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Does Firms` Financial Status Affect Plant-Level Investment and Exit Decision

  • Winter, Joachim

    ()

    (Mannheim Research Institute for the Economics of Aging (MEA))

This paper investigates the influence of a firm's financial status on the within-firm allocation of funds, reflected in its plant-level investment and exit decisions. In the empirical analysis, financial status is measured by both standard measures and an indicator variable recently suggested by Kaplan and Zingales. Based on these firm-level financial variables and on plant-level investment and production data from the U.S. Census Bureau's Longitudinal Research Database (LRD), econometric models of plant operating regimes are estimated which summarize investment and exit decisions. The empirical evidence supports the view that firm-level financial status affects investment and market exit decisions observed at the plant level.

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File URL: http://www.sfb504.uni-mannheim.de/publications/dp98-48.pdf
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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 98-48.

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Length: 31 pages
Date of creation: 01 Nov 1998
Date of revision:
Handle: RePEc:xrs:sfbmaa:98-48
Note: Financial Support from Deutsche Forschungsgemeinschaft, SFB 504 at the University of Mannheim, is gratefully acknowledged.
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  1. 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.
  2. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
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  5. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  6. Davis, Steven J & Haltiwanger, John & Schuh, Scott, 1996. " Small Business and Job Creation: Dissecting the Myth and Reassessing the Facts," Small Business Economics, Springer, vol. 8(4), pages 297-315, August.
  7. Kovenock, Dan & Phillips, Gordon M, 1997. "Capital Structure and Product Market Behavior: An Examination of Plant Exit and Investment Decisions," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 767-803.
  8. Lamont, Owen, 1997. " Cash Flow and Investment: Evidence from Internal Capital Markets," Journal of Finance, American Finance Association, vol. 52(1), pages 83-109, March.
  9. Bond, Stephen & Meghir, Costas, 1994. "Dynamic Investment Models and the Firm's Financial Policy," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 197-222, April.
  10. Ariel Pakes, 1991. "Dynamic Structural Models: Problems and Prospects. Mixed Continuous Discrete Controls and Market Interactions," Cowles Foundation Discussion Papers 984, Cowles Foundation for Research in Economics, Yale University.
  11. Doms, Mark & Dunne, Timothy & Roberts, Mark J., 1995. "The role of technology use in the survival and growth of manufacturing plants," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 523-542, December.
  12. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  13. Robert S. Chirinko & Huntley Schaller, 1993. "Why does liquidity matter in investment equations?," Research Working Paper 93-13, Federal Reserve Bank of Kansas City.
  14. Winter, Joachim, . "Investment and Exit Decisions at the Plant Level: A Dynamic Programming Approach," Monographs in Economics, University of Munich, Department of Economics, number 19732.
  15. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities Are Useful: A Comment On Kaplan And Zingales," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 695-705, May.
  16. Milne, Alistair & Robertson, Donald, 1996. "Firm behaviour under the threat of liquidation," Journal of Economic Dynamics and Control, Elsevier, vol. 20(8), pages 1427-1449, August.
  17. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  18. John M. Abowd & Bruno Crepon & Francis Kramarz & Alain Trognon, 1995. "A La Recherche des Moments Perdus: Covariance Models for Unbalanced Panels with Endogenous Death," NBER Technical Working Papers 0180, National Bureau of Economic Research, Inc.
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