Young Firms, Old Capital
55 Pages Posted: 26 Aug 2020
Date Written: July 29, 2020
We explore the interaction of capital reallocation and entrepreneurship activities. Across a broad range of equipment types and industries, young firms are the predominant buyers of vintage physical capital previously owned by older local firms. The pattern is strongest when financial constraints are most likely to bind. We argue that this pattern drives a mutually-beneficial relationship between co-located young and old firms through local used capital markets. The investment choices, growth, and job creation by start-ups depend on vintage capital supplied by older local firms. Meanwhile incumbents accelerate capital replacement in the presence of young firms.
Keywords: capital reallocation, entrepreneurship, investment, agglomeration
JEL Classification: L26, E22, G31, D23
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