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Capital Reallocation

Author

Listed:
  • Andrea L. Eisfeldt

    (Anderson School of Management, University of California, Los Angeles, California 90095, USA)

  • Yu Shi

    (Anderson School of Management, University of California, Los Angeles, California 90095, USA)

Abstract

Capital reallocation is procyclical, despite measured productive reallocative opportunities being acyclical or even countercyclical. This article reviews the advances in the literature studying the causes and consequences of capital reallocation (or lack thereof). We provide a comprehensive set of stylized facts about capital reallocation for the United States and an illustrative model of capital reallocation in equilibrium. We relate capital reallocation to the broader literatures on business cycles with financial frictions and on resource misallocation and aggregate productivity. Throughout, we provide directions for future research.

Suggested Citation

  • Andrea L. Eisfeldt & Yu Shi, 2018. "Capital Reallocation," Annual Review of Financial Economics, Annual Reviews, vol. 10(1), pages 361-386, November.
    • Handle: RePEc:anr:refeco:v:10:y:2018:p:361-386
    DOI: 10.1146/annurev-financial-110217-023000
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    Citations

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    Cited by:

    1. Ai, Hengjie & Li, Kai & Yang, Fang, 2020. "Financial intermediation and capital reallocation," Journal of Financial Economics, Elsevier, vol. 138(3), pages 663-686.
    2. Proebsting, Christian, 2022. "Market segmentation and spending multipliers," Journal of Monetary Economics, Elsevier, vol. 128(C), pages 1-19.
    3. Li, Huiyu, 2022. "Leverage and productivity," Journal of Development Economics, Elsevier, vol. 154(C).
    4. Darmouni, Olivier & Sutherland, Andrew, 2024. "Investment when new capital is hard to find," Journal of Financial Economics, Elsevier, vol. 154(C).
    5. Wei Wang, 2021. "Capital reallocation: A tale of two frictions," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(2), pages 179-208, May.
    6. David, Joel M. & Schmid, Lukas & Zeke, David, 2022. "Risk-adjusted capital allocation and misallocation," Journal of Financial Economics, Elsevier, vol. 145(3), pages 684-705.
    7. Jin, Wei & van der Ploeg, Frederick & Zhang, Lin, 2024. "How clean capital slows down disinvestment of carbon-intensive capital in the low-carbon transition," Journal of Economic Dynamics and Control, Elsevier, vol. 162(C).
    8. Hu, Weiwei & Li, Kai & Xu, Yiming, 2023. "Leasing and the allocation efficiency of finance," Journal of Empirical Finance, Elsevier, vol. 74(C).
    9. Cun, Wukuang, 2022. "Endogenous lemons markets and information cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).

    More about this item

    Keywords

    capital reallocation; capital liquidity; investment; business cycles; misallocation; financial frictions;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G00 - Financial Economics - - General - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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