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AbstractPrevious macro‐ and micro‐level evidence indicate that fluctuations in idiosyncratic uncertainty have an important effect on investment, both directly and indirectly through financial market frictions. The objective of this paper was to explore, beyond the two traditional and complementary channels, a new one: firm entry. By utilizing a novel and large dataset on Greek firms covering the entire economy over the period 2000–2014 and employing a panel‐VAR methodology, we examine and evaluate the impact of shocks to the number of startups, idiosyncratic uncertainty, and financial conditions on the investment growth at the industry level. Our findings can be summarized as follows. First, a shock to the number of new firms has significant effects on investment that persist for many years. Second, although all the three variables are important drivers of investment growth dynamics, uncertainty has the largest impact (explaining about the 15% of the variability of investment growth), firm creation follows (it explains about the 7%), while financial conditions have the smallest direct effect (explaining the 3.5%). Finally, we demonstrate that firm entry constitutes an important propagation mechanism for the transmission of uncertainty shocks in the investment growth trajectories.

PurposeThis study investigates which expectation formation mechanism governs Eurozone firms regarding their expectations on external finance availability.Design/methodology/approachIn this study, we link consecutive surveys from the Survey on the Access to Finance of Enterprises to bring new evidence on how non-financial corporations shape their expectations on external finance availability.FindingsIn line with the past literature, we demonstrate that the data reject the Rational Expectations hypothesis, and we find evidence in favor of the Adaptive Expectation mechanism.Originality/valueThis is the first study studying firms' expectations of external finance availability, implementing survey data of firms' expectations from the SAFE database on a country level. The formation of firm expectations is vital in directing policymakers in designing appropriate monetary policies, as both the employment and inflation targets of central banks around the world are highly dependent on the firm-level decision process.