Working Paper: NBER ID: w29189
Authors: Song Ma; Justin Murfin; Ryan D. Pratt
Abstract: Across a broad range of equipment types and industries, we document a pattern of local capital reallocation from older firms to younger firms. Start-ups purchase a disproportionate share of old physical capital previously owned by more mature firms. The evidence is consistent with financial constraints driving differential demand for vintage capital. The local supply of used capital influences start-up entry, job creation, investment choices, and growth, particularly when capital is immobile. Conversely, incumbents accelerate capital replacement in the presence of more young firms. The evidence suggests previously undocumented benefits to co-location between old and young firms.
Keywords: young firms; old capital; financial constraints; capital reallocation
JEL Codes: G3; L2; R1; R4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial constraints (D10) | Demand for vintage capital (D25) |
| Firm age (L26) | Capital age (N94) |
| Availability of used capital (G31) | Young firm investment (D25) |
| Availability of used capital (G31) | Young firm hiring (M13) |
| Availability of used capital (G31) | Young firm formation (L26) |
| Local young firm demand for used equipment (L63) | Older firms' capital replacement (D25) |
| Young firm investment (D25) | Subsequent investment (G11) |
| Local supply of vintage capital (D25) | Young firm sensitivity (D21) |