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. 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
