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Capital Supply Shocks and Investment

Author

Listed:
  • Darmouni, Olivier
  • Sutherland, Andrew

Abstract

We examine how fixed capital supply shocks affect firms’ investment. Using equipment transaction-level data, we find pandemic-driven production disruptions significantly altered capital reallocation patterns across firms. A surge in used capital trading activity softened the investment decline, as firms acquired used capital from distant and dissimilar counterparts. Younger firms were disproportionately affected even though they rarely purchase new capital: while in normal times older firms sell their capital to younger firms, following a supply shock, older firms compete for used capital, pricing out younger firms. Our evidence highlights the crucial role of secondary markets and distributive externalities for corporate investment.

Suggested Citation

  • Darmouni, Olivier & Sutherland, Andrew, 2023. "Capital Supply Shocks and Investment," CEPR Discussion Papers 17864, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17864
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    More about this item

    Keywords

    investment; Capital reallocation; Secondary markets; Smes; Supply chains; Covid-19;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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