The asset redeployability channel: how uncertainty affects corporate investment
Journal
Review of Financial Studies
Subject
Finance
Publishing details
Authors / Editors
Kung H; Kim H
Biographies
Publication Year
2017
Abstract
This paper examines how uncertainty affects corporate investment under varying degrees of asset redeployability. We develop new measures of asset redeployability by accounting for the usability of assets within and across industries. We identify plausibly exogenous shocks to economic uncertainty by using major economic and political events. We find that after an increase in uncertainty, firms using less redeployable capital reduce investment more. More redeployable assets exhibit higher recovery rates and are traded more actively in secondary markets. Overall, our results suggest that frictions in redeploying assets significantly affect liquidation values and therefore make firms cautious about investment decisions.
Publication Notes
Award for Best Paper in Corporate Finance at the SFS Cavalcade 2014
Available on ECCH
No
