Working Paper: NBER ID: w16889
Authors: Janice C. 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: Investment; Lagged Investment Effect; Tobin's q; Cash Flow
JEL Codes: E2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| investment adjustment cost model (CEE) (G31) | lagged investment effect (E22) |
| lagged investment (E22) | current investment (E22) |
| cash flow + Tobin's q (D25) | current investment (E22) |
| cash flow (E50) | current investment (E22) |