Investment of US firms responds asymmetrically to Tobin's Q: investment of established firms-"intensive" investment-reacts negatively to Q whereas investment of new firms-"extensive" investment-responds positively and elastically to Q. This asymmetry, we argue, reflects a difference between established and new firms in the cost of adopting new technologies. A fall in the compatibility of new capital with old capital raises measured Q and reduces the incentive of established firms to invest. New firms do not face such compatibility costs and step up their investment in response to the rise in Q.
ASJC Scopus subject areas
- Economics and Econometrics