Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries

Quaderni DSE Working Paper N° 869

39 Pages Posted: 14 Feb 2013

See all articles by Marco Grazzi

Marco Grazzi

Universita' Cattolica del Sacro Cuore

Nadia Jacoby

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES)

Tania Treibich

Maastricht University - Department of Economics; Scuola Superiore Sant'Anna di Pisa; Observatoire Français des Conjonctures Economiques (OFCE)

Date Written: February 12, 2013

Abstract

If the relation between investment and economic growth is well established in the macroeconomic literature, the existence of a similar link at the level of the firm has been challenged by empirical work. This paper investigates the channels linking investment and firm performance in the French and Italian manufacturing industries. It does so by putting forth a novel methodology to identify investment spikes that corrects for size dependence. While maintaining the desired properties of a spike measure, our chosen proxy retrieves the expected relation between investment and firm performance. Ex-ante, more efficient and fast growing firms display a higher probability to invest; in turn, after an investment spike has taken place the group of investing firms shows further gains in performance. Finally, expansionary investment episodes, as proxied by the opening of new plants, have a negative effect on profitability while they are associated with higher sales and employment levels.

Keywords: firm heterogeneity, investment spike, industrial dynamics, corporate performance, capital accumulation, technical change

JEL Classification: C14, D22, D24, D92, E22, L11, L23, L60

Suggested Citation

Grazzi, Marco and Jacoby, Nadia and Treibich, Tania, Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries (February 12, 2013). Quaderni DSE Working Paper N° 869. Available at SSRN: https://ssrn.com/abstract=2217594 or http://dx.doi.org/10.2139/ssrn.2217594

Marco Grazzi (Contact Author)

Universita' Cattolica del Sacro Cuore ( email )

1 Largo A. Gemelli
Milano (Milan), MI Milano 20123
Italy

Nadia Jacoby

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

Tania Treibich

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Scuola Superiore Sant'Anna di Pisa ( email )

Pisa
Italy

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

69 Quai d'Orsay
Paris 75004
France

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