Firms’ Marginal Propensities to Invest

Jeanne Commault and Martin-Baillon, Alaïs

No 21962, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Few heterogeneous-firm models are calibrated to firms' responses to income shocks because estimates of these responses are lacking. We estimate the average marginal propensity to invest (MPI) of firms in the US, that is, the share of a transitory sales shock that firms use for investment. In Compustat data, the dynamics of firms' sales are well described by a transitory-permanent process, so a semi-structural approach can identify the response of investment to transitory sales shocks. This response is statistically significant and the average MPI is 0.22. Younger firms, smaller firms, and non-dividend-paying firms exhibit significantly higher MPIs. Given that Compustat over-represents older and dividend-paying firms, our result is a lower bound on the response over the universe of firms. Our heterogeneity analyses make it possible to infer results for other sets of firms.

JEL-codes: D25 E22 E32 (search for similar items in EconPapers)
Date: 2026-09
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