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Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries

  • Marco Grazzi
  • Nadia Jacoby
  • Tania Treibich

Although the relation between investment and economic growth has been well established in the macroeconomic literature, the existence of a similar link at firm level has been challenged by empirical work. This paper investigates the channels linking investment and firm performance in the French and Italian manufacturing industries by proposing a novel methodology to identify investment spikes, which corrects for size dependence. While maintaining the desired properties of a spike measure, our chosen proxy accounts for the expected relation between investment and firm performance. Ex-ante, more efficient and fast growing firms demonstrate a higher probability to invest; in turn, following an investment spike, the group of investing firms shows further performance gains. We show also that expansionary investment episodes, proxied by the opening of new plants, have a negative effect on profitability but are associated with higher sales and higher levels of employment.

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Paper provided by Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis in its series GREDEG Working Papers with number 2013-09.

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Length: 29 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:gre:wpaper:2013-09
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