Essays in Economics

In Chapter 1, I show that the secular decline in asset turnover has been experienced in all sec tors. Empirical evidence points to a decline in investment rate in the last fifteen years. Starting from this finding, in this work, I use COMPUSTAT firm-level data in order to connect three main facts that despite being widely discussed in literature, still remain puzzling: low invest ment rates, historically high Tobin’s Q and increasing liquidity ratio are connected through asset turnover, a variable that is related both to future investment profitability and to actual precautionary saving decisions. I show that the decline in asset turnover improves investment rate predictions when added to standard empirical specifications. I further analyze investment dynamics over time, within sectors and firm’s position in the dis tribution of cash. I find that the relative turnover realization (being above or below sectoral mean) is a factor that plays a crucial role in shaping both investment and saving dynamics, in dependently of whether the company is a small or a big saver. Companies that today experience a drop in asset turnover have a positive interaction term between turnover and liquidity ratios: tomorrow’s investment will increase proportionally with the firm’s level of savings. Companies with -above the mean- realizations will postpone today’s investment: the higher their previous period liquidity ratios, the lower will be current investment. Another interpretation stems from these results: the decline in asset turnover can be seen as the signal of the production function featuring aggregate declining returns to scale, another fact that would drive companies to prevent capital overaccumulation, favoring savings over invest ment. In Chapter 2, I refer to recent literature that has pointed out the increase in market concen tration in almost all US industries, from financial to retail sector. In this work, using detailed scanner data on US supermarkets, I acknowledge that the increase in concentration is con firmed also in our micro-level analysis. We explore the different channels that might contribute to persistent changes in market structure focusing on firms entry-exit dynamics and firms’ het erogeneous innovation effort, both in its vertical and horizontal dimension. Using a simple decomposition of the Herfindal Hirschman Index, I found that aggregate dynamics are driven by incumbent firms which are also the ones that experience the highest rate of vertical inno vation. A deep analysis of competition dynamics shows that a Schumpeterian effect is in act, especially among non leaders firms, both in sectors in which there are two leaders competing (neck-to-neck) and in sectors in which only one leader dominates the market (leader-follower).