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 document new facts on cross-sectional heterogeneity in time to build; and exploit quasi-experimental variation in credit supply to establish that firms accelerate ongoing projects and start fewer new projects when credit dries up. We rationalize our findings with a novel model of endogenous time to build. A credit crunch increases firm appetite for immediate relative to delayed cash flows. Firms then accelerate projects closer to
completion 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 costs and gestation lags. Endogenous time to build generates endogenous amplification and state-dependence of investment on the distribution of projects along completion stages. Endogenous time to build is policy relevant. Contractionary monetary policy has weaker effects on investment when the distribution of projects skews towards mature projects. Tax policy, in turn, can flexibly reshuffle investment expenditures over time.
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. Investment in customer capital is measured 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. There is large and persistent variation across industries in customer capital investment; industries investing the most are growing as a share of aggregate enterprise value. Industry-level variation in sales and marketing expense and R&D expense explains a large amount of the variation in the value of intangible capital, a result shown using both publicly-traded companies and prices paid in acquisitions. In contrast, the residual portion of sales, general and administrative expenses – after subtracting sales and marketing expenses – is uncorrelated with intangible capital value across industries. Industries focused on platform business models, online sales, and the production of high tech manufactured goods invest most heavily in customer capital.
Discussant: Lucian Taylor, University of Pennsylvania
