Capital Adjustment Patterns in Manufacturing Plants

A common result from altering several fundamental assumptions of the neoclassical investment model with convex adjustment costs is that investment may occur in lumpy episodes. This paper takes a step back and asks "How lumpy is investment?" We answer this question by documenting the distributions of investment and capital adjustment for a sample of over 13,700 manufacturing plants drawn from over 300 four-digit industries. We find that many plants do undergo large investment episodes; however, there is tremendous variation across plants in their capital accumulation patterns. This paper explores how the variation in capital accumulation patterns vary by observable plant and firm characteristics, and how large investment episodes at the plant level transmit into fluctuations in aggregate investment. (C) 1998 Academic Press