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Does Firms' Financial Status Affect Plant-Level Investment and Exit Decisions?

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January 1999

Written by: Joachim K Winter

Working Paper Number:

CES-99-03

Abstract

This paper investigates the influence of a firm's financial status on the within-firm allocation of funds, reflected in its plant-level investment and exit decisions. In the empirical analysis, financial status is measured by both standard measures and an indicator variable recently suggested by Kaplan and Zingales. Based on these firm-level financial variables and on planet-level investment and production data from the U.S. Census Bureau's Longitudinal Research Database(LRD), econometric models of plant operating regimes are estimated which summarize investment and exit decisions. The empirical evidence supports the view that firm-level financial status affects investments and market exit decisions observed at the plant level.

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exogeneity, estimation, economist, econometric, endogeneity, estimating, empirical, depreciation, indicator

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Annual Survey of Manufactures, Bureau of Labor Statistics, Longitudinal Research Database, Center for Economic Studies, National Bureau of Economic Research, Bureau of Economic Analysis

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