Corporate Discount Rates

Niels Gormsen and Kilian Huber

American Economic Review, 2025, vol. 115, issue 6, 2001-49

Abstract: We construct a dataset of firms' discount rates (i.e., required returns to capital) and perceived cost of capital using corporate conference calls. The relation between discount rates and the cost of capital is far below the one-to-one mapping assumed in standard theory, as it takes many years for changes in the cost of capital to be incorporated into discount rates. This pattern leads to large and time-varying discount rate wedges that affect firm investment. Moreover, increasing discount rate wedges can account for the recent puzzle of "missing investment." Cross-firm variation in market power and riskiness explains the evolution of wedges.

JEL-codes: D22 E43 G12 G31 G32 (search for similar items in EconPapers)
Date: 2025
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Related works:
Working Paper: Corporate Discount Rates (2023)
Working Paper: Corporate Discount Rates (2023)
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DOI: 10.1257/aer.20231246

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