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.
|Original language||English (US)|
|Number of pages||46|
|Journal||Journal of Political Economy|
|State||Published - Aug 2014|
ASJC Scopus subject areas
- Economics and Econometrics