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Capital And Labor Reallocation Inside Firms

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  • Xavier Giroud
  • Holger M. Mueller

Abstract

We document how a plant-specific shock to investment opportunities at one plant of a firm ("treated plant") spills over to other plants of the same firm-but only if the firm is financially constrained. While the shock triggers an increase in investment and employment at the treated plant, this increase is offset by a decrease at other plants of the same magnitude, consistent with headquarters channeling scarce resources away from other plants and toward the treated plant. As a result of the resource reallocation, aggregate firm-wide productivity increases, suggesting that the reallocation is beneficial for the firm as a whole. We also show that-in order to provide the treated plant with scarce resources-headquarters does not uniformly "tax" all of the firm's other plants in the same way: It is more likely to take away resources from plants that are less productive, are not part of the firm's core industries, and are located far away from headquarters. We do not find any evidence of investment or employment spillovers at financially unconstrained firms.

Suggested Citation

  • Xavier Giroud & Holger M. Mueller, 2013. "Capital And Labor Reallocation Inside Firms," Working Papers 13-22, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:13-22
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    File URL: https://www2.census.gov/ces/wp/2013/CES-WP-13-22.pdf
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    References listed on IDEAS

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