Why is U.S. corporate investment not more robust?

Here is an excellent FT survey article on that question, by Robin Harding.  It may be gated for many of you, in any case this part is worth reproducing:

But perhaps the most remarkable result comes from newly available data on private companies studied by Alexander Ljungqvist and colleagues at Harvard and New York University. They find that, keeping company size and industry constant, private US companies invest nearly twice as much as those listed on the stock market: 6.8 per cent of total assets versus just 3.7 per cent.

Private companies are four times more responsive to new investment opportunities and, when a private company goes public, it changes its behaviour.

Mr Ljungqvist says he has not examined the effect of this difference on overall investment in the economy. Given the size of the S&P 500, however, investment might be percentage points of GDP higher if its members invested like private companies.

A few other points:

1. How non-residential investment looks depends a great deal on whether you consider the gross or net figure.  The net figure is much lower because computer equipment depreciates quite rapidly.

2. We may be undercounting intangible investment, as discussed in the article.

3. Amazon is one company which invests a great deal, yet it is not obvious they are making profits from such investments.

4. Apple is constrained in its investments, and for a good while has been insanely profitable.  Of course this may not last so very much longer.

5. Paul Krugman discusses monopoly rents and investment here.

The full article is here, I hope you can read it, high quality throughout.


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