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Asset Specificity of Non-Financial Firms

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  • Amir Kermani
  • Yueran Ma

Abstract

The specificity of firms' assets affects a wide range of economic issues. We study asset specificity of U.S. non-financial firms using a new dataset on the liquidation recovery rates of all major asset categories across industries. First, we find that non-financial firms' assets are generally highly specific. The average recovery rate (liquidation value over cost net of depreciation) is 35% for plant, property, and equipment (PPE). Second, across industries, physical attributes such as mobility, durability, and standardization account for around 40% of variations in PPE recovery rates. Over time, macroeconomic and industry conditions have the most impact on recovery rates when PPE is not firm-specific. Third, higher asset specificity is associated with less asset sales, greater investment response to uncertainty, and more Q dispersion, consistent with theories of investment irreversibility. Finally, the data suggests that rising intangibles have had a limited impact on firms' liquidation values.

Suggested Citation

  • Amir Kermani & Yueran Ma, 2020. "Asset Specificity of Non-Financial Firms," NBER Working Papers 27642, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27642
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    3. Amir Kermani & Yueran Ma, 2020. "Two Tales of Debt," NBER Working Papers 27641, National Bureau of Economic Research, Inc.
    4. Nishihara, Michi & Shibata, Takashi & Zhang, Chuanqian, 2023. "Corporate investment, financing, and exit model with an earnings-based borrowing constraint," International Review of Financial Analysis, Elsevier, vol. 85(C).
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    6. Isaac Baley & Andrés Blanco, 2022. "The Macroeconomics of Partial Irreversibility," Working Papers 1312, Barcelona School of Economics.
    7. Alban Moura & Olivier Pierrard, 2022. "How well do DSGE models with real estate and collateral constraints fit the data?," BCL working papers 168, Central Bank of Luxembourg.
    8. Faria-e-Castro, Miguel & Paul, Pascal & Sánchez, Juan M., 2024. "Evergreening," Journal of Financial Economics, Elsevier, vol. 153(C).
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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