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Investment and the Cost of Capital: New Evidence from the Corporate Bond Market / Simon Gilchrist, Egon Zakrajsek.
- Format:
- Book
- Author/Creator:
- Gilchrist, Simon.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w13174.
- NBER working paper series no. w13174
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Investment and the Cost of Capital
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2007.
- Summary:
- We study the effect of variation in interest rates on investment spending, employing a large panel data set that links yields on outstanding corporate bonds to the issuer income and balance sheet statements. The bond price data -- based on trades in the secondary market -- enable us to construct a firm-specific measure of the user cost of capital based on the marginal cost of external finance as determined in the market for long-term corporate debt. Our results imply a robust and quantitatively important effect of the user cost of capital on the firm-level investment decisions. According to our estimates, a 1 percentage point increase in the user cost of capital implies a reduction in the investment rate of 50 to 75 basis points and, in the long run, a 1 percent reduction in the stock of capital.
- Notes:
- Print version record
- June 2007.
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