@techreport{NBERw13174,
 title = "Investment and the Cost of Capital: New Evidence from the Corporate Bond Market",
 author = "Simon Gilchrist and Egon Zakrajsek",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "13174",
 year = "2007",
 month = "June",
 URL = "http://www.nber.org/papers/w13174",
 abstract = {We study the effect of variation in interest rates on investment spending, employing a large panel data set that links yields on outstanding corporate bonds to the issuer income and balance sheet statements. The bond price data -- based on trades in the secondary market -- enable us to construct a firm-specific measure of the user cost of capital based on the marginal cost of external finance as determined in the market for long-term corporate debt. Our results imply a robust and quantitatively important effect of the user cost of capital on the firm-level investment decisions. According to our estimates, a 1 percentage point increase in the user cost of capital implies a reduction in the investment rate of 50 to 75 basis points and, in the long run, a 1 percent reduction in the stock of capital.},
}