The Asset Redeployability Channel: How Uncertainty Affects Corporate Investment

63 Pages Posted: 15 Mar 2012 Last revised: 20 Mar 2017

See all articles by Hyunseob Kim

Hyunseob Kim

Cornell University - Samuel Curtis Johnson Graduate School of Management

Howard Kung

London Business School; Centre for Economic Policy Research (CEPR)

Date Written: July 9, 2016

Abstract

This paper examines how uncertainty affects corporate investment under varying degrees of asset redeployability. We develop new measures of asset redeployability by accounting for the usability of assets within and across industries. We identify plausibly exogenous shocks to economic uncertainty by using major economic and political events. We find that after an increase in uncertainty, firms using less redeployable capital reduce investment more. More redeployable assets exhibit higher recovery rates and are traded more actively in secondary markets. Overall, our results suggest that frictions in redeploying assets significantly affect liquidation values and therefore make firms cautious about investment decisions.

Keywords: Asset redeployability; Uncertainty; Irreversible investment; Capital reallocation; Real options

JEL Classification: G31

Suggested Citation

Kim, Hyunseob and Kung, Howard, The Asset Redeployability Channel: How Uncertainty Affects Corporate Investment (July 9, 2016). Available at SSRN: https://ssrn.com/abstract=2022669 or http://dx.doi.org/10.2139/ssrn.2022669

Hyunseob Kim (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Howard Kung

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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