Corporate Discount Rates

Niels Gormsen and Kilian Huber

No 31329, NBER Working Papers from National Bureau of Economic Research, Inc

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: E22 E32 E43 E44 E52 G10 G12 G30 G31 G40 (search for similar items in EconPapers)
Date: 2023-06
Note: AP CF EFG IFM IO ME PE PR
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Citations: View citations in EconPapers (2)

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Working Paper: Corporate Discount Rates (2023)
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