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Volkswirtschaft - Open Access LMU - Teil 03/03 Podcast
Import Competition and the Composition of Firm Investments

Import Competition and the Composition of Firm Investments

Volkswirtschaft - Open Access LMU - Teil 03/03 vor 10 Jahren

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We study how foreign competition affects the composition of
investments inside firms. A parsimonious model predicts that firms
have an incentive to shift their investments towards more
short-term assets when exposed to tougher competition. Using data
on expenditures of listed US companies into various asset classes
with different lifespans, we document empirical evidence that is
consistent with this prediction. Over a fifteen year period between
1995 and 2009, the rise in import competition is associated with a
reduction of the firm-specific asset lifespan by about 4.5% on
average. We additionally exploit the Chinese WTO accession as an
exogenous shock in firm expectations about future exposure to
competition.