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Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries

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  • Marco Grazzi
  • Nadia Jacoby
  • Tania Treibich

Abstract

Although the relation between investment and economic growth has been well established in the macroeconomic literature, the existence of a similar link at firm level has been challenged by empirical work. This paper investigates the channels linking investment and firm performance in the French and Italian manufacturing industries by proposing a novel methodology to identify investment spikes, which corrects for size dependence. While maintaining the desired properties of a spike measure, our chosen proxy accounts for the expected relation between investment and firm performance. Ex-ante, more efficient and fast growing firms demonstrate a higher probability to invest; in turn, following an investment spike, the group of investing firms shows further performance gains. We show also that expansionary investment episodes, proxied by the opening of new plants, have a negative effect on profitability but are associated with higher sales and higher levels of employment.

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File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2013-09.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis in its series GREDEG Working Papers with number 2013-09.

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Length: 29 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:gre:wpaper:2013-09

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Keywords: Firm heterogeneity; investment spike; industrial dynamics; corporate performance; capital accumulation; technical change;

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References

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Cited by:
  1. Giovanni Dosi & Marco Grazzi & Daniele Moschella, 2014. "Technology and costs in international competitiveness: from countries and sectors to firms," LEM Papers Series 2014/10, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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