Corporate Discount Rates
Niels Joachim Gormsen and Kilian Huber – Working paper

A new database of firms’ discount rates and costs of capital. The perceived cost of capital is related to the financial cost of capital, but the wedge between discount rates and the perceived cost of capital has grown substantially over the past decades. These dynamics have important implications for how interest rates and asset prices affect corporate investment.

Firms’ Perceived Cost of Capital
Niels Joachim Gormsen and Kilian Huber – Working Paper

Firms’ perceived cost of capital deviates substantially from the true cost of capital in financial markets. The deviations generate capital misallocation that substantially lowers TFP. The deviations also lead to a rejection of the Investment CAPM.

Climate Capitalists
Niels Joachim Gormsen, Kilian Huber, and Sangmin Oh – Working Paper

“Green investing” has real effects if green firms actually reduce their perceived cost of capital and discount rate in response to green investing. We find that the difference in the perceived cost of capital between the greenest and the brownest firms has fallen since 2016, concurrent with the rise of green investing. Discount rates followed a similar pattern. We also document within-firm variation in cost of capital and discount rates across green and brown projects.

Sticky Discount Rates
Masao Fukui, Niels Joachim Gormsen and Kilian Huber – Working Paper

Firms’ nominal discount rates are sticky with respect to expected inflation. As a result, real investment demand increases when inflation is high. This mechanism generates a distinct source of monetary non-neutrality and raises investment in response to government spending.