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Investment Activity and the Exit Decision

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  • Deily, Mary E

Abstract

Using level data from the U.S. steel industry, this paper tests and finds support for the hypothesis that firms in a contracting industr y first disinvest from, and then close, their high-cost plants. An investment decision model is estimated using a panel data set composed of the major replacement investments made in forty-three steel plants during the years 1960-81. The results indicate that the firms disinvested from those plants are least likely to remain profitable in an environment of strong competition from imports, minimills, and stagnating domestic demand. Copyright 1988 by MIT Press.

Suggested Citation

  • Deily, Mary E, 1988. "Investment Activity and the Exit Decision," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 595-602, November.
  • Handle: RePEc:tpr:restat:v:70:y:1988:i:4:p:595-602
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    References listed on IDEAS

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    1. Williamson, John & Bottrill, Anthony, 1971. "The Impact of Customs Unions on Trade in Manufactures," Oxford Economic Papers, Oxford University Press, vol. 23(3), pages 323-351, November.
    2. Marcus H. Miller, 1971. "Estimates of the Static Balance of Payments and Welfare Costs of United Kingdom Entry Into the Common Market," National Institute Economic Review, National Institute of Economic and Social Research, vol. 57(1), pages 69-83, August.
    3. Truman, E. M., 1972. "The production and trade of manufactured products in the EEC and EFTA: A comparison," European Economic Review, Elsevier, vol. 3(3), pages 271-290, November.
    4. Resnick, Stephen A. & Truman, Edwin M., 1973. "An empirical examination of bilateral trade in Western Europe," Journal of International Economics, Elsevier, pages 305-335.
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    Cited by:

    1. Timothy Dunne & Shawn D. Klimek & Mark J. Roberts, 2003. "Entrant Experience and Plant Exit," NBER Working Papers 10133, National Bureau of Economic Research, Inc.
    2. Bichescu, Bogdan & Raturi, Amitabh, 2015. "The antecedents and consequences of plant closing announcements," International Journal of Production Economics, Elsevier, vol. 168(C), pages 197-210.
    3. Fleischmann, Matthew P & Prentice, David, 2001. "Strategy, Scale or Policy? Exit in the Australian Car Industry," The Economic Record, The Economic Society of Australia, vol. 77(239), pages 351-360, December.
    4. Mano, Yukichi & Suzuki, Aya, 2013. "Industrial Development through Takeovers and Exits: the Case of the Cut Flower Exporters in Ethiopia," Discussion Papers 2013-05, Graduate School of Economics, Hitotsubashi University.
    5. Mata, Jose & Portugal, Pedro & Guimaraes, Paulo, 1995. "The survival of new plants: Start-up conditions and post-entry evolution," International Journal of Industrial Organization, Elsevier, pages 459-481.
    6. Feil, Jan-Henning & Musshoff, Oliver, 2013. "Modelling investment and disinvestment decisions under competition, uncertainty and different market interventions," Economic Modelling, Elsevier, vol. 35(C), pages 443-452.
    7. Arjen van Witteloostuijn, 1998. "Bridging Behavioral and Economic Theories of Decline: Organizational Inertia, Strategic Competition, and Chronic Failure," Management Science, INFORMS, pages 501-519.
    8. Bruce Blonigen & Benjamin Liebman & Wesley Wilson, 2013. "Antidumping and Production-Line Exit: The Case of the US Steel Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(4), pages 395-413, June.
    9. Dunne, Timothy & Klimek, Shawn D. & Roberts, Mark J., 2005. "Exit from regional manufacturing markets: The role of entrant experience," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 399-421, June.

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