Rising technologies, investment and discount rates

This paper examines the recent compositional shift in corporate capital and its impact on investment's sensitivity to funding costs. I show that the rising share of intangibles in U.S firms' assets significantly dampens the stimulus effect of interest rate shocks. For a given surprise change to the fed funds rate, a one standard deviation above the mean in intangible capital intensity mutes investment's response by more than 30%. These results hold in robust specifications, when isolating the pure interest rate effect, and controlling for other known factors such as leverage and firm growth. A number of characteristics of intangible capital can potentially explain the heterogeneous responses: collateral value, adjustment costs, project duration and de- preciation rates. I propose a structural interpretation of the empirical findings in a quantitative general equilibrium model of heterogeneous firms. Under a reasonable calibration, the model's insights indicate that the higher depreciation tax shield from intangible capital investment quantitatively plays the main role in driving the results. I present further empirical evidence for this channel by focusing on negative profit firms.

Name thesis:degree_name

Master

Department dc:contributor.department

Sloan School of Management

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2020

Author dc:creator

• Dernaoui, Zaki.

Advisor dc:contributor.advisor

• David Thesmar.

• Sloan School of Management.

Statement dc:rights

• MIT theses may be protected by copyright. Please reuse MIT thesis content according to the MIT Libraries Permissions Policy, which is available through the URL provided.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

https://hdl.handle.net/1721.1/126972

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/126972