Young Firms, Old Capital
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.
We thank seminar and conference participants at American University, Chicago Booth, Clemson, Colorado Finance Summit, Duke/UNC I&E Research Conference, FDIC, Federal Reserve Bank of Philadelphia, Federal Reserve Board, Frankfurt, GSU Conference on Financing Tangible and Intangible Capital, Georgia Tech, HEC Workshop on Entrepreneurship, HKU, Junior Entrepreneurial Finance and Innovation Workshop, Kellogg, McGill, Maryland, Michigan State, Midwest Finance Association, Oklahoma Workshop in Entrepreneurship and Finance, Pittsburgh, Princeton, Rice, SFS Cavalcade, Syracuse, Tilburg, Toronto, Utah, Washington St. Louis Corporate Finance Conference, and Yale (Applied Micro; Finance). We also thank Tony Cookson, Francois Derrien, Jason Donaldson, William Mann, Sahil Raina, Adriano Rampini, Xinxin Wang, and Liu Yang for detailed comments. Huijun Sun and Ran You provided excellent research assistance. Yale International Center for Finance provided research support. We thank Erik Gilje for generously sharing data on county-level shale oil shocks. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Song Ma & Justin Murfin & Ryan Pratt, 2021. "Young firms, old capital," Journal of Financial Economics, .