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T. Dangl, Y. Wu:
"Corporate Investment Over Uncertain Business Cycles";
Talk: Finanzwirtschaftliches Kolloquium der Goethe Universität Frankfurt am Main, Goethe Universität Frankfurt am Main; 2012-12-04.

We develop a model of investment over the business cycle when there is uncertainty about the true state of the economy. The interaction between the expected demand growth rate and the option value of waiting leads to a convex relation between a firm´s optimal capacity and its posterior belief of being in an expansion. This convex relation, together with the endogenous distribution of firms relative to their optimal capacities, causes firms in aggregate to react more strongly to negative signals during an expansion than to positive signals during a recession. Our model reconciles strikingly different patterns of capital growth rates at the firm and aggregate levels that we empirically document. Despite the strong positive skewness of capital growth rate at the firm level, the average capital growth rate across firms is negatively skewed, and features fast decline and slow recovery.

corporate investment, Bayesian learning