Working Paper: NBER ID: w27642
Authors: Amir Kermani; Yueran Ma
Abstract: The specificity of firms' assets affects a wide range of economic issues. We study asset specificity of U.S. non-financial firms using a new dataset on the liquidation recovery rates of all major asset categories across industries. First, we find that non-financial firms' assets are generally highly specific. The average recovery rate (liquidation value over cost net of depreciation) is 35% for plant, property, and equipment (PPE). Second, across industries, physical attributes such as mobility, durability, and standardization account for around 40% of variations in PPE recovery rates. Over time, macroeconomic and industry conditions have the most impact on recovery rates when PPE is not firm-specific. Third, higher asset specificity is associated with less asset sales, greater investment response to uncertainty, and more Q dispersion, consistent with theories of investment irreversibility. Finally, the data suggests that rising intangibles have had a limited impact on firms' liquidation values.
Keywords: No keywords provided
JEL Codes: E22; E32; G31; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher asset specificity (G19) | less asset sales (G32) |
| higher asset specificity (G19) | more price rigidity (D40) |
| greater irreversibility of investments due to high asset specificity (D25) | increased productivity dispersion (D29) |
| higher asset specificity (G19) | greater sensitivity of capital expenditures to uncertainty shocks (G31) |