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Non-convexities in the Adjustment of Different Capital Inputs: A Firm-level Investigation

Author

Listed:
  • Alessandra Del Boca

    (University of Brescia)

  • Marzio Galeotti

    (University of Milan)

  • Paola Rota

    (University of Brescia)

Abstract

Recent developments in investment research have highlighted the importance of non-convexities and irreversibilities in the firms’ adjustment of quasi-fixed inputs. However, aggregation across capital goods may smooth out the discontinuities associated with the adjustment of individual assets. The lack of suitable data is one of the reasons why empirical work has strongly relied on the assumption of capital homogeneity. In this paper we exploit a new data set of 1539 Italian firms which allows us to disaggregate capital and consider separately purchases and sales of assets. We disaggregate between equipment and structures and construct measures of fundamental Q to capture investment opportunities associated with each asset. To uncover the pattern of dynamic adjustment we use non-parametric techniques to relate each individual investment to own fundamental Q.

Suggested Citation

  • Alessandra Del Boca & Marzio Galeotti & Paola Rota, 2003. "Non-convexities in the Adjustment of Different Capital Inputs: A Firm-level Investigation," Working Papers 2003.35, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2003.35
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    3. Marco Grazzi & Nadia Jacoby & Tania Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries," GREDEG Working Papers 2013-09, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    4. Fabio Verona, 2014. "Investment Dynamics with Information Costs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1627-1656, December.
    5. Amundsen, Alexander, 2023. "Interaction effects in the adjustment cost function of firms," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    6. Schulte, Reinhard, 2018. "New venture investing trajectories: A large scale longitudinal study," Lüneburger Beiträge zur Gründungsforschung 13, Leuphana University of Lüneburg, Department of Entrepreneurship & Start-up Management.
    7. Schulte, Reinhard, 2015. "On real investment by new ventures," Lüneburger Beiträge zur Gründungsforschung 12, Leuphana University of Lüneburg, Department of Entrepreneurship & Start-up Management.
    8. Bayraktar, Nihal, 2014. "Fixed investment/fundamental sensitivities under financial constraints," Journal of Economics and Business, Elsevier, vol. 75(C), pages 25-59.
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    More about this item

    Keywords

    Investment; heterogenous capital; non-convexities; fundamental Q; panel data;
    All these keywords.

    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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