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What happens when firms invest? Investment events and firm performance

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  • Michał Gradzewicz

    (Narodowy Bank Polski and Warsaw School of Economics)

Abstract

The aim of the study is to investigate the firm-level relationship between investment spikes and subsequent productivity developments. We used census data of Polish firms with employment above 9 persons, we measured investment spike and constructed a control sample for comparison. We showed various performance indicators before and after investment spike. We tested for the effects of a spike using generalized difference-in-difference models. The results suggest different effects for SMEs and larger companies. In smaller firms investment spike is associated with subsequent sales and employment expansion and lagged labor productivity rise, consistently with learning-by-doing model. TFP of smaller firms falls directly after a spike and only gradually rises thereafter. In larger firms investment spike also result in expansion of sales, but labor productivity is not improving relative to control group, despite a drop of employment. Moreover, capital deepening of larger firms results in significantly lower TFP, both in absolute and relative terms.

Suggested Citation

  • Michał Gradzewicz, 2018. "What happens when firms invest? Investment events and firm performance," NBP Working Papers 291, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:291
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    References listed on IDEAS

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    Cited by:

    1. Bruno, Randolph Luca & Douarin, Elodie & Korosteleva, Julia & Radosevic, Slavo, 2019. "Determinants of Productivity Gap in the European Union: A Multilevel Perspective," IZA Discussion Papers 12542, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    investment spike; productivity; TFP; efficiency; firm-level data; difference-in-difference;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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