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Why do Firms Purchase Used Assets?
Author(s) -
Baxamusa Mufaddal,
Javaid Saima,
Harery Khadija
Publication year - 2016
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12084
Subject(s) - exploit , purchasing , technological change , identification (biology) , business , constraint (computer aided design) , economics , industrial organization , marketing , computer science , mechanical engineering , botany , computer security , biology , engineering , macroeconomics
We hypothesize that the increase in expectation about future technological change decreases the likelihood for the purchase of new assets because the change may make the new assets obsolete. To test this hypothesis, we use patents and citations data to represent the expected technological change. We find that the purchases of and the amount spent on used assets increase with the expectation of technological change, while time to completion of the purchase and the number of bids decrease with the increase in expectations about technological change. We exploit industry deregulations to establish identification. In contrast to the literature, we find no empirical support for financial constraint as a reason for purchasing used assets.