Firm-Level Investment Decisions Under Uncertainty and Irreversibility in Zimbabwes Private Firms

Abstract

Zimbabwe"s business operating environment is abounding with both micro and macro uncertainties that regularly impact on firm-level investment decisions. Under uncertainty and irreversibility private firms are forced to integrate into their investment appraisals and decisions some expectations regarding future product demand and prices, likely returns on fixed capital investment, expected margins, cost of capital expectations and cash flow projections. These important issues are not known with definitive assurance and hence, making investment decisions under uncertainty a challenging task for Zimbabwe"s private firms. The study examined investment under uncertainty and irreversibility in Zimbabwe"s private firms using a polychotomous regression model with the three investment decision outcomes; "invest now", "do not invest now" and "defer investment". The major findings are that; (1) liquidity constraints, firm size and credit constraints significantly influence the probability of investing now irrespective of uncertainties in the economy. (2) Poor public infrastructure, political uncertainty, inconsistent application of the indigenization laws and absence of laws that protect private property rights increase the probability of private firms" deferring investment decisions under uncertainty and investment irreversibility. The paper recommends that policy makers should reduce macro uncertainties in the financial sector that affect firm-level investment decisions, adopt policies that enhance productivity of public infrastructure and must observe national and international laws that safeguard investor property rights. Contribution/Originality: The study is one of the few studies that used a polychotomous probabilistic distribution function to investigate investment decisions of Zimbabwe"s private firms given the presence of uncertainty and investment irreversibility.

Energy Risk Management and Cost of Economic Production Biodiesel Project

“…The solution that community seeks for this problem is to collect used oil and come up with the easily chemical processes to produce its as "Esther" with similar properties to diesel. So, the community can use its instead of diesel oil called biodiesel which it can help community to reduce the amount of waste, reduce the pollution and also produce the other biodiesel used for agricultural machine (Muzurura, 2018;Ali and Haseeb, 2019). Community biodiesel should be a collaboration of government and community with the goal of transferring knowledge about biodiesel production technology because the raw materials used in the production of biodiesel can be obtained from the local sources such as oil, jatropha oil, used vegetable oil and from various oil crops to be used as fuel for agricultural machinery immediately.…”

Structural attributes of firms, irreversibility, and uncertainty of corporate investment in Nigeria

“…For instance, Caballero (1991) and McDonald and Siegel (1986) showed that imperfect competition negatively intensifies the relationship between investment uncertainty. A monopolistic firm can simply delay its investment as an investment opportunity is always available at any time when it decides to do so (Muzurura, 2018). This argument may also apply to an oligopolistic firm, probably to a lesser extent.…”

“…Dissimilar investment models have been developed to assess corporate investment, since it is perceived that when investment projects are correctly valued, it will assist investors in making valuable decisions that could help a firm to make workable financial commitments for the survival of the firm via the channel of profitability or value creation. However, the prevailing net present value and discounted cash flow techniques seem inept in capturing all the important factors that could influence investment decisions (Muzurura, 2018), hence the consideration of the real options theory of investment.…”

“…The real options theory advocates that uncertainty adversely influences investments in the area of irreversible capital by obtaining the utmost information, which stemmed from delay (Kang et al, 2014;Julio & Yook, 2012; Bekoe & Adom, 2013 cited in Muzurura, 2018). Admittedly, studies on irreversibility and uncertainty of corporate investment in Nigeria and other sub-Saharan Africa nations are available in the literature (see Machokoto et al, 2020;Oriavwote & Oyovwi, 2013;Ajide & Lawanson, 2012;and Kalu & James, 2012), but most of these studies used traditional methods to determine factors relevant for a firm's decision to invest.…”

Profitability and Risk in Relation to Credit Monitoring and Recovery Strategies of Palestinian Commercial Banking System

“…Credit risk is the kind of risks that bears losses due to the unexpected damage that is seen in the creditworthiness of counterparties. Otherwise, credit or the other party risk belongs to the opportunity that a borrower of the source of a financial instrument from the side of the country, a company, or an individual will not be able to repay the principal and the investment-related cash flow related to the conditions, terms, and obligations determined in a credit agreement (Bessis, 2009;Muzurura, 2018).…”