Asset Pricing Implication of Nonconvex Adjustment Cost And Irreversibility of Investment  

Oleh:

Cooper, Ilan

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 61 no. 1 (Feb. 2006), page 139-170.
Topik: PRICING; economic models; stock prices; studies; market value; business valuation; correlation analysis; real options analysis
Fulltext: p 139.pdf (270.43KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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This paper derives a real options model that accounts for the value premium. If real investment is largely irreversible, the book value of assets of a distressed firm is high relative to its market value because it has idle physical capital. The firm's excess installed capital capacity enables it to fully benefit from positive aggregate shocks without undertaking costly investment. Thus, returns to equity holder of a high book-to-market firm are sensitive to aggregate conditions and its systematic risk is high. Simulation indicate that the model goes a long way toward accounting for the observed value premium.

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