Journal Article

On the Nature of Capital Adjustment Costs

Russell W. Cooper and John C. Haltiwanger

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 73, issue 3, pages 611-633
Published in print July 2006 | ISSN: 0034-6527
Published online July 2006 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2006.00389.x
On the Nature of Capital Adjustment Costs

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This paper studies the nature of capital adjustment at the plant level. We use an indirect inference procedure to estimate the structural parameters of a rich specification of capital adjustment costs. In effect, the parameters are optimally chosen to reproduce a set of moments that capture the non-linear relationship between investment and profitability found in plant-level data. Our findings indicate that a model, which mixes both convex and non-convex adjustment costs, fits the data best.

Keywords: G31; G32

Journal Article.  12644 words.  Illustrated.

Subjects: Corporate Governance

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