Corporate Investment Over the Business Cycle

Review of Finance, Forthcoming

50 Pages Posted: 16 Mar 2010 Last revised: 23 Jan 2015

See all articles by Thomas Dangl

Thomas Dangl

Vienna University of Technology

Youchang Wu

University of Oregon - Lundquist College of Business

Date Written: January 19, 2015

Abstract

The average capital growth rate across firms declines sharply during a recession, and recovers only slowly. We provide a micro-founded explanation for this and several new stylized facts of investment asymmetry. Our investment model features various degrees of reversibility, cyclical macroeconomic shocks, and uncertainty about the state of the economy. Model simulations replicate strikingly different empirical patterns of capital growth rates at the aggregate and firm levels, featuring no slope asymmetry and a positive level asymmetry at the firm level, negative slope and level asymmetries at the aggregate level, and a positive relation between the industry-level slope asymmetry and asset illiquidity.

Keywords: Investment, real option, learning, business cycle

JEL Classification: G31, G30, D83

Suggested Citation

Dangl, Thomas and Wu, Youchang, Corporate Investment Over the Business Cycle (January 19, 2015). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1572054 or http://dx.doi.org/10.2139/ssrn.1572054

Thomas Dangl

Vienna University of Technology ( email )

Theresianumgasse 27
Vienna, A-1040
Austria

Youchang Wu (Contact Author)

University of Oregon - Lundquist College of Business ( email )

1280 University of Oregon
Eugene, OR 97403
United States

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