Capital Reallocation and Capital Investment

David Rodziewicz and Nicholas Sly

Economic Review, 2019, issue Q II, 33-52

Abstract: Corporate debt levels have grown substantially during the 10-year recovery from the global financial crisis. This debt might be expected to finance investments that support firm expansion, as the U.S. economy has experienced strong growth over the last 10 years. However, much of the corporate debt has been used to reallocate capital through mergers and acquisitions rather than to fund investment activity. Perhaps as a result, some market watchers have expressed concerns that corporations are crowding out, rather than complementing, new investment. {{p}} David Rodziewicz and Nicholas Sly show that rising merger and acquisition activity does not fully crowd out new capital investment, as both sales of existing capital between firms and investment in new capital tend to rise and fall together. Moreover, they find that this relationship holds both in the aggregate and within most U.S. industries. Their results suggest that rising merger and acquisition activity complements investment growth by allowing firms to strategically position themselves and build their productive capacity.

Keywords: Corporate Debt; Investments; Mergers and Acquisitions; Capital Reallocation (search for similar items in EconPapers)
JEL-codes: E22 G3 G34 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.kansascityfed.org/documents/661/2019-C ... tal%20Investment.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedker:00077

Ordering information: This journal article can be ordered from

DOI: 10.18651/ER/2q19RodziewiczSly

Access Statistics for this article

More articles in Economic Review from Federal Reserve Bank of Kansas City Contact information at EDIRC.
Bibliographic data for series maintained by Zach Kastens ().