Capital and Labor Reallocation within Firms

Giroud, Xavier; Mueller, Holger M.

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Capital and Labor Reallocation within Firms

Journal of Finance, Forthcoming

54 Pages Posted: 15 May 2014

See all articles by Xavier Giroud

Xavier Giroud

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Holger M. Mueller

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

There are 2 versions of this paper

Date Written: May 13, 2014

Abstract

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.

Keywords: Internal Capital Markets, Resource Reallocation

JEL Classification: G31

Suggested Citation: Suggested Citation

Giroud, Xavier and Mueller, Holger M., Capital and Labor Reallocation within Firms (May 13, 2014). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2436552