Corporate Discount Rates

Niels Joachim 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
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/aer.20231246 (application/pdf)
https://doi.org/10.3886/E221661V1 (text/html)
https://www.aeaweb.org/articles/materials/23273 (application/pdf)
https://www.aeaweb.org/articles/materials/23274 (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:115:y:2025:i:6:p:2001-49

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/aer.20231246

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().