The stagnation of investments and its causes have attracted great attention in the recent economic debate. In this paper we show that the flattening of the capital formation rate at the firm level is not due to lower average propensity to invest. Rather, it is the result of growing heterogeneity of choices among firms. While a subset of firms is oriented towards increasing investments, another group substantially divest. The result is a polarization of conducts that tend to cancel each other out, resulting in a flattening of aggregate investment. We argue that this asymmetry in firm’s decisions depends on two main factors. The first one is the diversity of corporate strategies, which firms have developed in the past. The second driver is managerial discretion, that play an important role in the adoption of specific investment / divestment trajectories when faced with a recession. The results of our empirical analysis provide strong supports for our hypotheses: after controlling for contextual and firm-specific structural, financial and demographic variables, corporate strategies and managerial discretion in the allocation of liquid assets explain large part of the heterogeneity in investment decisions during the recession. Policy implications are discussed.

With A. Arrighetti. Economics Department WP No. 2021-EP01, University of Parma