Investmentless Growth: An Empirical Investigation

We analyze private xed investment in the U.S. over the past 30 years. We show that investment is weak relative to measures of pro tability and valuation particularly Tobin's Q, and that this weakness starts in the early 2000's. There are two broad categories of explanations: theories that predict low investment along with low Q, and theories that predict low investment despite high Q. We argue that the data does not support the rst category, and we focus on the second one. We use industry-level and rm-level data to test whether under-investment relative to Q is driven by (i) nancial frictions, (ii) changes in the nature and/or localization of investment (due to the rise of intangibles, globalization, etc), (iii) decreased competition (due to technology, regulation or common ownership), or (iv) tightened governance and/or increased short-termism. We do not nd support for theories based on risk premia, nancial constraints, safe asset scarcity, or regulation. We nd some support for globalization; and strong support for the intangibles, competition and short-termism/governance hypotheses. We estimate that the rise of intangibles explains 25-35% of the drop in investment; while Concentration and Governance explain the rest. Industries with more concentration and more common ownership invest less, even after controlling for current market conditions and intangibles. Within each industryyear, the investment gap is driven by rms owned by quasi-indexers and located in industries with more concentration and more common ownership. These rms return a disproportionate amount of free cash ows to shareholders. Lastly, we show that standard growth-accounting decompositions may not be able to identify the rise in markups. ∗We are grateful to Bob Hall, Janice Eberly, Olivier Blanchard, Toni Whited, René Stulz, Martin Schmalz, Boyan Jovanovic, Tano Santos, Charles Calomiris, Glenn Hubbard, Holger Mueller, Alexis Savov, Philipp Schnabl, Ralph Koijen, Ricardo Caballero, Emmanuel Farhi, Viral Acharya, and seminar participants at Columbia University and New York University for stimulating discussions †New York University ‡New York University, CEPR and NBER