What happens after an investment spike - investment events and firm performance

Michał Gradzewicz

No 2018-040, KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: Our study aims at investigating the relationship between investment spikes andsubsequent productivity development at the firm level. We propose a novel identification scheme for the effects of an investment spike, using matching techniques andadequate econometric modelling. It allows us to find efficiency differentials againstmatched firms. We showed that TFP falls after an investment spike and slowly recovers thereafter, which is consistent with learning-by-doing effects. For smaller firmsthe fall is more pronounced and the subsequent recovery is longer. On the contrary, labor productivity rises after an investment spike, driven mainly by capital deepen-ing. The increase of sales after a spike suggests that expansion is the main purpose of an investment spike and rising employment confirms that this type of investmentis complementary to labor. As firms with spikes are on average more efficient andinvestment spikes attract resources and production factors, it suggests that improved allocative efficiency is an important factor driving positive macroeconomic correlation between investment and TFP.

Keywords: difference-in-difference; investment spike; matching; productivity; TFP (search for similar items in EconPapers)
JEL-codes: D22 D24 L16 O3 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2018-10
New Economics Papers: this item is included in nep-bec and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://hdl.handle.net/20.500.12182/1132 (application/pdf)

Related works:
Journal Article: What Happens After an Investment Spike—Investment Events and Firm Performance (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:kaewps:2018040

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