Capital and Labor Reallocation Inside Firms

Xavier Giroud and Holger M. Mueller

No 18592, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document how a plant-specific shock to investment opportunities at one plant of a firm ("treated plant") spills over to other plants of the same firm--but only if the firm is financially constrained. While the shock triggers an increase in investment and employment at the treated plant, this increase is offset by a decrease at other plants of the same magnitude, consistent with headquarters channeling scarce resources away from other plants and toward the treated plant. As a result of the resource reallocation, aggregate firm-wide productivity increases, suggesting that the reallocation is beneficial for the firm as a whole. We also show that--in order to provide the treated plant with scarce resources--headquarters does not uniformly "tax" all of the firm's other plants in the same way: It is more likely to take away resources from plants that are less productive, are not part of the firm's core industries, and are located far away from headquarters. We do not find any evidence of investment or employment spillovers at financially unconstrained firms.

JEL-codes: D24 G3 J63 (search for similar items in EconPapers)
Date: 2012-12
New Economics Papers: this item is included in nep-bec
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Capital and Labor Reallocation within Firms XAVIER GIROUD andHOLGER M. MUELLER† Article first published online: 23 JUL 2015 DOI: 10.1111/jofi.12254 © 2015 the American Finance Association Issue The Journal of Finance The Journal of Finance Volume 70, Issue 4, pages 1767–1804, August 2015

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