Profit, Output Market Uncertainty and Corporate Investment: Evidence from Vietnam

Abstract

This paper empirically investigates how the variation of profits affects the relationship between the degree of output market uncertainty and firm investment. Using a primary dataset of 667 firms randomly selected in Vietnam, the empirical results indicate that higher profits mitigate the negative impact of the degree of output market uncertainty on investment by those firms. Specifically, as profits go beyond a certain benchmark, output market uncertainty even triggers investment. Given the results, this paper proposes recommendations that enable firms to make better investment decisions, thereby avoiding over-investment that may lead to debt burden (even bankruptcy) as output markets somehow turn worse. More importantly, the implication of this paper is to help the government devise better policies for moderating competition, containing monopoly, and mitigating corruption.