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Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract
The empirical analysis of firms’ investment decisions has experienced renewed interest during recent years, mainly driven by new developments in the theory of investment. This new literature addresses two related issues: First, the empirical failure of earlier neoclassical investment models in explaining stylized facts of firms’ investment decisions, and second, the need to provide solid microfoundations for macroeconomic models in general. The resulting research program hence concentrates on models of firm investment which are both theoretically and empirically more satisfactory than the standard neoclassical framework. The ultimate goal is to better understand the dynamics of both disaggregate and aggregate investment in the presence of phenomena such as endogenous entry and exit decisions and non-standard constraints (irreversibilities, non-convex adjustment costs, or financial constraints). Hopefully, this research program will also result in a better understanding of the internal dynamics of the macroeconomy and its responses to exogenous shocks, be they real (technological) or nominal (monetary), in dynamic general equilibrium.
Joachim Winter

Chapter 2. Theory and empirics of investment: a selective review of the literature

Abstract
This chapter contains a review of the literature which forms the background for the empirical study presented in Chapter 4. I concentrate on the two major areas of recent research on firms’ investment decisions identified in the introduction: Recent developments in formulating and estimating models of firms’ “real” investment decisions (Section 2.1), and financial constraints that may affect firms’ investment (Section 2.2). As discussed in the introduction, the first area has recently experienced major theoretical advances which have not yet entered empirical practice, while in the second area, there has been much empirical research in the last decade, with many of the theoretical advances in the first literature having been largely ignored so far.
Joachim Winter

Chapter 3. A dynamic programming framework for the analysis of firm decisions

Abstract
In this chapter, I present a dynamic programming model designed for the empirical analysis of firm behavior under various non-standard constraints. The main purpose of the model is not to serve as a tool for the theoretical analysis of firms’ investment decisions, but to give empirical studies a solid foundation in recent theoretical advances in this field. Hence, the model is quite stylized in some respects (such as its focus on discrete decision variables). Its general structure, though, allows it to be readily adopted in empirical studies of firm behavior, using advanced structural estimation procedures that are firmly based on the underlying optimization model. The analysis starts from the observation that a firm’s market entry and market exit are endogenous events in a general model of firm behavior. In the model presented here, I do not analyze the determinants of entry and exit in an explicit market-interaction framework, but emphasize the endogeneity of the firm’s market exit decision in a model of investment behavior. In such a framework, market interactions are reflected implicitly in the firm’s exit rule; they enter via the effects of equilibrium output prices on the firm’s relevant state variables.
Joachim Winter

Chapter 4. Plant-level investment and exit decisions and firm-level financial status

Abstract
In this chapter, I review alternative measures of financial constraints at the firm level and discuss how such firm-level measures can be linked with plant-level data in the empirical analysis of firm investment under financial constraints. The empirical study presented in this chapter has three purposes. First, it shows how plant-level and firm-level data can (and as I will argue, should) be combined to develop a better understanding of how a firm’s financial situation influences both its investment and exit (i.e., plant closure or sell-off) decisions. Second, I use a new measure of a firm’s financial status, designed to alleviate some well-known drawbacks of static sample-split approaches used in much of the earlier literature. Third, the econometric analysis uses both reduced-form and structural approaches, and I illustrate how the results of the structural estimation exercise can be used in policy simulations.
Joachim Winter

Chapter 5. Concluding remarks

Abstract
The main purposes of this study were first, to develop a flexible empirical framework that allows to test the implications of different aspects of the more recent investment literature, and second, to present an empirical application that illustrates the advantages of this approach. The framework chosen was that of (discrete) Markov decision processes, for two main reasons. As discussed in Section 3.1, this framework is very flexible. It allows, for example, to incorporate various non-standard constraints into models of firm behavior, related to both “real” and “financial” aspects of investment decisions. Also, there are powerful methods available for structural econometric estimation of discrete decision processes; these were discussed in Section 3.2. These tools were put to work in an empirical model of firms’ investment and exit decisions in Section 3.3, and in Chapter 4, I presented an empirical application of this model (extended to allow for financial constraints).
Joachim Winter

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