A Granular Analysis of Corporate Investment

39 Pages Posted: 3 Aug 2013

See all articles by Gustavo Grullon

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

John Hund

University of Georgia

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Date Written: July 26, 2013

Abstract

Capital expenditures by the top 100 firms make up more than 60% of aggregate investment by publicly traded firms, and explain most of the variation in aggregate net fixed private non-residential investment. Surprisingly, these firms have the highest investment-cash flow sensitivity in the economy, despite being the least financially constrained. Further, contrary to the trend among smaller firms, the investment-cash flow sensitivity of the top capital spenders has not disappeared over time. For these firms, we find that cash flows provide better information about future investment opportunities than proxies for Tobin’s q. In general, the results from our granular approach indicate that most of the existing evidence based on the behavior of the average firm does not apply to the firms that drive most of the aggregate fluctuations in investment.

Keywords: aggregate investment, financial constraints, investment concentration, q-theory

JEL Classification: G32, G34

Suggested Citation

Grullon, Gustavo and Hund, John and Weston, James Peter, A Granular Analysis of Corporate Investment (July 26, 2013). Available at SSRN: https://ssrn.com/abstract=2305349 or http://dx.doi.org/10.2139/ssrn.2305349

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

John Hund

University of Georgia ( email )

Athens, GA 30602
United States

James Peter Weston (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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