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Does Costly Reversibility Matter for U.S. Public Firms? / Hang Bai, Erica X.N. Li, Chen Xue, Lu Zhang.
- Format:
- Book
- Author/Creator:
- Bai, Hang.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w26372.
- NBER working paper series no. w26372
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2019.
- Summary:
- Yes, most likely. The firm-level evidence on costly reversibility is even stronger than the prior evidence at the plant level. The firm-level investment rate distribution is highly skewed to the right, with a small fraction of negative investments, 5.79%, a tiny fraction of inactive investments, 1.46%, and a large fraction of positive investments, 92.75%. When estimated via simulated method of moments, the standard investment model explains the average value premium, while simultaneously matching the key properties of the investment rate distribution, including the cross-sectional volatility, skewness, and the fraction of negative investments. The combined effect of costly reversibility and operating leverage is the key driving force behind the model's quantitative performance.
- Notes:
- Print version record
- October 2019.
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