Capital Supply Shocks and Investment

Olivier Darmouni and Andrew Sutherland

No 17864, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine how fixed capital supply shocks affect firms’ investment. Using equipment transaction-level data, we find pandemic-driven production disruptions significantly altered capital reallocation patterns across firms. A surge in used capital trading activity softened the investment decline, as firms acquired used capital from distant and dissimilar counterparts. Younger firms were disproportionately affected even though they rarely purchase new capital: while in normal times older firms sell their capital to younger firms, following a supply shock, older firms compete for used capital, pricing out younger firms. Our evidence highlights the crucial role of secondary markets and distributive externalities for corporate investment.

Keywords: investment; Capital reallocation; Secondary markets; Smes; Supply chains; Covid-19 (search for similar items in EconPapers)
JEL-codes: E22 E23 G31 G32 L26 (search for similar items in EconPapers)
Date: 2023-01
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