Topic:Why Do U.S. Firms Invest Less Over Time?

Speaker:Sheng Huang, Singapore Management University

Time:Wednesday, 11November, 10:00-11:30

Location:Room K01, Guanghua Hotel

Abstract:

Capital expenditure of U.S. public firms, as a ratio to total assets, decreases by more than a half from 1980 to 2012. The decline is pervasive across industries and firms of different characteristics. The decline is not explained by time variations in industry composition in the economy, corporate lifecycle, or public listing cohorts. It is related to the increasing importance of intangible capital and the economic globalization that have changed the technology of firm production. Over time, firm production demands less investment in fixed assets and more investment in intangibles such as knowledge capital and organizational capital. The sensitivity of capital expenditure to investment opportunity reduces, as firms build up more intangible capital. International evidence shows that firms in countries with the level of economic development similar to the U.S. (G7 and OECD countries) have also incurred significant declines in capital investment while those in emerging economies (such as BRICS) have not.

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