Original title: Firm-level uncertainty and frictions: implications for capital and financial decisions in the US
Authors: Stojanović, Danilo ; Bojović, V.
Document type: Research reports
Year: 2025
Language: eng
Series: CERGE-EI Working Paper Series, volume: 793
Abstract: This paper examines how profit volatility has influenced firms’ decisions over the past four decades. Using Compustat data, we document that: (1) high-investing firms cut their investment rate more sharply than other firms, implying that extensive margin investment decisions - whether to invest in new projects or not - are important for the uncertainty effects, (2) the interaction between firms’ financial and real conditions amplifies the negative impact of increased uncertainty on the investment rates. We also develop and calibrate a heterogeneous-firm model that incorporates both real and financial costs. In the model, higher capital adjustment costs increase the investment inaction rate by 31%, while higher financial costs reduce the investment spike rate by 46%. Incorporating irreversible capital into the collateral constraint reduces firms’ debt capacity, leading to an increase in the investment inaction rate, cash holdings, and net dividends.
Keywords: adjustment costs; capital investment; extensive margin
Project no.: LX22NPO5101
Funding provider: GA MŠk

Institution: Economics Institute AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: https://www.cerge-ei.cz/pdf/wp/Wp793.pdf
Original record: https://hdl.handle.net/11104/0366777

Permalink: http://www.nusl.cz/ntk/nusl-679987


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Reports > Research reports
 Record created 2025-06-08, last modified 2025-06-25


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