Critical Finance Review > Vol 14 > Issue 4

Firm-level Irreversibility

By Hang Bai, University of Connecticut, USA, hang.bai@uconn.edu | Erica X. N. Li, Cheung Kong Graduate School of Business, China, xnli@ckgsb.edn.cn | Chen Xue, University of Cincinnati, USA, xuecx@ucmail.uc.edu | Lu Zhang, The Ohio State University and NBER, USA, zhanglu@fisher.osu.edu

 
Suggested Citation
Hang Bai, Erica X. N. Li, Chen Xue and Lu Zhang (2025), "Firm-level Irreversibility", Critical Finance Review: Vol. 14: No. 4, pp 447-473. http://dx.doi.org/10.1561/104.00000165

Publication Date: 17 Dec 2025
© 2025 Hang Bai, Erica X. N. Li, Chen Xue, and Lu Zhang
 
Subjects
 
Keywords
E01E22E44G12G31
ReproductionReplicationReanalysisInvestment irreversibilityComplex systemsScientific modeling
 

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In this article:
1. Reproduction 
2. Replication 
3. Reanalysis 
4. Conclusion 
References 

Abstract

Contradicting Cooper and Haltiwanger (2006), Clementi and Palazzo (2019) report a largely symmetric investment rate distribution in Compustat, with a large fraction of negative investment rates, 18.2%, and conclude “no sign of irreversibility (p. 289).” Their evidence is flawed. A data error on depreciation rates understates gross investment and shifts the whole gross investment rate distribution leftward. Nonstandard sample screens on age and acquisitions further curb its right tail, which is subsequently truncated at 0.2. Fixing these problems restores the heavily asymmetric investment rate distribution with a fat right tail. The fraction of negative investment rates is small, only 4.9% to 6.2%.

DOI:10.1561/104.00000165

Online Appendix | 104.00000165_app.pdf

This is the article’s accompanying appendix.

DOI: 10.1561/104.00000165_app