We study the determinants of firms' investment decisions with heterogeneous-capital goods. We exploit a panel of small and medium-sized firms, which allows us to distinguish between purchases and sales of capital goods. We consider separately equipment and structures and test the hypothesis of convex adjustment costs. We extend the fundamental Q approach to the case of two capital inputs. The results show that the standard convex costs model performs well for equipment but not for structures. We find evidence of nonconvex adjustment costs in the case of structures. Copyright © 2004, RAND.
Capital heterogeneity: Does it matter? Fundamental Q and investment on a panel of Italian firms / E. Bontempi, A.D. Boca, A. Franzosi, M. Galeotti, P. Rota. - In: RAND JOURNAL OF ECONOMICS. - ISSN 0741-6261. - 35:4(2004), pp. 674-690.
Capital heterogeneity: Does it matter? Fundamental Q and investment on a panel of Italian firms
M. Galeotti;
2004
Abstract
We study the determinants of firms' investment decisions with heterogeneous-capital goods. We exploit a panel of small and medium-sized firms, which allows us to distinguish between purchases and sales of capital goods. We consider separately equipment and structures and test the hypothesis of convex adjustment costs. We extend the fundamental Q approach to the case of two capital inputs. The results show that the standard convex costs model performs well for equipment but not for structures. We find evidence of nonconvex adjustment costs in the case of structures. Copyright © 2004, RAND.
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