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Lumpy investments and capital adjustment patterns in the food manufacturing industry

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  • Pinar Geylani

Abstract

This paper investigates investment patterns and the types of capital adjustment cost in the U.S. food manufacturing plants. The study first documents the lumpy nature of investment rates and shows that few investment incidents at plant-level contribute to a large portion of aggregate investment, indicating the importance of large investments in the food manufacturing industry. Further, the paper presents econometric evidence for the nature of capital adjustment costs by estimating an investment hazard model which determines both the probability of having an investment spike and the factors affecting lumpy investments. The results support the presence of both convex and non-convex components of capital adjustment costs. While the importance of lumpy investments at the plant-level support for a non-convex component of adjustment cost, the empirical estimation of hazard function shows downward-sloping shape (i.e., negative duration dependence) which demonstrates the existence of a convex component as well. Copyright Springer Science+Business Media New York 2015

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  • Pinar Geylani, 2015. "Lumpy investments and capital adjustment patterns in the food manufacturing industry," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(3), pages 501-517, July.
    • Handle: RePEc:spr:jecfin:v:39:y:2015:i:3:p:501-517
    DOI: 10.1007/s12197-013-9262-2
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    3. Schulte, Reinhard, 2018. "New venture investing trajectories: A large scale longitudinal study," Lüneburger Beiträge zur Gründungsforschung 13, Leuphana University of Lüneburg, Department of Entrepreneurship & Start-up Management.
    4. Schulte, Reinhard, 2015. "On real investment by new ventures," Lüneburger Beiträge zur Gründungsforschung 12, Leuphana University of Lüneburg, Department of Entrepreneurship & Start-up Management.

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    More about this item

    Keywords

    Convex and non-convex adjustment costs; Lumpy investments; Plant-level data; D21; D24; E22; 033; L66;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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