Expansionary Investment Activities: Assessing Equipment and Buildings in Productivity

We study firm-level expansionary investment activities in both equipment and buildings—the so-called investment spikes. Our identification strategy decomposes firm investment spikes into three streams: a spike in equipment only, buildings only, or a simultaneous spike. Empirically, we find that the timing and size of investment in equipment and buildings are not independent. Firms conducting a simultaneous spike enhance firm scale more than in the case of a spike in equipment or buildings alone. Employment growth occurs when a firm builds structures. Investment in equipment affects the optimal input mix and high productivity in equipment and buildings provides investment timing signals. In low-tech sectors firm production growth depends on investment in buildings. In contrast, a necessary condition for firms in high-tech sectors to grow their production is investment in equipment.