Investment Decisions in Anticipation of Recessions and Outperformance of Pre-Acting Firms

Seungmin Chee, Soo Young Kwon and Ju Hyun Pyun

Emerging Markets Finance and Trade, 2017, vol. 53, issue 2, 321-338

Abstract: We empirically examine whether firms make investment decisions in anticipation of recessions and subsequently perform better. Using a large quarterly dataset of fixed asset investments for U.S. firms during 1984–2012, we show that not all firms efficiently adjust their investment decisions in anticipation of a recession. However, we find that pre-acting firms that properly adjust their investment decisions (i.e., underinvest) before a recession outperform re-acting firms that fail to make proper investment decisions (i.e., overinvest) before a recession in subsequent returns on assets, returns on investments, and market-adjusted return measures.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:53:y:2017:i:2:p:321-338

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DOI: 10.1080/1540496X.2016.1216842

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