New evidence on business investment and capital reallocation

This paper provides new facts about business investment and capital reallocation by exploiting a novel and comprehensive dataset of firms' vehicle transactions, covering the universe of purchases of new and used vehicles, as well as the leases recorded by the Italian vehicle register between 2015 and 2023. We show that leasing is very common, as it represents about 50 per cent of vehicle acquisitions. Financially constrained firms have a higher propensity to lease rather than purchase, while young firms rely heavily on the market for used vehicles. Reallocation of used vehicles occurs for about 50 per cent of the transactions within the same industry. Transactions involving used vehicles mostly occur among firms with similar productivity, or between very low productivity firms that sell vehicles to firms with higher productivity, as the former are likely to exit the market. When dealers are involved, vehicles are reallocated much more broadly across industries, geographical areas and firm productivity classes, which is consistent with dealers helping to improve capital reallocation.