References (40)


Citations (2)



Convergence in Corporate Investments

Vito Gala

The Wharton School

Brandon Julio

Lundquist College of Business, University of Oregon

July 26, 2012

We provide robust empirical evidence of conditional convergence in corporate investments. Small firms have significantly higher investment rates than large firms, even after controlling for standard empirical proxies of firm real investment opportunities and financial status, including Tobin's Q and cash flow. Firm size is at least as important as Tobin's Q and cash flow, both economically and statistically, in explaining variation in corporate investments. Unlike the cash flow effect, however, the convergence effect is robust to measurement error in Tobin's Q. The empirical evidence suggests that firm size improves the measurement of firms' unobservable real investment opportunities rather than reflecting differences in firms' financing frictions. Using simulated method of moments, we estimate a simple neoclassical model of investment and show that technological decreasing returns to scale, along with measurement error in Tobin's Q, replicates successfully the empirical evidence on conditional convergence.

Number of Pages in PDF File: 62

Keywords: Corporate Investment, Convergence

Open PDF in Browser Download This Paper

Date posted: March 19, 2011 ; Last revised: July 27, 2012

Suggested Citation

Gala, Vito and Julio, Brandon, Convergence in Corporate Investments (July 26, 2012). Available at SSRN: http://ssrn.com/abstract=1787350 or http://dx.doi.org/10.2139/ssrn.1787350

Contact Information

Vito D. Gala
The Wharton School ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Brandon Julio (Contact Author)
Lundquist College of Business, University of Oregon ( email )
1280 University of Oregon
Eugene, OR 97403
United States
Feedback to SSRN

Paper statistics
Abstract Views: 1,122
Downloads: 235
Download Rank: 96,253
References:  40
Citations:  2

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 0.203 seconds