Investment and the cost of capital
Subtitle: new evidence from the corporate bond market
By: Simon Gilchrist, Egon Zakrajsek
Contributors: Zakrajsek, Egon; National Bureau of Economic Research
Series: NBER working paper series -- working paper 13174; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13174.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] :
Description: "We study the effect of variation in interest rates on investment spending, employing a large panel data set that links yields on outstanding corporate bonds to the issuer income and balance sheet statements.  The bond price data -- based on trades in the secondary market -- enable us to construct a firm-specific measure of the user cost of capital based on the marginal cost of external finance as determined in the market for long-term corporate debt.  Our results imply a robust and quantitatively important effect of the user cost of capital on the firm-level investment decisions.  According to our estimates, a 1 percentage point increase in the user cost of capital implies a reduction in the investment rate of 50 to 75 basis points and, in the long run, a 1 percent reduction in the stock of capital"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/30/2007.

Includes bibliographical references.

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