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Nicolas Crouzet

Working papers

"Small and Large Firms over the Business Cycle," with Neil Mehrotra.
January 2018.

Abstract: Drawing on a new, confidential Census Bureau dataset of financial statements of a representative sample of 80000 manufacturing firms from 1977 to 2014, we provide new evidence on the link between size, cyclicality, and financial frictions. First, we only find evidence of lower cyclicality among the very largest firms (the top 1% by size). Second, due to high and rising concentration of sales and investment, the lower sensitivity of the top 1% firms dominates the behavior of aggregate fluctuations. Third, we show that this differential sensitivity does not appear to be driven by financial frictions. The higher sensitivity of the bottom 99% does not disappear after controlling for measures of financial strength, is not statistically significant after identified monetary policy shocks, and does not appear in debt financing flows. Evidence from 3-digit industries suggests a non-financial explanation: the largest 1% of firms are less sensitive due to a more diversified customer base.

"Multi-Frequency Trade," with Ian Dew-Becker and Charles Nathanson.
September 2017. (Revise and resubmit, Journal of Financial Economics).
Abstract: We develop a noisy rational expectations model of financial trade featuring investors who acquire information and trade on variation in fundamentals at a range of different frequencies. While all tade happens on date 0, the model generates predictions for how investors' exposures to fundamentals will subsequently vary over time. In the model, restricting traders from following strategies that yield exposures that vary at particular frequencies lowers the efficiency of prices at those frequencies but has no meaningful effect elsewhere; if anything, it increases efficiency. In a particular equilibrium of the model, investors specialize into following strategies that resemble frequency-specific investment. Investors following the different strategies coexist, trade with each other, and make money from each other. While not fully dynamically realistic, the model is highly tractable and heuristically matches numerous basic features of financial markets: investors endogenously specialize into strategies distinguished by frequency; volume is disproportionately driven by high-frequency strategies; and the portfolio holdings of informed investors forecast returns at the same frequencies as those at which they trade.

"Default, debt maturity, and investment dynamics."
December 2017.
Abstract: This paper studies the optimal maturity structure of debt in a standard investment model. Firms operate long-term assets, and may want to use long-term debt to reduce short-term refinancing risk. However, long-term financing may lead to debt overhang and distort investment. The maturity structure of debt should trade off these two forces. In numerical calibrations of the model, however, debt maturity is much shorter than observed among US firms. Firms shun long-term debt because debt overhang costs are large, and the benefits from long-term financing small. Potential reconciliations of the model with the data include investment irreversibility and debt covenants.

"Firm Investment and the Composition of Debt."
February 2015.
Abstract: This paper analyzes optimal debt structure when firms simultaneously choose the size of the project to be financed (investment), and the composition of debt between intermediated debt (bank loans) and arm's length debt (bonds). The key distinction between the two forms of debt is that, when liquidation looms, intermediated debt is easier to restructure. Absent deadweight losses in liquidation, debt structure is irrelevant to the investment choices of the entrepreneur. With liquidation losses, I show that investment is financed by a combination of bank and market finance so long as 1) banks have higher intermediation costs than markets and 2) internal resources of entrepreneurs are sufficiently small. The share of bank finance in total investment then depends non-monotonically on internal resources: firms with very limited internal resources are increasingly reliant on bank finance to expand investment, while medium-sized firms reduce the contribution of bank finance as their internal resources increase. The model's predictions finds support in cross-sectional data on the debt structure of US manufacturing firms.

Refereed publications

"Aggregate Implications of Corporate Debt Choices."
Online appendix
June 2017 (Forthcoming, Review of Economic Studies).

Abstract: This paper studies the transmission of financial shocks in a model where corporeate credit is intermediated via both banks and bond markets. In choosing between bank and bond financing, firms trade off the greater flexibility of banks in case of financial distress against the lower marginal costs of large bond issuances. I find that, in response to a contraction in bank credit supply, aggregate bond issuance increases, but not enough to avoid a decline in aggregate borrowing and investment. Retiring bank loans while keeping total leverage constant would expose firms to a larger risk of financial distress; they offset this by reducing total borrowing. A calibration of the model to the Great Recession indicates that this precautionary mechanism can account for one-third of the total decline in investment by firms with access to public debt markets.

"What Do Inventories Tell Us About News-Driven Business Cycles?," with Hyunseung Oh.
Online appendix
Journal of Monetary Economics, May 2016.
Abstract: There is widespread disagreement regarding the quantitative contribution of news shocks to business-cycle fluctuations. This paper provides a simple identifying restriction, based on inventory dynamics, that tightly pins down the contribution of news shocks to business-cycle volatility. We show that finished-good inventories must fall when there is an increase in consumption and investment induced by news shocks. A structural VAR with these sign restrictions indicates that news shocks account for at most 20 percent of output volatility. Since inventories comove positively with consumption and investment in the data, shocks that generate negative comovement cannot account for the bulk of fluctuations.
Older version of the paper ; older version of the appendix.

Non-refereed publications

"Intangibles, Investment and Efficiency," with Janice Eberly.
Online appendix; replication material.
January 2018. (Forthcoming, American Economic Review, Papers and Proceedings.)

Abstract: Recent work on macroeconomic trends has emphasized slowing capital investment, but strong business profits and valuations. The retail sector is a microcosm of these trends, and accounts for a large share of the increase in aggregate business concentration also observed in recent years. We show that, in that sector, weak investment and rising concentration are associated with rising productivity. Additionally, stronger productivity is correlated with intangible investment, both over time and across sub-industries. Intangible investment may thus provide a joint explanation for rising productivity, weak capital investment and increasing industry concentration.