A Quantile Model of Firm Investment

Heitor Almeida; Murillo Campello; Luciano de Castro; Antonio F. Galvao

doi:10.1111/iere.70113

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A Quantile Model of Firm Investment

Heitor Almeida, Murillo Campello, Luciano de Castro and Antonio F. Galvao

International economic review (Philadelphia)

09/16/2026

DOI: 10.1111/iere.70113

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Abstract

Are firms risk averse? We propose a dynamic model of firm investment under uncertainty that captures firms' risk attitudes through quantile preferences. The firm maximizes its present value, defined as current profits and investment plus the discounted value of the ‐quantile of its value next period. The model implies that the firm's investment policy equates the marginal cost of capital with the ‐quantile of the discounted present value of future marginal profits. Therefore, investment depends directly on the firm's risk attitude. Empirical estimations using the Euler equation derived from the quantile investment model reveal evidence of downside risk aversion.

firm investment

quantile preferences

risk attitude

recursive model

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Details

Title: Subtitle: A Quantile Model of Firm Investment
Creators: Heitor Almeida - University of Illinois Urbana-Champaign
Murillo Campello - University of Florida
Luciano de Castro - University of Iowa, Economics
Antonio F. Galvao - Michigan State University
Resource Type: Journal article
Publication Details: International economic review (Philadelphia)
DOI: 10.1111/iere.70113
ISSN: 0020-6598
eISSN: 1468-2354
Publisher: Wiley
Language: English
Electronic publication date: 09/16/2026
Academic Unit: Economics
Record Identifier: 9985236978102771

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