Work

Idiosyncratic and Common Shocks to Investment Decisions

Year: 2002

Type: article

Abstract: We show how microeconomic data on investment plans can be used to study the structure of risk firms face. Revisions of investment plans form a martingale and reveal the underlying shocks driving investment. We decompose revisions in investment plans into micro, sector and aggregate shocks, and exploit stock market data to distinguish between structural (value‐related) shocks and measurement error in investment revisions. Using panel data for US firms, we find that micro shocks are not the dominant source of risk in investment decisions, and that much of the observed micro variation is actually due to heterogeneity in firm‐level responses to aggregate shocks.

Source: The Economic Journal

DOI: 10.1111/1468-0297.00070

Author: Mark Schankerman

Institutions: Centre for Economic Policy Research, London School of Economics and Political Science

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

Funders: Centre for Economic Policy Research, Economic and Social Research Council

OpenAlex ID: W2148403228