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Investment Decisions in Anticipation of Recessions and Outperformance of Pre-Acting Firms
- Authors
- Chee, Seungmin; Kwon, Soo Young; Pyun, Ju Hyun
- Issue Date
- 2017
- Publisher
- ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
- Keywords
- Expansion; investment decisions; overinvestment; recession; underinvestment
- Citation
- EMERGING MARKETS FINANCE AND TRADE, v.53, no.2, pp.321 - 338
- Indexed
- SSCI
SCOPUS
- Journal Title
- EMERGING MARKETS FINANCE AND TRADE
- Volume
- 53
- Number
- 2
- Start Page
- 321
- End Page
- 338
- ISSN
- 1540-496X
- Abstract
- We empirically examine whether firms make investment decisions in anticipation of recessions and subsequently perform better. Using a large quarterly dataset of fixed asset investments for U.S. firms during 1984-2012, we show that not all firms efficiently adjust their investment decisions in anticipation of a recession. However, we find that pre-acting firms that properly adjust their investment decisions (i.e., underinvest) before a recession outperform re-acting firms that fail to make proper investment decisions (i.e., overinvest) before a recession in subsequent returns on assets, returns on investments, and market-adjusted return measures.
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