Young Firms, Old Capital

55 Pages Posted: 26 Aug 2020

See all articles by Song Ma

Song Ma

Yale School of Management; National Bureau of Economic Research (NBER)

Justin Murfin

Cornell SC Johnson College of Business

Ryan Pratt

Brigham Young University

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

Suggested Citation

Ma, Song and Murfin, Justin and Pratt, Ryan, Young Firms, Old Capital (July 29, 2020). Available at SSRN: or

Song Ma

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New Haven, CT 06511
United States


National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Justin Murfin

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Ryan Pratt (Contact Author)

Brigham Young University ( email )

640 TNRB
Provo, UT 84602
United States
(801) 422-1222 (Phone)

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