Delayed Creative Destruction: How Uncertainty Shapes Corporate Assets
We show how uncertainty shapes the asset allocation, composition, productivity, and value of capital-intensive firms. We do so using detailed, near-universal data on shipping firms’ new orders, secondary-market transactions, and demolition of ships. Firms curtail both the acquisition and disposal of vessels in response to heightened uncertainty. The mechanism operates primarily through cuts in new ship orders and demolition of older ships — decisions that are costlier to reverse vis-à-vis deals in the used ship market. These dynamics are more pronounced when secondary ship markets are illiquid, as firms face stronger incentives to delay their decisions. The rise of Somali pirate attacks in 2009–2011 is used as a shock to well-defined shipping sectors to corroborate our findings. Critically, uncertainty prompts firms to concentrate their fleets into narrower, less productive portfolios, leading to value losses. Our work is novel in showing that uncertainty hampers "creative destruction," slowing both the adoption of innovation embodied in new capital and the disposal of old capital.