Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries

Marco Grazzi, Nadia Jacoby and Tania Treibich

No 2013-09, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: Although the relation between investment and economic growth has been well established in the macroeconomic literature, the existence of a similar link at firm level has been challenged by empirical work. This paper investigates the channels linking investment and firm performance in the French and Italian manufacturing industries by proposing a novel methodology to identify investment spikes, which corrects for size dependence. While maintaining the desired properties of a spike measure, our chosen proxy accounts for the expected relation between investment and firm performance. Ex-ante, more efficient and fast growing firms demonstrate a higher probability to invest; in turn, following an investment spike, the group of investing firms shows further performance gains. We show also that expansionary investment episodes, proxied by the opening of new plants, have a negative effect on profitability but are associated with higher sales and higher levels of employment.

Keywords: Firm heterogeneity; investment spike; industrial dynamics; corporate performance; capital accumulation; technical change (search for similar items in EconPapers)
JEL-codes: C14 D22 D24 D92 E22 L11 L23 L60 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2013-04
New Economics Papers: this item is included in nep-bec, nep-cse, nep-eff and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Dynamics of investment and firm performance: comparative evidence from manufacturing industries (2015)
Working Paper: Dynamics of investment and firm performance: comparative evidence from manufacturing industries (2015)
Working Paper: Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries (2013)
Working Paper: Dynamics of Investment and Firm Performance: Comparative evidence from manufacturing industries (2013)
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