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Investment and Time to Plan: A Comparison of Structures vs. Equipment in a Panel of Italian Firms

Author

Listed:
  • Charles Himmelberg

    (Federal Reserve Bank of New York)

  • Alessandra del Boca

    (Università di Brescia)

  • Marzio Galeotti

    (Università di Milano)

  • Paola Rota

    (Università di Brescia)

Abstract

“Time to build” models of investment expenditures play an important role in many traditional and modern theories of the business cycle, especially for explaining the dynamic propagation of shocks. We estimate the structural parameters of a time-to-build model using firm-level investment data on equipment and structures. For equipment expenditures, we find no evidence of time-to-build effects beyond one period. For structures, by contrast, there is clear evidence of time to build in the range of 2-3 years. The contrast between equipment and structures is intuitively reasonable and consistent with previous results. The estimates for structures also indicate that initial-period expenditures are low, and increase as projects near completion. These results provide empirical support for including “time to plan” effects for investment in structures. More generally, these results suggest a potential source of specification error for Q models of investment and production-based asset pricing models that ignore the time required to plan, build and install new capital.

Suggested Citation

  • Charles Himmelberg & Alessandra del Boca & Marzio Galeotti & Paola Rota, 2005. "Investment and Time to Plan: A Comparison of Structures vs. Equipment in a Panel of Italian Firms," Working Papers 2005.54, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2005.54
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    File URL: http://www.feem.it/userfiles/attach/Publication/NDL2005/NDL2005-054.pdf
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    References listed on IDEAS

    as
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    3. Petya Koeva Brooks, 2001. "Time-To-Build and Convex Adjustment Costs," IMF Working Papers 01/9, International Monetary Fund.
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    Cited by:

    1. Agarwal, Sumit & Chiu, I-Ming & Souphom, Victor & Yamashiro, Guy M., 2011. "The efficiency of internal capital markets: Evidence from the Annual Capital Expenditure Survey," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(2), pages 162-172, May.

    More about this item

    Keywords

    Investment expenditures; Panel data; Italian firms; Time to build;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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