Firm-Level Irreversibility

Hang Bai, Erica X. N. Li, Chen Xue and Lu Zhang
Additional contact information
Hang Bai: U of Connecticut
Erica X. N. Li: Cheung Kong Graduate School of Business
Chen Xue: U of Cincinnati
Lu Zhang: Ohio State U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Contradicting Cooper and Haltiwanger (2006), Clementi and Palazzo (CP, 2019) report a largely symmetric investment rate distribution in Compustat, with a large fraction of negative investment rates, 18.2%, and conclude "no sign of irreversibility (p. 289)." CP's analysis is flawed. A data error on depreciation rates understates gross investment and shifts the whole gross investment rate distribution leftward. Nonstandard sample screens on age and acquisitions further curb its right tail, which is then truncated at 0.2. Fixing these problems restores the heavily asymmetric investment rate distribution with a fat right tail. The fraction of negative investment rates is small, only 4.9%-6.2%.

JEL-codes: E01 E22 E44 G12 G31 (search for similar items in EconPapers)
Date: 2023-12
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2023-26

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