NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Investment-less Growth: An Empirical Investigation

Germán Gutiérrez, Thomas Philippon

NBER Working Paper No. 22897
Issued in December 2016, Revised in January 2017
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, Monetary Economics

We analyze private fixed investment in the U.S. over the past 30 years. We show that investment is weak relative to measures of profitability and valuation – particularly Tobin’s Q, and that this weakness starts in the early 2000’s. There are two broad categories of explanations: theories that predict low investment because of low Q, and theories that predict low investment despite high Q. We argue that the data does not support the first category, and we focus on the second one. We use industry-level and firm-level data to test whether under-investment relative to Q is driven by (i) financial frictions, (ii) measurement error (due to the rise of intangibles, globalization, etc), (iii) decreased competition (due to technology, regulation or common ownership), or (iv) tightened governance and/or increased short-termism. We do not find support for theories based on risk premia, financial constraints, or safe asset scarcity, and only weak support for regulatory constraints. Globalization and intangibles explain some of the trends at the industry level, but their explanatory power is quantitatively limited. On the other hand, we find fairly strong support for the competition and short-termism/governance hypotheses. Industries with more concentration and more common ownership invest less, even after controlling for current market conditions. Within each industry-year, the investment gap is driven by firms that are owned by quasi-indexers and located in industries with more concentration and more common ownership. These firms spend a disproportionate amount of free cash flows buying back their shares.

download in pdf format
   (671 K)

email paper

A non-technical summary of this paper is available in the February 2017 NBER digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22897

Published: Germán Gutiérrez & Thomas Philippon, 2017. "Investmentless Growth: An Empirical Investigation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(2 (Fall)), pages 89-190. citation courtesy of

Users who downloaded this paper also downloaded* these:
Garcia-Macia, Hsieh, and Klenow w22953 How Destructive is Innovation?
Autor, Dorn, Hanson, Pisano, and Shu w22879 Foreign Competition and Domestic Innovation: Evidence from U.S. Patents
Lee, Shin, and Stulz w22924 Why Does Capital No Longer Flow More to the Industries with the Best Growth Opportunities?
Piketty, Saez, and Zucman w22945 Distributional National Accounts: Methods and Estimates for the United States
Brown and Matsa w22929 Locked in by Leverage: Job Search during the Housing Crisis
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us