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Investment and Productivity Dynamics at the Plant and the Firm Level

Nicolas Vincent and Matthias Kehrig

No 212, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: Using micro-level Census data, we document that investment across plants within the same firm is more dispersed than investment across firms. In an expansion, investment patterns across plants within a firm become even more dispersed while between-firm dispersion does not vary over the business cycle. Contrary to the procyclical investment dispersion, productivity dispersion across plants within a firm is countercyclical which in the absence of frictions would lead to a countercyclical investment dispersion. Although firms tend to pick relatively productive plants for large investment projects in booms, this productivity-investment link vanishes in a recession. We use these findings to explore the quantitative relevance of real and financial frictions in a quantitative model of multi-plant firms. Frictions internal to the firm seem to govern the majority of investment dynamics compared to frictions in external capital markets.

Date: 2013
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More papers in 2013 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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