Capital Heterogeneity: Does it Matter? Fundamental Q and Investment on a Panel of Italian Firms

48 Pages Posted: 4 Dec 2001 Last revised: 18 Aug 2012

See all articles by Paola Rota

Paola Rota

University of Brescia - Department of Economics

Maria Elena Bontempi

University of Bologna - Department of Economics

Alessandra Del Boca

University of Brescia - Department of Economics

Alessandra Franzosi

Borsa Italiana S.p.A.

Marzio Galeotti

University of Milan - Department of Environmental Science and Policy (ESP); GREEN - Centre for Research on Geography, Resources, Environment, Energy & Networks

Date Written: October 1, 2001

Abstract

In this paper we study the determinants of investment decisions at the firm level with heterogeneous capital goods. We exploit a newly developed panel dataset of small and medium-sized firms which allows us to distinguish between purchases, sales, and net acquisitions of capital goods. We distinguish between equipment and structures and test the assumption of convex adjustment costs. Since our firms are mostly unlisted, the standard Q model based on stock market valuation is no longer appropriate. Instead, we use the fundamental Q approach proposed by Abel and Blanchard (1986) and Gilchrist and Himmelberg (1995) and extend it to the case of several capital inputs. The results show that the standard convex costs model fits very well equipment and but not structures. We find evidence for non-convexities in the case of structures.

Keywords: Investment, Q, heterogeneous capital goods, VAR estimation, panel data

JEL Classification: D24, G31, C33, C34

Suggested Citation

Rota, Paola and Bontempi, Maria Elena and Del Boca, Alessandra and Franzosi, Alessandra and Galeotti, Marzio, Capital Heterogeneity: Does it Matter? Fundamental Q and Investment on a Panel of Italian Firms (October 1, 2001). RAND Journal of Economics, Vol. 35, No. 4, 2004, FEEM Working Paper No. 88.2001, Available at SSRN: https://ssrn.com/abstract=291948 or http://dx.doi.org/10.2139/ssrn.291948

Paola Rota (Contact Author)

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

HOME PAGE: http://www.eco.unibs.it/~segdse/rota/

Maria Elena Bontempi

University of Bologna - Department of Economics ( email )

Strada Maggiore, 45
40125 Bologna, 40125
Italy
+39 051 2092600 (Phone)
+39 051 2092664 (Fax)

Alessandra Del Boca

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

Alessandra Franzosi

Borsa Italiana S.p.A.

Italy

HOME PAGE: http://www.borsaitalia.it/

Marzio Galeotti

University of Milan - Department of Environmental Science and Policy (ESP) ( email )

2 via Celoria
Milano, 20133
Italy
+39-2-50316470 (Phone)
+39-2-50316486 (Fax)

HOME PAGE: http://www.unimi.it/chiedove/cv/ENG/marzio_galeotti.pdf?1531977155891

GREEN - Centre for Research on Geography, Resources, Environment, Energy & Networks ( email )

via Rontgen
Milan, 20123
Italy
+39-2-58362340 (Phone)

HOME PAGE: http://https://www.green.unibocconi.eu

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