Seminar – The Persistent Decline in Asset Utilisation and the Investment-Q Paradox

Dr David L. Ikenberry, INSEAD

The rate of capital investment spending by public US corporations has fallen by almost half since the mid-1970s, while both shareholder payouts and cash holdings have been increasing. This is despite the fact that the q ratio, a measure of investment opportunities, has nearly quintupled. We shed light on this puzzle by decomposing q into two components: a valuation factor and an overlooked fundamental factor – asset utilisation. This decomposition plays a critical role in explaining corporate investment. We find that new investment is far more responsive to asset utilisation than to valuation. This finding, combined with a persistent decline in asset utilisation over the last several decades, explains the significant drop in capital spending. Had asset utilisation remained constant at 1970s levels, we estimate corporate investment rates would have instead increased over time. Despite recent concern among policymakers, we find no evidence that shareholder payouts are crowding out investment after controlling for asset utilisation.

Speaker bio

Dr David L. Ikenberry is an accomplished academic leader. He holds a BS degree from the Pennsylvania State University (1983), an MM from the Kellogg Graduate School of Management, Northwestern University (1985), and a PhD from the University of Illinois (1990).

Dr Ikenberry started as an Assistant Professor at the Jones Graduate School of Management at Rice University. In 2002, he returned to the University of Illinois at Urbana-Champaign, serving as Chair of the Finance Department. In 2006, he was appointed Associate Dean of Executive Programs.

From 2011 to 2016, Ikenberry served as Dean of the Leeds School of Business at the University of Colorado Boulder. The School engaged in comprehensive, strategic change during this time. Some of the School’s accomplishments include an overhaul of the undergraduate curriculum, the launching of an innovative, large-scale business minor, the formation of four new one year MS degree programmes and the opening the School’s Evening MBA programme in south Denver. Faculty research rankings rose dramatically, as did alumni engagement, student services and development. Student quality and success rose dramatically during his administration and the diversity of the undergraduate student body nearly doubled. Philanthropy to the Leeds grew substantially, as well.

As a scholar, Ikenberry’s interests cover empirical topics in both investment and corporate finance; he is published in all of the top journals in his profession. He was an early pioneer among researchers examining long-horizon stock returns, particularly returns subsequent to major corporate news events. Much of his work relates to behavioural finance and the extent to which news is incorporated into market prices. His most noted work has studied open market stock repurchase programmes. He is often looked to as an expert in this area, as well as the larger context of dividends and corporate payout policy. He is also an accomplished educator.

While at Rice, he was awarded the business school’s most valued award for teaching in 1996 and 1999. In 1997 and again in 2002, BusinessWeek magazine named him among the best instructors in the US at Illinois, he was awarded Teacher of the Year for the Executive MBA Program in Spring 2009. He frequently speaks to academic, government, corporate officers and the broader investment communities. His research is often mentioned in the popular press and has appeared on numerous radio and television programmes. In addition to advising corporations and investment firms on financial matters, he has served on the Boards of First Busey Corporation (NASDAQ:BUSE) and of Carle Foundation Hospital. He lives in Boulder, Colorado and is married to Nancy Ikenberry (from Palatine, Illinois); they have two children.