Extensive and Intensive Investment over the Business Cycle

Boyan Jovanovic (bj2@nyu.edu) and Peter Rousseau

Journal of Political Economy, 2014, vol. 122, issue 4, 863 - 908

Abstract: Investment of US firms responds asymmetrically to Tobin's Q: investment of established firms--"intensive" investment--reacts negatively to Q whereas investment of new firms--"extensive" investment--responds positively and elastically to Q. This asymmetry, we argue, reflects a difference between established and new firms in the cost of adopting new technologies. A fall in the compatibility of new capital with old capital raises measured Q and reduces the incentive of established firms to invest. New firms do not face such compatibility costs and step up their investment in response to the rise in Q.

Date: 2014
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Working Paper: Extensive and Intensive Investment over the Business Cycle (2009)
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