Why Are Aggregate Investing Activities Negatively Associated with Macroeconomic Outcomes?

• In Event: Intersections of accounting and finance

Abstract

We propose two explanations for the negative association between aggregate investment and future macroeconomic outcomes. Diminishing marginal returns to capital investments and speculative merger and acquisition activities. We decompose aggregate investment activity into investments in tangible and intangible assets and find that the negative association between aggregate investment and future market returns and GDP growth is concentrated in intangible asset growth and especially in periods of increasing aggregate goodwill. Our results are consistent with the negative association between aggregate investment future macroeconomic outcomes being driven by speculative merger and acquisition activity rather than overinvestment in capital investments.

Authors

• Asher Curtis, University of Washington

• Hyung il Oh, University of Washington Bothell