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Technology Adoption, Vintage Capital and Asset Prices

36 Pages Posted: 21 Jul 2009 Last revised: 29 Oct 2015

Xiaoji Lin

Ohio State University (OSU) - Fisher College of Business

Date Written: October 1, 2009


We study technology adoption, risk and expected returns using a dynamic equilibrium model with production. The central insight is that optimal technology adoption is an important driving force of the cross section of stock returns. The model predicts that technology adopting firms are less risky than non-adopting firms. Intuitively, by restricting firms from freely upgrading existing capital to the technology frontier, costly technology adoption reduces the flexibility of firms in smoothing dividends, and hence generates the risk dispersion between technology adopting firms and non-adopting firms. The model explains qualitatively and in many cases quantitatively empirical regularities: (i) The positive relation between firm age and stock returns; (ii) firms with high investment on average are younger and earn lower returns than firms with low investment; and (iii) growth firms on average are younger than value firms, and the value premium is increasing in firm age.

Keywords: Technology Adoption, Vintage Capital, Firm Age, Investment, Stock Returns

JEL Classification: E23, E44, G12

Suggested Citation

Lin, Xiaoji, Technology Adoption, Vintage Capital and Asset Prices (October 1, 2009). Available at SSRN: or

Xiaoji Lin (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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