EconPapers    
Economics at your fingertips  
 

Investment and the Cost of Capital: New Evidence from the Corporate Bond Market

Simon Gilchrist () and Egon Zakrajsek ()

No 13174, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the effect of variation in interest rates on investment spending, employing a large panel data set that links yields on outstanding corporate bonds to the issuer income and balance sheet statements. The bond price data -- based on trades in the secondary market -- enable us to construct a firm-specific measure of the user cost of capital based on the marginal cost of external finance as determined in the market for long-term corporate debt. Our results imply a robust and quantitatively important effect of the user cost of capital on the firm-level investment decisions. According to our estimates, a 1 percentage point increase in the user cost of capital implies a reduction in the investment rate of 50 to 75 basis points and, in the long run, a 1 percent reduction in the stock of capital.

JEL-codes: E22 E44 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2007-06
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35) Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w13174.pdf (application/pdf)

Related works:
Working Paper: Investment and the Cost of Capital: New Evidence from the Corporate Bond Market (2007)
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:nbr:nberwo:13174

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w13174

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-07-04
Handle: RePEc:nbr:nberwo:13174