Delayed Creative Destruction: How Uncertainty Shapes Corporate Assets

69 Pages Posted: 6 Jul 2021

See all articles by Murillo Campello

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Gaurav Kankanhalli

University of Pittsburgh - Katz Graduate School of Business

Hyunseob Kim

Federal Reserve Bank of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: June 21, 2021

Abstract

We show how uncertainty shapes the asset allocation, composition, productivity, and value of capital-intensive firms. We do so using detailed, near-universal data on shipping firms' new orders, secondary-market transactions, and demolition of ships. Firms curtail both the acquisition and disposal of vessels in response to heightened uncertainty. The mechanism operates primarily through cuts in new ship orders and demolition of older ships — decisions that are costlier to reverse vis-a-vis deals in the used ship market. These dynamics are more pronounced when secondary ship markets are illiquid, as firms face stronger incentives to delay their decisions. The rise of Somali pirate attacks in 2009–2011 is used as a shock to well-defined shipping sectors to corroborate our findings. Critically, uncertainty prompts firms to concentrate their fleets into narrower, less productive portfolios, leading to value losses. Our work is novel in showing that uncertainty hampers "creative destruction," slowing both the adoption of innovation embodied in new capital and the disposal of old capital.

Keywords: Uncertainty, capital allocation, productivity, technology, investment, disinvestment

JEL Classification: G31, D22, D25

Suggested Citation

Campello, Murillo and Kankanhalli, Gaurav and Kim, Hyunseob, Delayed Creative Destruction: How Uncertainty Shapes Corporate Assets (June 21, 2021). Available at SSRN: https://ssrn.com/abstract=3871283 or http://dx.doi.org/10.2139/ssrn.3871283

Murillo Campello (Contact Author)

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

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369 Sage Hall
Ithaca, NY 14853
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HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138

Gaurav Kankanhalli

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Hyunseob Kim

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://sites.google.com/view/hyunseobkim/research

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