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Young firms, old capital

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  • Ma, Song
  • Murfin, Justin
  • Pratt, Ryan

Abstract

Across a broad range of equipment types and industries, we document a pattern of local capital reallocation from older firms to younger firms. Start-ups purchase a disproportionate share of old physical capital previously owned by more mature firms. The evidence is consistent with financial constraints driving differential demand for vintage capital. The local supply of used capital influences start-up entry, job creation, investment choices, and growth, particularly when capital is immobile. Meanwhile, as suppliers of used capital, incumbents accelerate capital replacement in the presence of younger firms. The evidence suggests previously undocumented benefits to co-location between old and young firms.

Suggested Citation

  • Ma, Song & Murfin, Justin & Pratt, Ryan, 2022. "Young firms, old capital," Journal of Financial Economics, Elsevier, vol. 146(1), pages 331-356.
    • Handle: RePEc:eee:jfinec:v:146:y:2022:i:1:p:331-356
    DOI: 10.1016/j.jfineco.2021.09.017
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    More about this item

    Keywords

    Entrepreneurship; Capital reallocation; Investment;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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