The asset redeployability channel: how uncertainty affects corporate investment

Kim, H and Kung, H (2017) The asset redeployability channel: how uncertainty affects corporate investment. The Review of Financial Studies, 30 (1). pp. 245-280. ISSN 0893-9454

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 affect liquidation values and therefore make firms cautious about investment decisions under uncertainty.

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Item Type: Article
Subject Areas: Finance
Additional Information: © 2016 The Society for Financial Studies. Awarded Best Paper in Corporate Finance at the SFS Cavalcade 2014.
Subjects: A > Asset valuation
I > Investment appraisal
Date Deposited: 03 Feb 2017 09:45
Last Modified: 05 Mar 2019 09:18
URI: http://lbsresearch.london.edu/id/eprint/619
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