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Capital Heterogenity: Does it Matter? Fundamental Q and Investment on a Panel of Italian Firms

Maria Bontempi, Alessandra Del Boca (), Alessandra Franzosi (), Marzio Galeotti and Paola Rota ()
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Alessandra Franzosi: Borsa Italiana SpA
Paola Rota: Universita` di Brescia

RAND Journal of Economics, 2004, vol. 35, issue 4, 674-690

Abstract: We study the determinants of firms' investment decisions with heterogeneous-capital goods. We exploit a panel of small and medium-sized firms, which allows us to distinguish between purchases and sales of capital goods. We consider separately equipment and structures and test the hypothesis of convex adjustment costs. We extend the fundamental Q approach to the case of two capital inputs. The results show that the standard convex costs model performs well for equipment but not for structures. We find evidence of nonconvex adjustment costs in the case of structures.

Date: 2004
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Handle: RePEc:rje:randje:v:35:y:2004:4:p:674-690