International evidence on investment and fundamentals

If a firm's costs of installing capital are not quadratic, then its optimal investment is not a linear function of fundamentals, such as the returns and costs of capital. This study specifies a model in which a firm may face fixed, linear, and convex costs of investing, and estimates the result...

Full description

Saved in:
Bibliographic Details
Published in:European economic review 1997-06, Vol.41 (6), p.1055-1078
Main Author: Eberly, Janice C.
Format: Article
Language:English
Subjects:
Adjustment costs
Capital
Comparative studies
Costs
Economic models
Economic statistics
International economics
International investment
Investment
Investment policy
Irreversibility
Macroeconomics
Manycountries
Optimization
Statistical analysis
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:If a firm's costs of installing capital are not quadratic, then its optimal investment is not a linear function of fundamentals, such as the returns and costs of capital. This study specifies a model in which a firm may face fixed, linear, and convex costs of investing, and estimates the resulting investment function using firm-level data from 11 countries. The evidence suggests important nonlinearities, consistent with the presence of fixed or other non-quadratic costs, in the relationship between investment and fundamentals for most countries. These findings are statistically signficant at the level of the firm, and economically significant when aggregated by country.
ISSN:0014-2921
1873-572X
DOI:10.1016/S0014-2921(96)00057-8