Firm-Level Irreversibility
Fisher College of Business Working Paper No. 2023-03-26
Charles A. Dice Working Paper No. 2023-26
70 Pages Posted: 5 Dec 2023
There are 2 versions of this paper
Firm-Level Irreversibility
Date Written: June 30, 2023
Abstract
Contradicting Cooper and Haltiwanger (2006), Clementi and Palazzo (CP, 2019) report a largely symmetric investment rate distribution in Compustat, with a large fraction of negative investment rates, 18.2%, and conclude "no sign of irreversibility (p. 289)." CP’s analysis is flawed. A data error on depreciation rates understates gross investment and shifts the whole gross investment rate distribution leftward. Nonstandard sample screens on age and acquisitions further curb its right tail, which is then truncated at 0.2. Fixing these problems restores the heavily asymmetric investment rate distribution with a fat right tail. The fraction of negative investment rates is small, only 4.9%–6.2%.
Keywords: Firm-level irreversibility, systems worldview, scientific modeling, replication, reproduction
JEL Classification: E01, E22, E44, G12, G31
Suggested Citation: Suggested Citation