What Happens After an Investment Spike—Investment Events and Firm Performance

Michał Gradzewicz

Journal of Business & Economic Statistics, 2021, vol. 39, issue 3, 636-651

Abstract: Our study aims at investigating the relationship between investment spikes and subsequent productivity development at the firm level. We propose a novel identification scheme for the effects of an investment spike, using matching techniques and a tailored econometric modeling. It allows us to find efficiency differentials against matched firms in periods adjacent to the spike. We showed that TFP persistently falls after an investment spike, which is consistent with learning-by-doing models of firm decisions. As a result of capital deepening labor productivity actually rises after a spike. The capital deepening of larger firms is smaller and although the responses of TFP across size classes are similar, the labor productivity rise of smaller firms is more pronounced. Moreover, the positive correlation of responses of labor and K/L in periods after a spike shows that investments spikes induce complementarity between production factors.

Date: 2021
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Working Paper: What happens after an investment spike - investment events and firm performance (2018)
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DOI: 10.1080/07350015.2019.1708369

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