Investment and Time to Plan: A Comparison of Structures vs. Equipment in a Panel of Italian Firms

Charles Himmelberg, Alessandra Angiola Maria Del Boca (), Marzio Galeotti () and Paola Rota
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Charles Himmelberg: Federal Reserve Bank of New York
Paola Rota: Università di Brescia

No 2005.54, Working Papers from Fondazione Eni Enrico Mattei

Abstract: “Time to build” models of investment expenditures play an important role in many traditional and modern theories of the business cycle, especially for explaining the dynamic propagation of shocks. We estimate the structural parameters of a time-to-build model using firm-level investment data on equipment and structures. For equipment expenditures, we find no evidence of time-to-build effects beyond one period. For structures, by contrast, there is clear evidence of time to build in the range of 2-3 years. The contrast between equipment and structures is intuitively reasonable and consistent with previous results. The estimates for structures also indicate that initial-period expenditures are low, and increase as projects near completion. These results provide empirical support for including “time to plan” effects for investment in structures. More generally, these results suggest a potential source of specification error for Q models of investment and production-based asset pricing models that ignore the time required to plan, build and install new capital.

Keywords: Investment expenditures; Panel data; Italian firms; Time to build (search for similar items in EconPapers)
JEL-codes: D24 G31 C33 C34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-fin
Date: 2005-04
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