Finance, Managerial Inputs, and Misallocation
American Economic Review: Insights
no. 3, September 2023
In standard macrofinance models, financial constraints mainly affect small or young firms but not large or old ones due to the self-financing mechanism, and the dispersion of marginal revenue product of capital (MRPK) of a firm cohort is less persistent than in the data. We extend a standard model by allowing firms to hire managers, and large firms hire disproportionately more managers, consistent with data. In our model, financial constraints and the dispersion of MRPK persist, and even large firms are likely to be constrained. The productivity loss from financial frictions is also substantially amplified.
Chen, Chaoran, Ashique Habib, and Xiaodong Zhu.
"Finance, Managerial Inputs, and Misallocation."
American Economic Review: Insights,
Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
Intertemporal Firm Choice: Investment, Capacity, and Financing
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Firm Performance: Size, Diversification, and Scope
Business Administration: General
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Socialist Enterprises and Their Transitions