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Capital and Labor Reallocation within Firms
Author(s) -
GIROUD XAVIER,
MUELLER HOLGER M.
Publication year - 2015
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12254
Subject(s) - productivity , capital (architecture) , shock (circulatory) , business , capital call , investment (military) , labour economics , resource (disambiguation) , capital investment , economics , industrial organization , natural resource economics , market economy , finance , financial capital , human capital , individual capital , macroeconomics , medicine , computer network , archaeology , politics , political science , computer science , law , history
We document how a positive 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, the firm's headquarters withdraws capital and labor from other plants, especially 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 evidence of capital or labor spillovers among plants of financially unconstrained firms.