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Firms’ Marginal Propensities to Invest

Author

Listed:
  • Commault, Jeanne
  • Martin-Baillon, Alaïs

Abstract

Few heterogeneous-firm models are calibrated to firms' responses to income shocks because estimates of these responses are lacking. We estimate the average marginal propensity to invest (MPI) of firms in the US, that is, the share of a transitory sales shock that firms use for investment. In Compustat data, the dynamics of firms' sales are well described by a transitory-permanent process, so a semi-structural approach can identify the response of investment to transitory sales shocks. This response is statistically significant and the average MPI is 0.22. Younger firms, smaller firms, and non-dividend-paying firms exhibit significantly higher MPIs. Given that Compustat over-represents older and dividend-paying firms, our result is a lower bound on the response over the universe of firms. Our heterogeneity analyses make it possible to infer results for other sets of firms.

Suggested Citation

  • Commault, Jeanne & Martin-Baillon, Alaïs, 2026. "Firms’ Marginal Propensities to Invest," CEPR Discussion Papers 21962, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21962
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    File URL: https://cepr.org/publications/DP21962
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing

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