Investment and Productivity Dynamics at the Plant and the Firm Level
Using micro-level Census data, we document that investment across plants within the same firm is more dispersed than investment across firms. In an expansion, investment patterns across plants within a firm become even more dispersed while between-firm dispersion does not vary over the business cycle. Contrary to the procyclical investment dispersion, productivity dispersion across plants within a firm is countercyclical which in the absence of frictions would lead to a countercyclical investment dispersion. Although firms tend to pick relatively productive plants for large investment projects in booms, this productivity-investment link vanishes in a recession. We use these findings to explore the quantitative relevance of real and financial frictions in a quantitative model of multi-plant firms. Frictions internal to the firm seem to govern the majority of investment dynamics compared to frictions in external capital markets.