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Investment-less Growth: An Empirical Investigation Germán Gutiérrez and Thomas Philippon NYU, NBER, CEPR September 2017...

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Investment-less Growth: An Empirical Investigation Germán Gutiérrez and Thomas Philippon NYU, NBER, CEPR

September 2017, Brookings

Business is Profitable but does not Invest

NI/NOS

0

.1

.1

.15

.2

.2

.25

.3

.3

NOS/K

1970

1980

1990 year

Non Financial Corporate Non Financial Business

2000

2010

Non Financial Non Corporate

1960

1970

1980

1990 year

2000

2010

NI/NOS Mean

Notes: Annual data for Non financial Business sector (Corporate and Non corporate).

Investment is Low Relative to Fundamentals

Net investment (actual and predicted with Q)

0

.5

.01

NI/K .02

Stock Q 1 1.5

.03

2

.04

Stock Q

1960

1970

1980

1990 year

Stock Q (misc) − Nonfin Corp

2000

2010

1990

1995

2000

2005

2010

year Stock Q − Nonfin Corp

Net Investment

Fitted values

Note: Annual data. Predictions based on regression of net investment on Q from 1990 to 2007. Q for Non Financial Corporate sector, investment for Non Financial Business sector.

2015

Theory

• Q-theory to distinguish among competing explanations • Theories that predict low I/K because they predict low Q - E.g.: spreads & risk premia, low expected growth, uncertainty... - Solve the wrong puzzle: Q is high, but I/K is low. • Theories that predict a gap between Q and I/K - Deviations from 1K , PC, and MM - E.g.: intangible investment, market power, gap between Q and manager’s objective function

Summary of Firm- and Industry-level OLS results Potential explanation External finance Financial Bank dependence constraints Safe asset Globalization Intangibles / Intangibles

Globalization Regulation

Competition

Concentration

Governance

Data Appendix

Ownership

Significance Relevant data field(s) Industry Firm RZ external finance dependence (’99) Missing S&P rating (’99) Industry spread (’99) Firm-level ratings (’99) Intangibles ex. goodwill/assets Share of intangible investment % foreign profits Regulation index Occupational Licensing Lerner index (Compustat) Herfindahl (Compustat) Modified Herfindahl (Compustat) Share of Institutional ownership Share of QIX ownership Share of DED ownership Share of TRA ownership

Our View 1: Decreasing Competition

.2

.07

.08

Lerner Index .09 .1

.11

.3 .4 .5 Wtd Mean US Mod−Herfindahl

.6

.12

Aggregate Lerner Index and Mod−Herfindahl

1980

1985

1990

1995

2000

2005

2010

2015

year Lerner Index

Wtd Mean US Mod−Herfindahl

Our View 2: Shifting Preference for Payouts

Average share of institutional ownership, by type

0

0

.02

.2

.04

.4

.06

.6

.08

Share Buybacks and Payouts

1980

1985

1990

1995

2000 year

Payouts/Assets Buybacks/Assets

2005

2010

2015

1980

1985

1990

1995

2000

2005

2010

2015

year All institutions Dedicated

Quasi−Indexer Transient

Notes: Annual data for all US incorporated firms in Compustat. Results are similar when including foreign-incorporated firms. The vertical line in the first graph highlights the passing of SEC rule 10b-18, which allows companies to repurchase their shares on the open market without regulatory limits.

Our View: Regression Results (1) Industry NI/K ≥1981 Q (t-1) 0.17** [14.6] % QIX own (t-1) -0.09* [-2.3] Mod-Herfindahl (t-1) -0.06* [-2.6] Market cap, OS/K... Observations 1,445 Age Controls YES Year FE YES Industry de-mean YES Firm de-mean NO Industry-Yr de-mean NO ρ2 0.38

(2) Firm ≥1990 0.22** [51.79] -0.12** [-6.67] -0.07** [-2.75] 77,772 YES YES NO YES NO 0.27

Notes: T-stats in brackets. + p