it seems like reason 2 does the heavy lifting, insofar as it made the disinflation possible without spectacular fed actions. the shareholders lower investment spending and wages, and their propensity to consume their extracted income is lower. so you would expect 2 to produce low real interest rates. the fact these real interest rates coincided with low inflation was the fed’s choice, but I guess it made it possible to achieve low inflation without doing anything that would make people mad at them.
One possibility is to view a company's investments in projects like how VCs view their portfolio: few investments will produce positive returns while many won't (the company's management is well aware of this as a "reality").
The higher IRR hurdle is merely reflecting the risks of their own portfolio and not a rational decision on each project/investment initiative per se.
>it is well-established that corporate hurdle rates are usually far above stock or bond returns
>Perhaps the rise of shareholder payouts and corporate “capital discipline” over the last few decades has propped up the required return on capital
What do you think about the following alternative hypothesis?
Corporate managers make per-project "investment decisions" in order to get promoted. On an individual level, they borrow political capital, and have personal "returns" within the corporate hierarchy.
So while a company can borrow at 3%, any individual project manager working for the company "borrows" political capital at say 15% "individual rate" -- their interests are not exactly aligned with the company (the company would prefer the manager to take on a risky project against manager's best interest).
He gave us one hundred and fifty years, all we gotta do is re-learn what he taught us….
it seems like reason 2 does the heavy lifting, insofar as it made the disinflation possible without spectacular fed actions. the shareholders lower investment spending and wages, and their propensity to consume their extracted income is lower. so you would expect 2 to produce low real interest rates. the fact these real interest rates coincided with low inflation was the fed’s choice, but I guess it made it possible to achieve low inflation without doing anything that would make people mad at them.
One possibility is to view a company's investments in projects like how VCs view their portfolio: few investments will produce positive returns while many won't (the company's management is well aware of this as a "reality").
The higher IRR hurdle is merely reflecting the risks of their own portfolio and not a rational decision on each project/investment initiative per se.
>it is well-established that corporate hurdle rates are usually far above stock or bond returns
>Perhaps the rise of shareholder payouts and corporate “capital discipline” over the last few decades has propped up the required return on capital
What do you think about the following alternative hypothesis?
Corporate managers make per-project "investment decisions" in order to get promoted. On an individual level, they borrow political capital, and have personal "returns" within the corporate hierarchy.
So while a company can borrow at 3%, any individual project manager working for the company "borrows" political capital at say 15% "individual rate" -- their interests are not exactly aligned with the company (the company would prefer the manager to take on a risky project against manager's best interest).