Uncertainty and firm investments

Last registered on July 08, 2020

View Trial History

Pre-Trial

Trial Information

General Information

Title

Uncertainty and firm investments

RCT ID

AEARCTR-0006116

Initial registration date

July 03, 2020

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published

July 08, 2020, 5:14 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country

Germany

Region

Primary Investigator

Name

Philipp Doerrenberg

Affiliation

University of Mannheim

Contact Primary Investigator

Other Primary Investigator(s)

Additional Trial Information

Status

In development

Start date

2020-07-06

End date

2020-08-03

Keywords

Finance & Microfinance

Additional Keywords

Firm behabvior, investments, uncertainty

JEL code(s)

Secondary IDs

Abstract

We study how economic uncertainty affects the investment and hiring plans of firms. We run a large-scale survey among German firms. The survey is in the context of the current Covid-19 crisis and we use the case of Covid-19 induced uncertainty to investigate the relationship between uncertainty and investments. To capture firm’s priors, we first elicit their expectations regarding the economic recovery and how uncertain the (extent and length) of the recovery is to them. Economic uncertainty is then exogenously manipulated through a randomized survey experiment. Respondents in an uncertainty treatment are presented the information that the council of economic experts of the German government has calculated several scenarios (either optimistic or pessimistic) for the economic recovery and that it remains unclear which of the scenarios will realize. The treatment information is presented verbally and graphically where the graphical illustration depicts the economic growth rates for the different scenarios (which are either optimistic or pessimistic). As benchmarks, we have further treatment arms that are either presented no information (control group) or “certainty treatments” which present either the optimistic or pessimistic scenario. After the experiment, we elicit uncertainty again (through a different question than before the experiment). We then have a set of questions which will be used as the outcome variables in our analysis: firms’ plans to invest in the short and medium run as well as their hiring plans in the short and medium run. Overall, our research paper aims to contribute to the literature on the relationship between uncertainty and investments (e.g., Baker, Bloom and Davis, 2016) through exploiting randomized variation in uncertainty in a survey among firms. In addition, we aim to contribute to a deeper understanding of the implications of the current Covid-19 crisis on firm behavior.

External Link(s)

Registration Citation

Citation

Doerrenberg, Philipp. 2020. "Uncertainty and firm investments." AEA RCT Registry. July 08. https://doi.org/10.1257/rct.6116-1.0

Sponsors & Partners

Experimental Details

Interventions

Intervention(s)

We implement a survey with a set of questions in the context of the Covid-19 crisis.
The survey includes a survey experiment with four randomized treatment arms:
i) Control group: no information provided
ii) Certainty I: information about a positive scenario that was presented by the council of economic experts.
iii) Certainty II: information about a negative scenario that was presented by the council of economic experts.
iv) Uncertainty: information about positive and negative scenario which were presented by council of economic experts
All treatment information are presented verbally and in a visual graph.

Intervention Start Date

2020-07-06

Intervention End Date

2020-08-03

Primary Outcomes

Primary Outcomes (end points)

i) investment plans in the short run (next 12 months)
ii) investment plans in the medium run (next 12-24 months)
iii) hiring plans in the short run (next 12 months)
iv) hiring plans in the medium run (next 12-24 months)

Primary Outcomes (explanation)

Our outcome variables are elicited through survey answers that follow the randomized survey experiment

Secondary Outcomes

Secondary Outcomes (end points)

Secondary Outcomes (explanation)

Experimental Design

See "interventions" described above.
Economic uncertainty is exogenously manipulated through a randomized survey experiment.
Respondents in an uncertainty treatment are presented the information that the council of economic experts of the German government has calculated several scenarios (either optimistic or pessimistic) for the economic recovery and that it remains unclear which of the scenarios will realize. The treatment information is presented verbally and graphically where the graphical illustration depicts the economic growth rates for the different scenarios (which are either optimistic or pessimistic).
We have further treatment arms that are either presented no information (control group) or “certainty treatments” which present either the optimistic or pessimistic scenario.

Experimental Design Details

Randomization Method

Randomization done by the software that we use for the survey (qualtrics)

Randomization Unit

Firm

Was the treatment clustered?

Experiment Characteristics

Sample size: planned number of clusters

Treatment is not clustered. See below for the number of firm-level observations.

Sample size: planned number of observations

We approach approximately 600,000 firms and invite them to participate in our survey. We are uncertain regarding the response rate and thus cannot name a final number of observations. For example, a response rate of 1% would imply that we have 6,000 independent firm-level observations-

Sample size (or number of clusters) by treatment arms

Even distribution of observations across the four treatment arms

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

Supporting Documents and Materials

IRB