NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Investors Forecast Fat Firms? Evidence from the Gold Mining Industry

Severin Borenstein, Joseph Farrell

NBER Working Paper No. 7075
Issued in April 1999
NBER Program(s):   AP   IO

Conventional economic theory assumes that firms always minimize costs given the output they produce. News articles and interviews with executives, however, indicate that firms from time to time engage in cost-cutting exercises. One popular belief is that firms cut costs when they are in economic distress, and grow fat when they are relatively wealthy. We explore this hypothesis by studying the response of the stock market values of gold mining companies to changes in gold prices. The value of a cost-minimizing, profit-maximizing firm is convex in the price of a competitively supplied input or output, but we find that the stock values of many gold mining companies are concave in the price of gold. We show that this is consistent with fat accumulation when a firm grows wealthy. We then address a number of potential alternative explanations and discuss where fat in these companies might reside.

download in pdf format
   (509 K)

email paper

This paper is available as PDF (509 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7075

Published: Borenstein, Severin and Joe Farrell. "Do Investors Forecast Fat Firms? Evidence from the Gold Mining Industry." Rand Journal of Economics 38 (Autumn 2007). citation courtesy of

Users who downloaded this paper also downloaded these:
MacKie-Mason w2631 Nonlinear Taxation of Risky Assets and Investment, With Application to Mining
Bordo and Redish w9520 Is Deflation depressing? Evidence from the Classical Gold Standard
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us