Aggregate Shocks and Investment Dynamics: Lessons From the Micro Data
Friday, Jan. 5, 2018 10:15 AM - 12:15 PM
- Chair: Felipe Schwartzman, Federal Reserve Bank of Richmond
Small and Large Firms Over the Business Cycle
AbstractDrawing from new, confidential data on income statements and balance sheets of US manufacturing firms, we provide evidence on the relationship between size, cyclicality and financial frictions. First, while sales and investment of smaller firms tend to fluctuate more over the business cycle, the difference is too small to have an impact on aggregates — especially given the high and rising degree of skewness of the firm size distribution. Second, the size effect remains unchanged when directly conditioning on firm-level proxies for financial strength; moreover, while there is a size effect for sales and investment, there is none for measures of external financing. This evidence suggests that the relative behavior of small firms may not be informative about the role of financing frictions in amplifying business cycles.
Regional Heterogeneity and Monetary Policy
Kinky Tax Policy and Abnormal Investment Behavior
AbstractThis paper documents tax-minimizing investment, in which firms accelerate capital purchases near fiscal year-end to reduce taxes. Between 1984 and 2013, average investment in the fourth fiscal quarter (Q4) is 37% higher than the average of the first three fiscal quarters. Q4 investment spikes also occur internationally. We use research designs based on variation in firm tax positions, the 1986 Tax Reform Act, and international tax changes to show tax minimization causes spikes. Spikes are larger when firms face financial constraints or higher option values of waiting until year-end. Models without a purchase-year, tax-minimization motive are unlikely to fit the data.
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- E3 - Prices, Business Fluctuations, and Cycles