Financial Frictions and Investment Dynamics in Multi-Plant Firms

Using confidential Census data on U.S. manufacturing plants, we document that most of the dispersion in investment rates across plants occurs within rms instead of across firms. Between- firm dispersion is almost acyclical, but within- rm dispersion is strongly procyclical. To investigate the role of rms in the allocation of capital in the economy, we build a multi-plant model of the rm with frictions at both levels of aggregation. We show that external nancing constraints at the level of the rm can have important implications for plant-level investment dynamics. Finally, we present empirical evidence supporting the predictions of the model.