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Import Competition and the Composition of Firm Investments

Philippe Fromenteau, Jan Schymik () and Jan Tscheke

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: We study how foreign competition affects the composition of investments inside firms. A parsimonious model predicts that firms have an incentive to shift their investments towards more short-term assets when exposed to tougher competition. Using data on expenditures of listed US companies into various asset classes with different lifespans, we document empirical evidence that is consistent with this prediction. Over a fifteen year period between 1995 and 2009, the rise in import competition is associated with a reduction of the firm-specific asset lifespan by about 4.5% on average. We additionally exploit the Chinese WTO accession as an exogenous shock in firm expectations about future exposure to competition.

Keywords: import competition; firm investment behavior; investment life-span; shorttermism (search for similar items in EconPapers)
JEL-codes: F14 F36 F65 G32 L20 D22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-int
Date: 2016-10-12
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