Attitude towards risk, uncertainty, and fixed investment

We explore the relevance of the risk attitude of managers to the investment-uncertainty relation. Higher moments of the distribution of net profits are used to measure the risk premium of the firm, from which we derive a proxy for the risk aversion of managers. Using an unbalanced panel of Dutch listed firms, we find that in general a low degree of risk aversion coincides with a positive impact of demand uncertainty on investment. More specifically, we find that risk-averse firms respond to demand uncertainty by cutting investment, while the investment undertaken by risk-taking firms responds to demand uncertainty positively.