“Investing in Misallocation”
by Şelale Tüzel
University of South California
Place: MA-330
Abstract
We document that 20% of Compustat firms have above-median investment rates despite having below-median marginal product of capital (MPK), seemingly “misallocating” productive resources. These firms are typically younger and significantly more likely to experience a substantial upward jump in their sales and MPK in the following years. They account for a significant share of innovative activity and their investments predict future aggregate productivity in the economy, creating value in ways not captured by their MPK. We propose and estimate a simple endogenous firm growth model that captures the key features of the cross-section of firms and allows for counterfactual analysis. Hypothetical firm investment policies that ignore the potential for future jumps reduce MPK and investment dispersion but also lower aggregate productivity.
Bio
Professor Selale Tuzel is an Associate Professor of Finance and Business Economics and serves as the Academic Director of the Real Estate Finance and Development program at USC Marshall School of Business. She holds a PhD in Management (Finance) from UCLA’s Anderson School of Management. Her research spans various areas, including macro-finance, household finance, and real estate, with contributions in both empirical and theoretical domains. Her work has been published in leading finance, management, and economics journals such as the Journal of Finance, Journal of Financial Economics, and the Review of Financial Studies. Currently, she holds the role of Associate Editor at Management Science. Professor Tuzel primarily teaches Real Estate Finance courses to graduate and undergraduate students at the Marshall School of Business.
