Working Paper: CEPR ID: DP8309
Authors: Janice Eberly; Sergio Rebelo; Nicolas Vincent
Abstract: The best predictor of current investment at the firm level is lagged investment. This lagged-investment effect is empirically more important than the cash-flow and Q effects combined. We show that the specification of investment adjustment costs proposed by Christiano, Eichenbaum and Evans (2005) predicts the presence of a lagged-investment effect and that a generalized version of their model is consistent with the behavior of firm-level data from Compustat.
Keywords: cash flow; Tobin's q
JEL Codes: E2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lagged investment (ik-1) (E22) | current investment (ik) (E22) |
| cash flow (cfk) (G31) | current investment (ik) (E22) |
| Tobin's q (q) (G19) | current investment (ik) (E22) |
| lagged investment (ik-1) (E22) | cash flow (cfk) (G31) |
| lagged investment (ik-1) (E22) | Tobin's q (q) (G19) |