The Asset Durability Premium

Abstract

Academy of Management Annual Meeting Proceedings includes abstracts of all papers and symposia presented at the annual conference, plus 6-page abridged versions of the “Best Papers” accepted for inclusion in the program (approximately 10%). Papers published in the Proceedings are abridged because presenting papers at their full length could preclude subsequent journal publication. Please contact the author(s) directly for the full papers. The Asset Durability PremiumChi-Yang TsouChi-Yang TsouAlliance Manchester Business School, U. of ManchesterPublished Online:6 Jul 2022https://doi.org/10.5465/AMBPP.2022.14270symposiumAboutSections ToolsDownload CitationsAdd to favoritesTrack Citations ShareShare onFacebookTwitterLinkedInRedditEmail AbstractThis paper studies how the durability of assets affects the cross- section of stock returns. More durable assets incur lower frictionless user costs but are more ""expensive"", in the sense that they need more down payments making them hard to finance. In recessions, firms become more financially constrained and prefer ""cheaper"" less durable assets. As a result, the price of less durable assets is less procyclical and therefore less risky than that of durable assets. We provide strong empirical evidence to support this prediction. Among financially constrained stocks, firms with higher asset durability earn average returns about 5% higher than firms with lower asset durability. We develop a general equilibrium model with heterogeneous firms and collateral constraints to quantitatively account for such a positive asset durability premium.FiguresReferencesRelatedDetails Vol. 2022, No. 1 Permissions Metrics in the past 12 months History Published online 6 July 2022 Published in print 1 August 2022 InformationCopyright of Academy of Management Journal is the property of Academy of Management and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder’s express written permission. However, users may print, download, or email articles for individual use.KeywordsAOM Annual Meeting Proceedings 2022AOM Seattle 2022