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

See all articles by Hang Bai

Hang Bai

University of Connecticut - Department of Finance

Erica X. N. Li

Cheung Kong Graduate School of Business

Chen Xue

University of Cincinnati

Lu Zhang

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

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

Bai, Hang and Li, Erica X. N. and Xue, Chen and Zhang, Lu, Firm-Level Irreversibility (June 30, 2023). Fisher College of Business Working Paper No. 2023-03-26, Charles A. Dice Working Paper No. 2023-26, Available at SSRN: https://ssrn.com/abstract=4653045 or http://dx.doi.org/10.2139/ssrn.4653045

Hang Bai

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

Erica X. N. Li

Cheung Kong Graduate School of Business ( email )

1 East ChangAn Avenue, Oriental Plaza, E2, 20/F
One East Chang An Avenue
Beijing, 100738
China

Chen Xue

University of Cincinnati ( email )

College of Business Administration
Cincinnati, OH 45221
United States
(513) 556-7078 (Phone)

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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