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Business Fixed Investment and the Structure of Adjustment Costs

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Authors

Abdelgawad, Tamer; Rhee, Changyong

Issue Date
1998-04
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, Vol.11 No.2, pp. 101-126
Keywords
COMPUSATTobit modelirreversivility specification
Abstract
This paper empirically tests an irreversible investment model against the standard convex adjustment cost model using panel data from COMPUSAT. It shows that the reduced form of the optimal irreversible investment decision turns out to be a Tobit model with measurement errors in the dependent variable. Our non-nested test indicates that the evidence for the irreversible investment model is weak: Only 5 firms among our total sample of 56 firms strictly prefer the irreversibility specification.
ISSN
1225-0279
Language
English
URI
https://hdl.handle.net/10371/1129
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