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Firm-level Irreversibility

Author

Listed:
  • Hang Bai
  • Erica X.N. Li
  • Chen Xue
  • Lu Zhang

Abstract

Contradicting Cooper and Haltiwanger (2006), Clementi and Palazzo (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).” Their evidence 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 subsequently 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%.

Suggested Citation

  • Hang Bai & Erica X.N. Li & Chen Xue & Lu Zhang, 2019. "Firm-level Irreversibility," NBER Working Papers 26372, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26372
    Note: AP CF EFG IFM ME
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    References listed on IDEAS

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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
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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