects. The analysis also reveals that the effects of all three types of uncertainty are quite different at small, medium and large firms. Specifically, it is observed that although the investment of all firms is influenced adversely by magnified uncertainty, the adverse effects of all three kinds of uncertainty are quite stronger at small firms than medium and large firms. These findings support the phenomenon of size-based asymmetries in the effects of uncertainty on investment. The results also provide evidence that either type of uncertainty quite differently affects the investment policy of firms in different sectors.

The findings help different stakeholders to know how different types of uncertainty differently affect corporate firms' investments. Further, they suggest that firm size has a vital role in ascertaining the adverse effects of uncertainty on investment. The paper identifies to which type of uncertainty investors and policymakers should care more about and to which types of firms and industries they should concern more during volatile times. Firms should have more fixed assets and expand their size to mitigate the detrimental effects on investment of internal and external uncertainties. The government should enhance the political stability to induce firms for a higher level of investment, which, in turn, will result in higher growth of the economy.

The originality of the paper is credited to four aspects. First, unlike most previous studies that have utilized a single volatility measure, this paper constructs composite uncertainty indices based on the weights determined by the PCA. Second, it examines the effect of political uncertainty over and above the effects of idiosyncratic and aggregate (macroeconomic uncertainty) for an emerging economy. Third, and most important, it provides first-hand empirical evidence on the role of firm size in establishing the asymmetric effects of uncertainty on investment. Finally, it provides evidence on the industry-based heterogeneity in the uncertainty effects.

The purpose of this paper is to provide evidence on how firm-specific and macroeconomic uncertainty affects shareholders’ valuation of a firm’s cash holdings. This extends previous work on this issue by highlighting the importance of the source of uncertainty. The findings indicate that increases in firm-specific risk generally increase the value of cash while increases in macroeconomic risk generally decrease the value of cash. These findings are robust to alternative definitions of the unexpected change in cash. The authors extend the analysis to financially constrained and unconstrained firms.

The authors test the hypothesis that the marginal effect of cash holdings on excess stock returns is sensitive to uncertainty. To compute this marginal effect, the authors adopt and extend the approach of Faulkender and Wang (2006) to the authors’ more elaborate model.

The findings indicate that different sources of uncertainty affect the value of cash holdings differently. Findings indicate that increases in firm-specific risk generally increase the value of cash while increases in macroeconomic risk generally decrease the value of cash. These findings are robust to alternative definitions of the unexpected change in cash. The authors also extend the findings to financially constrained and unconstrained firms.

The findings indicate that the source of uncertainty firm-specific vs macroeconomic risk matters. The two sources of risk may have quite different effects on shareholders’ valuation of a firm’s cash holdings. Results from alternative sources of findings are new. These new findings are robust to alternative definitions of the unexpected change in cash.

The purpose of this paper is to examine how corporate governance moderates the relationship between macroeconomic uncertainty and corporate capital structure.

This paper employs the two-step system generalized method of moments regression, considering a sample of 907 listed non-financial firms from seven Asia Pacific countries during the period 2004-2014.

This study finds that macroeconomic uncertainty has a significant negative impact on the capital structure decisions of firms. The results also reveal that the overall effect of macroeconomic uncertainty on capital structure among firms with better governance quality is significantly negative. The evidence suggests that corporate governance acts as an effective mechanism to curb the usage of leverage during times of high volatility. Further analysis shows that board independence, the separation between the roles of CEO and chairman of the board and blockholders’ ownership are effective governance mechanisms, whereas similar observations do not hold for board size and institutional ownership.

The findings of this study may be useful to policy makers to formulate appropriate policies to mitigate the adverse effects caused by macroeconomic uncertainty. This is important because macroeconomic uncertainty may have potential destabilizing effects on a country’s or region’s development by jeopardizing the firms’ ability to formulate sound investment, production and financing decisions. Additionally, the results suggest that good governance quality can act as a check and balance to ensure that firms use less leverage when they are facing volatility in the macroeconomic environment. These findings could help to reinforce the importance of good governance among policy makers of a country as well as managers of firms.

The authors make the first attempt to examine the moderating effect of corporate governance on the relationship between macroeconomic uncertainty and corporate capital structure.

The purpose of this paper is to examine how pre-IPO cash flow and earnings volatility influence both post-IPO pricing and valuation. This paper provides an empirical extension of Pástor and Veronesi’s (2003, 2005) argument that uncertainty surrounding a private firm’s expected profitability can impact how the firm is valued in the IPO aftermarket.

This paper includes a sample of 695 IPOs between 1996 and 2011. Pre-IPO financial statement data are hand collected from the EDGAR database. Pre-IPO cash flow and earnings volatility is computed using the standard deviation of the firm’s three years of cash flows and earnings prior to the IPO. Tobin’s Q serves as a measure of post-IPO firm valuation. This paper includes two subsamples to account for the “hot” IPO market of the late 1990s.

Firms with higher pre-IPO cash flow volatility are associated with higher post-IPO aftermarket valuations. This result holds for both the “hot” IPO and the later sub-sample. Pre-IPO earnings volatility does not influence aftermarket valuations, suggesting that only the uncertainty surrounding cash flows serves as a salient measure to IPO investors. Finally, IPO underpricing is associated with pre-IPO cash flow volatility, suggesting another channel in which IPO pricing is influenced.

The hand collection for this paper is laborious and is limited to yearly cash flow and earnings numbers. The paper documents that quarterly and yearly cash flow and earnings volatility measures are highly correlated for the select stocks that allow for such testing. Further, a broader sample that accounts for more international IPO issues might corroborate the findings in this paper.

This study shows that investors both initially price and value IPO firms base on their pre-IPO cash flow volatility.

This is the first paper to examine the direct link between pre-IPO cash flow and earnings volatility on IPO aftermarket valuation and IPO pricing.

The purpose of this paper is to review the growing literature examining supply chain risk management (SCRM) and to develop a typology of risks in the supply chain.

The paper draws its insights and conclusions from a review of the literature on supply chain risk, and a synthesis of the broader domain of risk management.

While the literature on SCRM is growing, the literature lacks an organized structure for the sources of supply chain risk. The current paper bridges this gap by synthesizing the diverse literature into a typology of risk sources, consisting of environmental factors, industry factors, organizational factors, problem‐specific factors, and decision‐maker related factors.

The paper devises a typology that can be used by managers to measure and assess the vulnerabilities of their company and supply chain. The typology also provides avenues for future research that further guides practitioners in the management of their supply chain risk portfolio.

SCRM is rapidly developing into a favored research area for academicians as well as practitioners, especially after the attacks of September 11 and the recent array of natural disasters. This paper develops a methodology for structuring academic inquiry in this important research area.

The choice of an international market entry mode involves two critical considerations, leveraging internal competencies and managing environmental uncertainties in host countries. The purpose of the paper is to explicate how these two considerations affect the propensity to collaborate in international markets.

The paper builds on existing theories and develops hypotheses showing relations between competencies and uncertainty and collaboration in international markets.

Conceptual relations show that the goals of leveraging competencies and managing environmental uncertainty in host countries have varying effects on the level of international collaboration.

The effects are shown through the integration of different theories and empirical findings. Furthermore, the significance of collaboration in international market entry decisions is established. Directions for future research are also provided.

The purpose of this study is to investigate the value investors place on S&P index additions relative to uncertainty surrounding the firm and the market. Investors look for reassuring signals or tell-tale signs around uncertainty.

Variation in the market response to announcements of S&P additions to the 400, 500 and 600 indices is examined against measures of risk factors. Internal risk factors include firm size relative to the index, total firm risk and liquidity, and whether the firm is a brand new index entrant. External risk factors related to market uncertainty are measured by the Chicago Board of Exchange volatility index.

Firms with lower market capitalization relative to the index, higher total risk, lower trading volume and first-time entrants to any S&P index elicit a positive market reaction compared to firms with less pricing uncertainty. In times of increased market uncertainty, investors tend to place more value on signals from respected institutions such as S&P, and riskier firms benefit more from inclusion in the S&P index. Overall, this study finds that the market overreaction is explained by the degree of uncertainty surrounding the added firms, as well as by the degree of market uncertainty at the time of the announcement.

The findings of this study suggest that investors interpret the prospect of S&P index addition as an opportunity for firms to reduce uncertainty surrounding them, and thus partially hedge their exposure to market uncertainty by joining an index tracked by dozens of index funds. The value of such a hedging strategy rises for riskier firms during market turbulence.

The purpose of this paper is to develop a meta-model that systematically aggregates and organizes research on “partner selection” in interorganizational relationships (IORs), which is scattered across several disciplines, to help future researchers explore various aspects of this control mechanism in a more consistent manner. This paper also aims at critically reviewing each aspect of this control mechanism examined in the prior literature and identifying important research trends.

This paper conducts a comprehensive review and in-depth analysis of the key theoretical and empirical research findings on partner selection in IORs by identifying 172 papers across 46 journals that specifically discuss this control mechanism. A meta-model approach is adopted to review and identify the shortcomings in extant research and provide guidance to future researchers on exploring unanswered research questions. Moreover, maps are constructed using the Luft and Shields’s (2003) approach to graphically present the causal-model forms examined in this topic area.

This meta-model shows how the research on partner selection in IORs is scattered across different disciplines, resulting in its inconsistent evolution with researchers, in many cases, not being able to effectively synthesize contributions from fields that are not their own or not closely allied. The causal-model forms also enable rapid tracing of what has been researched.

There has been considerable research on control mechanisms in IORs till date. However, “partner selection,” which is an important control mechanism, has received little attention and is often neglected. To the best of the author’s knowledge, this paper is the first to develop a meta-model to consolidate knowledge on this topic that is important for further advancement of research.