Working Paper: CEPR ID: DP10360
Authors: Xavier Giroud; Holger M. Mueller
Abstract: We document how a shock to investment opportunities at one plant (?treated plant?) spills over to other plants within the same firm, but only if the firm is financially constrained. To provide the treated plant with resources, headquarters withdraws capital and labor from other plants, especially from plants that are relatively less productive, not part of the firm?s core industries, and located far away from headquarters. As a result of the resource reallocation, aggregate firm-wide productivity increases. We do not find any evidence of capital or labor spillovers among plants of financially unconstrained firms.
Keywords: Internal Capital Markets
JEL Codes: G31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of new airline routes (L93) | investment opportunities (G24) |
| investment opportunities (G24) | resource reallocation (Q20) |
| resource reallocation (Q20) | investment at treated plant (G31) |
| resource reallocation (Q20) | employment at treated plant (J63) |
| resource reallocation (Q20) | decline in investment at other plants (E22) |
| resource reallocation (Q20) | decline in employment at other plants (J63) |
| financial constraints (H60) | resource reallocation (Q20) |
| resource reallocation (Q20) | overall increase in firm-wide productivity (L25) |