Investments, Uncertainty and Irreversibility: Example of Automotive Industry in the Slovak Republic

This paper investigates the irreversibility of investments and the impact this has on the nature of the relationship between investment and uncertainty. The empirical analysis uses firm level data and is based on a survey of 53 automotive suppliers, which was carried out during the year 2011. We find supportive evidence for the fact that uncertainty is negatively associated with planned investments of the companies surveyed, which remains true also in the presence of irreversibility. Yet, further investigation of the investment uncertainty relationship and the role of irreversibility provides support for the view that the negative association between uncertainty and investment increases with the degree of irreversibility. So the degree of irreversibility of investment does influence the effect uncertainty has on planned investment.