DP10360 Capital and Labor Reallocation within Firms

Author(s):	Xavier Giroud, Holger M Mueller
Publication Date:	January 2015
Keyword(s):	Internal Capital Markets
JEL(s):	G31
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=10360

We document how a shock to investment opportunities at one plant (?treated plant?) spills over to other plants within the same firm, but only if the firm is financially constrained. To provide the treated plant with resources, headquarters withdraws capital and labor from other plants, especially from plants that are relatively less productive, not part of the firm?s core industries, and located far away from headquarters. As a result of the resource reallocation, aggregate firm-wide productivity increases. We do not find any evidence of capital or labor spillovers among plants of financially unconstrained firms.