Abstract: Physical capital takes time to build. Yet, the measurement of time to build and of its response to firm behavior remain scant. We fill this gap using project-level data from India. We first document new facts about time to build. Industry heterogeneity accounts for 30% of its variation; and time to build increases on average by 0.18% for each 1% increase in project cost. We exploit quasi-experimental variation in credit supply to document that firms have control over time to build. When credit dries up, the conditional probability of completing a project over the following quarter rises by 6%, consistent with firms accelerating project development. In turn, new project starts fall by 7.5%. To rationalize our findings, we introduce a model of endogenous time to build. A credit crunch increases firm appetite for immediate cash flows relative to delayed cash flows. Firms then accelerate existing, closer to completion projects and postpone unbegun projects. Such a mechanism is borne out in the data: projects proxied to be more mature are sped up the most. We quantify our model to match our causal estimates, and the joint distribution of project-level costs and gestation lags. Moving from exogenous to endogenous time to build amplifies the response of investment to shocks, increasing its volatility by up to 30%; and generates state-dependence on the distribution of projects along completion stages. Endogenous time to build is policy relevant. Contractionary monetary policy faces headwinds when the distribution of projects skews towards mature projects. Fiscal policy, in turn, can flexibly reshuffle investment expenditures over time with tax credits.
Discussant: Mindy Xiaolan, University of Texas-Austin
Abstract: Firms invest heavily in customer capital, and such investment is a main source of intangible capital value. This study measures investment in customer capital using sales and marketing expense from income statements, information on salaries paid to workers in sales and marketing, and text from annual 10-K SEC filings describing firms’ sales and marketing strategies. Firms emphasize brand value, sales force, customer service, advertising, and the acquisition and use of customer data as sales and marketing strategies. Industries focused on platform business models, online sales, and the production of high tech manufactured goods invest most heavily in customer capital. Industry-level variation in the intensity of sales and marketing expense and R&D expense explains a large amount of the variation across industries in the value of intangible capital. Residual sales, general, and administrative expense after removing sales and marketing expense is uncorrelated with intangible capital value. Industries that invest most heavily in customer capital are growing as a share of aggregate revenue and enterprise value.
Discussant: Lucian Taylor, University of Pennsylvania
