This paper disentangles the effects of uncertainty in explaining the heterogeneity of firms’ investments. In particular, following Bloom [2007. “Uncertainty and the Dynamics of R&D.” American Economic Review 97 (2): 250–255], we test the role of uncertainty and liquidity constraints extending the model to include R&D, non-R&D intangibles, as well as physical capital. The analysis is performed on a large data set of Italian firms, covering both manufacturing and services sectors, as well as large and small firms. We show that non-convex adjustment costs affect different capital inputs in different ways, depending on their degree of firm-specificity. The results confirm the Bloom model: flow adjustment costs explain investment in R&D and, to a lesser extent, in non-R&D intangibles. However, it struggles to explain tangible investment plans because of the ambiguous effect of the stock adjustment costs.
Investment–uncertainty relationship: differences between intangible and physical capital / Bontempi, Maria Elena. - In: ECONOMICS OF INNOVATION AND NEW TECHNOLOGY. - ISSN 1043-8599. - STAMPA. - 25:3(2016), pp. 240-268. [10.1080/10438599.2015.1076197]
Investment–uncertainty relationship: differences between intangible and physical capital
BONTEMPI, MARIA ELENA
2016
Abstract
This paper disentangles the effects of uncertainty in explaining the heterogeneity of firms’ investments. In particular, following Bloom [2007. “Uncertainty and the Dynamics of R&D.” American Economic Review 97 (2): 250–255], we test the role of uncertainty and liquidity constraints extending the model to include R&D, non-R&D intangibles, as well as physical capital. The analysis is performed on a large data set of Italian firms, covering both manufacturing and services sectors, as well as large and small firms. We show that non-convex adjustment costs affect different capital inputs in different ways, depending on their degree of firm-specificity. The results confirm the Bloom model: flow adjustment costs explain investment in R&D and, to a lesser extent, in non-R&D intangibles. However, it struggles to explain tangible investment plans because of the ambiguous effect of the stock adjustment costs.File | Dimensione | Formato | |
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