What Explains the Lagged Investment Effect?
37 Pages Posted: 18 Apr 2011
There are 2 versions of this paper
What Explains the Lagged Investment Effect?
NBER Working Paper No. w16889
Number of pages: 37
Posted: 21 Mar 2011
Last Revised: 24 Feb 2023
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45
Date Written: April 2011
Abstract
The best predictor of current investment at the firm level is lagged investment. This lagged-investment effect is empirically more important than the cash-flow and Q effects combined. We show that the specification of investment adjustment costs proposed by Christiano, Eichenbaum and Evans (2005) predicts the presence of a lagged-investment effect and that a generalized version of their model is consistent with the behavior of firm-level data from Compustat.
Keywords: Cash flow, Tobin's Q
JEL Classification: E2
Suggested Citation: Suggested Citation
Eberly, Janice C. and Tavares Rebelo, Sergio and Vincent, Nicolas, What Explains the Lagged Investment Effect? (April 2011). CEPR Discussion Paper No. DP8309, Available at SSRN: https://ssrn.com/abstract=1810274
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