Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 22, 2023 erstellt
Beschreibung:
This study empirically examines the association between a firm’s cost structure and the discretionary investment (i.e., underinvestment or overinvestment) it makes in the short run. Consistent with higher fixed costs making managers more conservative in their investment behavior, we find that the proportion of fixed costs is negatively associated with discretionary investment. Cost structure acts via a reduction in overinvestment rather than amplified underinvestment. Tests of cash holdings and investment sensitivity to operating cash flows further suggest that the rigidity of fixed costs encourages managers to carry larger cash holdings and reduces managers’ incentive to overinvest in the presence of excess cash flows. Taken together, the findings suggest a disciplining effect of fixed costs on overinvestment, similar to the effect of debt in mitigating the agency costs of free cash flows