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