Financing Frictions and the Real Economy
Sunday, Jan. 8, 2017 1:00 PM – 3:00 PM
Sheraton Grand Chicago, Colorado
- Chair: David Matsa, Northwestern University
Can Paying Firms Quicker Affect Aggregate Employment?
AbstractIn 2011, the federal government accelerated payments to their small business contractors, spanning virtually every county and industry in the US. We study the impact of this reform on county-sector employment growth over the subsequent three years. Despite firms being paid just 15 days sooner, we find payroll increased 10 cents for each accelerated dollar, with two-thirds of the effect coming from an increase in new hires and the balance from an increase in earnings. Importantly, however, we document substantial crowding out of non-treated firms employment, particularly in counties with low rates of unemployment. Our results highlight an important channel through which financing constraints can be alleviated for small firms, but also emphasize the general-equilibrium effects of large-scale interventions, which can lead to a substantially lower net impact on aggregate outcomes.
Aggregate Effects of Collateral Constraints
AbstractThis paper provides a quantitative exploration of the aggregate effects of an important
source of financing friction, collateral constraints. We develop a general equilibrium model
of firm dynamics with collateral constraints and adjustment costs, which we structurally
estimate using administrative data on French firms. The model is estimated using the joint
firm-level dynamics of capital and labor observed following exogenous shocks to the value of
collateral. We find that welfare increases by 5.4% when collateral constraints are removed.
25% of these welfare gains come from an improved allocation of inputs across heterogenous
firms; 75% are derived from an aggregate increase in capital. Interestingly, removing collateral constraints has little effect on aggregate employment, as financially constrained firms tend to substitute labor for capital.
University of Chicago
Anthony A. DeFusco,
- G3 - Corporate Finance and Governance