Investment Activity and the Exit Decision

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Abstract
Using plant-level data from the U.S. steel industry, the paper tests and finds support for the hypothesis that firms in a contradicting industry first disinvest from, and then close, their high-cost plants. An investment decision model is estimated using a panel data set composed of the major replacement investments made in 43 steel plants during the years 1960-1981. The results indicate that the firms disinvested from those plants least likely to remain profitable in an environment of strong competition from imports and minimills, and stagnating domestic demand.

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