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Sunk Costs and the Variability of Firm Value over Time

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  • Lambson, Val Eugene
  • Jensen, Farrell E

Abstract

Empirical implications for the variability of firm value in various models of industry evolution are discussed. Under certain conditions, learning models imply that industries with higher sunk costs should exhibit greater difference in firm value between entering and exiting firms whereas external shocks models imply that industries with higher sunk costs should exhibit greater variability of firm value over time relative to a numeraire industry. The theoretical results from external shocks models are consistent with agricultural data from California and Florida. Copyright 1995 by MIT Press.

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  • Lambson, Val Eugene & Jensen, Farrell E, 1995. "Sunk Costs and the Variability of Firm Value over Time," The Review of Economics and Statistics, MIT Press, vol. 77(3), pages 535-544, August.
  • Handle: RePEc:tpr:restat:v:77:y:1995:i:3:p:535-44
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    Cited by:

    1. Adelina Gschwandtner & Val E. Lambson, 2004. "Sunk costs, Profit Volatility, and Turnover," Vienna Economics Papers 0405, University of Vienna, Department of Economics.
    2. Hermann, Daniel & Mußhoff, Oliver & Rüther, Dörte, 2015. "Measuring farmers' time preference: A comparison of methods," DARE Discussion Papers 1506, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
    3. Werner Hölzl & Klaus S. Friesenbichler & Kerstin Hölzl, 2014. "Slight Reduction in Cash-Flow-to-Sales Ratio. Profitability of Austrian Manufacturing in 2013," WIFO Bulletin, WIFO, vol. 19(12), pages 110-120, November.
    4. Adelina Gschwandtner & Val E. Lambson, 2009. "Sunk Entry Costs, Sunk Depreciation costs, and Industry Dynamics," Vienna Economics Papers 0902, University of Vienna, Department of Economics.
    5. Klaus S. Friesenbichler & Werner Hölzl & Kerstin Hölzl, 2015. "Cash Flow Rate Contracted. Earning Power of Austrian Manufacturers in 2014," WIFO Monatsberichte (monthly reports), WIFO, vol. 88(9), pages 719-729, September.
    6. Gschwandtner, Adelina & Lambson, Val E., 2002. "The effects of sunk costs on entry and exit: evidence from 36 countries," Economics Letters, Elsevier, vol. 77(1), pages 109-115, September.
    7. David Greenstreet, 2007. "Exploiting Sequential Learning to Estimate Establishment-Level Productivity Dynamics and Decision Rules," Economics Series Working Papers 345, University of Oxford, Department of Economics.

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