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19
Mar
2015

DISPLACED CAPITAL: Data Description


The following corollary states how prices of capital will differ across types of buyers, and how the sales revenue will vary with the discount factor.

Corollary: Under the conditions of Proposition 2, the average (undiscounted) price paid by sector A buyers is greater than the average (undiscounted) price paid by sector O buyers. Furthermore, a firm with a higher b will realize higher undiscounted proceeds from the sale of its equipment.

The implications of the model will be useful for interpreting the results we present later. The model also sheds light on several other results in the literature. For example, Shleifer and Vishny (1992) present several interesting anecdotes about how rapid sales of assets lead to price discounts. Pulvino (1997) shows that capital-constrained airlines not only sold their aircraft at lower prices, but were more likely to sell them to industry outsiders. Our model of thin resale markets for heterogeneous capital provides a straightforward explanation for these results. Searching for good match is a time-consuming process. If the firm does not spend the time, the capital ends up in lower valued matches and the firm receives less for its assets.

Data Description
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Our data consist of information on capital sales from Southern California plants belonging to three large aerospace companies. The aerospace industry has undergone enormous downsizing and restructuring in the last decade. This industry is ideal for our study because the exogeneity of the end of the Cold War eliminates concerns about the endogeneity of demand for the output of the factories we study and the selectivity of which equipment and which factories get liquidated.

Variations in defense spending represent major shifts in total demand for aerospace goods. In 1987, shipments to the Department of Defense accounted for 60 percent of total shipments of aircraft (SIC 372) and missles and space vehicles (SIC 376).10 Furthermore, defense department demand is highly variable. Figure 2 shows real defense purchases of aerospace equipment over time. From 1977 to 1988, real purchases rose 225 percent. From 1988 to 1995, real purchases reversed themselves, declining back to their 1977 levels.

A Rand report by Schoeni, Dardia, McCarthy and Vernez (1996) studies the experiences of aerospace workers over this time period, and thus is complementary to our study of capital flows. Using state unemployment insurance records, the authors gathered data on every worker who was employed in the aerospace industry in California in the first quarter of 1989. They found that the one-third of the workers who remained with the same firm experienced an 8 percent increase in real wages through the third quarter 1994.

The following corollary states how prices of capital will differ across types of buyers, and how the sales revenue will vary with the discount factor. Corollary: Under the conditions of Proposition 2, the average (undiscounted) price paid by sector A buyers is greater than the average (undiscounted) price paid by sector O buyers. Furthermore, a firm with a higher b will realize higher undiscounted proceeds from the sale of its equipment. The implications of the model will be useful for interpreting the results we present later. The model also sheds light on several other results in the literature. For example, Shleifer and Vishny (1992) present several interesting anecdotes about how rapid sales of assets lead to price discounts. Pulvino (1997)

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Kevin J. Brandon

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