LARGE COMPANY CAPITAL FORMATION AND EFFECTS OF MARKET SHARE TURBULENCE - MICRODATA EVIDENCE FROM THE PIMS DATABASE

The possible effect of demand uncertainty on company investment decisi ons is investigated at the micro level. A standard investment function is employed and modified to incorporate demand uncertainty. The data comes from the PIMS data base on business units of large firms in conc entrated markets. In dynamic panel data estimation, significance was f ound for a variable representing market share turbulence. In a number of industries, this variable causes a depressing effect on capital inv estment either on its own or in combination with indicators of vertica l integration, which indicate insulation from demand uncertainty. The results constitute some of the best available evidence that demand unc ertainty constraints capital investment.