TY  - JOUR
AU  - Borenstein,Severin
AU  - Farrell,Joseph
TI  - Do Investors Forecast Fat Firms?  Evidence from the Gold Mining Industry
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7075
PY  - 1999
Y2  - April 1999
UR  - http://www.nber.org/papers/w7075
L1  - http://www.nber.org/papers/w7075.pdf
N1  - Author contact info:
Severin Borenstein
Haas School of Business
University of California, Berkeley
Berkeley, CA 94720-1900
Tel: 510/642-3689
E-Mail: borenste@haas.berkeley.edu

Joseph Farrell
Joseph Farrell
Bureau of Economics
FTC
600 Pennsylvania Ave NW
Washington DC 20580
Tel: 202 326 3419
E-Mail: jfarrell@ftc.gov
AB  - Conventional economic theory assumes that firms always minimize costs given the output they produce.  News articles and interviews with executives, however, indicate that firms from time to time engage in cost-cutting exercises. One popular belief is that firms cut costs when they are in economic distress, and grow fat when they are relatively wealthy.  We explore this hypothesis by studying the response of the stock market values of gold mining companies to changes in gold prices. The value of a cost-minimizing, profit-maximizing firm is convex in the price of a competitively supplied input or output, but we find that the stock values of many gold mining companies are concave in the price of gold.  We show that this is consistent with fat accumulation when a firm grows wealthy.  We then address a number of potential alternative explanations and discuss where fat in these companies might reside.
ER  -