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Investment and Time to Plan: A Comparison of Structures vs. Equipment in a Panel of Italian Firms

41 Pages Posted: 22 Apr 2005  

Charles P. Himmelberg

Goldman, Sachs & Co.

Alessandra Del Boca

University of Brescia - Department of Economics

Marzio Galeotti

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM); Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy

Paola Rota

University of Brescia - Department of Economics

Date Written: April 2005

Abstract

Time to build models of investment expenditures play an important role in many traditional and modern theories of the business cycle, especially for explaining the dynamic propagation of shocks. We estimate the structural parameters of a time-to-build model using firm-level investment data on equipment and structures. For equipment expenditures, we find no evidence of time-to-build effects beyond one period. For structures, by contrast, there is clear evidence of time to build in the range of 2-3 years. The contrast between equipment and structures is intuitively reasonable and consistent with previous results. The estimates for structures also indicate that initial-period expenditures are low, and increase as projects near completion. These results provide empirical support for including time to plan effects for investment in structures. More generally, these results suggest a potential source of specification error for Q models of investment and production-based asset pricing models that ignore the time required to plan, build and install new capital.

Keywords: Investment expenditures, Panel data, Italian firms, Time to build

JEL Classification: D24, G31, C33, C34

Suggested Citation

Himmelberg, Charles P. and Del Boca, Alessandra and Galeotti, Marzio and Rota, Paola, Investment and Time to Plan: A Comparison of Structures vs. Equipment in a Panel of Italian Firms (April 2005). FEEM Working Paper No. 54.05. Available at SSRN: https://ssrn.com/abstract=703826 or http://dx.doi.org/10.2139/ssrn.703826

Charles P. Himmelberg (Contact Author)

Goldman, Sachs & Co. ( email )

917-343-3218 (Phone)

Alessandra Del Boca

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

Marzio Galeotti

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM) ( email )

7 via Conservatorio
I-20122 Milano
Italy
+39-2-50321534 (Phone)
+39-2-50321505 (Fax)

Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy ( email )

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

HOME PAGE: http://www.iefe.unibocconi.it

Paola Rota

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

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

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