Asset Specificity of Non-Financial Firms

73 Pages Posted: 10 Aug 2020 Last revised: 13 Jul 2023

See all articles by Amir Kermani

Amir Kermani

University of California, Berkeley; National Bureau of Economic Research (NBER)

Yueran Ma

University of Chicago - Booth School of Business

Date Written: August 2020

Abstract

The specificity of firms' assets affects a wide range of economic issues. We study asset specificity of U.S. non-financial firms using a new dataset on the liquidation recovery rates of all major asset categories across industries. First, we find that non-financial firms' assets are generally highly specific. The average recovery rate (liquidation value over cost net of depreciation) is 35% for plant, property, and equipment (PPE). Second, across industries, physical attributes such as mobility, durability, and standardization account for around 40% of variations in PPE recovery rates. Over time, macroeconomic and industry conditions have the most impact on recovery rates when PPE is not firm-specific. Third, higher asset specificity is associated with less asset sales, greater investment response to uncertainty, and more Q dispersion, consistent with theories of investment irreversibility. Finally, the data suggests that rising intangibles have had a limited impact on firms' liquidation values.

Suggested Citation

Kermani, Amir and Ma, Yueran, Asset Specificity of Non-Financial Firms (August 2020). NBER Working Paper No. w27642, Available at SSRN: https://ssrn.com/abstract=3670477

Amir Kermani (Contact Author)

University of California, Berkeley ( email )

2220 Piedmont Ave
Berkeley, CA 94720
United States

HOME PAGE: http://faculty.haas.berkeley.edu/amir/research/research.html

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Yueran Ma

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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