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Financial Frictions and Investment Dynamics in Multi-Plant Firms

Author

Listed:
  • Matthias Kehrig
  • Nicolas Vincent

Abstract

Using confidential Census data on U.S. manufacturing plants, we document that most of the dispersion in investment rates across plants occurs within rms instead of across firms. Between- firm dispersion is almost acyclical, but within- rm dispersion is strongly procyclical. To investigate the role of rms in the allocation of capital in the economy, we build a multi-plant model of the firm with frictions at both levels of aggregation. We show that external nancing constraints at the level of the rm can have important implications for plant-level investment dynamics. Finally, we present empirical evidence supporting the predictions of the model.

Suggested Citation

  • Matthias Kehrig & Nicolas Vincent, 2013. "Financial Frictions and Investment Dynamics in Multi-Plant Firms," Working Papers 13-56, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:13-56
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    File URL: https://www2.census.gov/ces/wp/2013/CES-WP-13-56.pdf
    File Function: First version, 2013
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    References listed on IDEAS

    as
    1. R?diger Bachmann & Christian Bayer, 2014. "Investment Dispersion and the Business Cycle," American Economic Review, American Economic Association, vol. 104(4), pages 1392-1416, April.
    2. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Chapters,in: NBER Macroeconomics Annual 2006, Volume 21, pages 107-180 National Bureau of Economic Research, Inc.
    3. Stein, Jeremy C, 1997. " Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-133, March.
    4. Gourio, Francois & Kashyap, Anil K, 2007. "Investment spikes: New facts and a general equilibrium exploration," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 1-22, September.
    5. Simon Gilchrist & Egon Zakrajsek, 2012. "Credit Spreads and Business Cycle Fluctuations," American Economic Review, American Economic Association, vol. 102(4), pages 1692-1720, June.
    6. Theodore Papageorgiou, 2010. "Large Firms and Internal Labor Markets," 2010 Meeting Papers 1216, Society for Economic Dynamics.
    7. John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
    8. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Bachmann, Rüdiger & Elstner, Steffen & Hristov, Atanas, 2017. "Surprise, surprise – Measuring firm-level investment innovations," Journal of Economic Dynamics and Control, Elsevier, vol. 83(C), pages 107-148.
    2. Tian, Can, 2015. "Riskiness, endogenous productivity dispersion and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 227-249.

    More about this item

    Keywords

    Investment; Plants vs. Firms; Q-Theory; Internal vs. External Capital Markets; Diversification Discount.;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • G3 - Financial Economics - - Corporate Finance and Governance

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