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Working papers

"Small and Large Firms Over the Business Cycle," with Neil Mehrotra.
January 2020. Conditionally accepted, American Economic Review.

Abstract: This paper uses new confidential Census data to revisit the relationship between firm size, cyclicality, and financial frictions. First, we find that large firms (the top 1% by size) are less cyclically sensitive than the rest. Second, high and rising concentration implies that the higher cyclicality of the bottom 99% of firms only has a modest impact on aggregate fluctuations. Third, differences in cyclicality are not simply explained by financing, and in fact appear largely unrelated to proxies for financial strength. We instead provide evidence for an alternative mechanism based on the industry scope of the very largest firms.

"Rents and Intangible Capital: a Q+ framework," with Janice Eberly.
March 2020. Revise and resubmit (first round), Journal of Finance.
Abstract: In recent years, US investment has been lackluster, despite rising valuations. Key explanations include growing rents and growing intangibles. We propose and estimate a framework to quantify their roles. The gap between valuations --- reflected in average Q --- and investment --- reflected in marginal q --- can be decomposed into three terms: the value of installed intangibles; rents generated by physical capital; and an interaction term, measuring rents generated by intangibles. The intangible-related terms contribute significantly to the gap, particularly in fast-growing sectors. Our findings suggest care in a pure-rents interpretation, given the rising role of intangibles.

"Credit disintermediation and monetary policy."
January 2020. Prepared for the 2019 Jacques Polak Conference at the IMF.
Revise and resubmit (first round), IMF Economic Review.
Abstract: How does monetary policy affect corporate investment? This paper argues that the answer depends on how much firms rely on intermediated debt (loans), as opposed to arm’s length debt (bonds.) I study a model in which firms choose investment and the debt mix by trading off higher loan flexibility with the lower cost of bonds. Borrowing among bank-dependent firms responds less to monetary shocks than among bond-financed firms, while investment responds more. Moreover, bank-dependent firms tend to increase their reliance on banks following a tightening. I provide firm-level evidence consistent with these predictions. I also use the model to study how monetary pass-through changes as firms become less reliant on intermediated debt, as they appear to have in the data. .
Conference slides.
Older version, circulated under the title "Firm Investment and the Composition of Debt."

"Can the Cure Kill the Patient? Corporate Credit Interventions and Debt Overhang,"
with Fabrice Tourre. June 2020.
Abstract: The corporate credit support programs recently announced by the US Treasury and the Federal Reserve involve a trade-off: while they may help firms avoid liquidation during the crisis, they could also lead to higher leverage among survivors, slowing down investment and growth in the recovery. We study this trade-off in a structural model of investment, financing and default. We highlight two main findings. First, without disruptions to financial markets during the crisis, credit support programs have either no effects, or, if support is offered at below-market rates, a detrimental effect. Second, if there are disruptions to financial markets, credit support programs help avoid a large wave of liquidations, and have relatively little downside: most firms in the model take on too little incremental leverage through the program to generate a large amount of debt overhang in the recovery.

"Shocks and Technology Adoption: Evidence from Electronic Payment Systems," with
Apoorv Gupta and Filippo Mezzanotti.
March 2020.
Abstract: The network-based nature of many fintech products implies that their adoption is subject to coordination frictions. We provide evidence on the quantitative importance of these frictions by studying data from the largest provider of fintech payments in India following the 2016 demonetization. Consistent with a dynamic technology adoption model with externalities, we show that both the size and adoption rate of the platform increased persistently in response to the temporary cash contraction. Estimates of the model suggest that 60% of the six-month response was driven by externalities. With externalities, temporary interventions can thus lead to persistent shifts in adoption. However, we also highlight an important limitation of this logic: because externalities create state-dependence, temporary interventions can also exacerbate initial differences in adoption.

"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.

Refereed publications

"On the Effects of Restricting Short-Term Investment," with Ian Dew-Becker and Charles
Review of Financial Studies, May 2019.

Abstract: We study the effects of policies proposed for addressing “short-termism” in financial markets. We examine a noisy rational expectations model in which the exposures of investors and their information about fundamentals endogenously vary across horizons. In this environment, taxing or outlawing short-term investment has zero effect on the information in prices about long-term fundamentals. However, such a policy reduces the profits and utility of short- and long-term investors. Limiting the release of short-term information helps long-term investors (an objective of some policymakers) at the expense of short-term investors, but it also makes prices less informative and increases costs of speculation.
Supplementary material: Online appendix.

"Aggregate Implications of Corporate Debt Choices."
Review of Economic Studies, October 2017.
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.
Supplementary material: Online appendix; replication material.

"What Do Inventories Tell Us About News-Driven Business Cycles?," with Hyunseung Oh.
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.
Supplementary material: Online appendix; replication material; older version of the paper;
older version of the appendix.

Non-refereed publications

"Understanding Weak Capital Investment: the Role of Market Concentration
and Intangibles,"
with Janice Eberly; prepared for the 2018 Jackson Hole symposium.
May 2019. Link to published version.

Abstract: We document that the rise of factors such as software, intellectual property, brand, and innovative business processes, collectively known as “intangible capital,” can explain much of the weakness in physical capital investment since 2000. Moreover, intangibles have distinct economic features compared to physical capital. For example, they are scalable (e.g., software) though some also have legal protections (e.g., patents or copyrights). These characteristics may have enabled the rise in industry concentration over the last two decades. Indeed, we show that the rise in intangibles is driven by industry leaders and coincides with increases in their market share and hence, rising industry concentration. Moreover, intangibles are associated with at least two drivers of rising concentration: market power and productivity gains. Productivity gains derived from intangibles are strongest in the Consumer sector, while market power derived from intangibles is strongest in the Healthcare sector. These shifts have important policy implications, since intangible capital is less interest-sensitive and less collateralizable than physical capital, potentially weakening traditional transmission mechanisms. However, these shifts also create opportunities for policy innovation around new market mechanisms for intangible capital.
Supplementary material: Online appendix; replication material.

"Intangibles, Investment and Efficiency," with Janice Eberly.
American Economic Review, Papers and Proceedings, May 2018.
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.
Supplementary material: Online appendix; replication material.


"Financing Corporate Growth," by Frank and Sanati. Slides; replication material.

"How EU Markets Became More Competitive Than US Markets: A Study of Institutional Drift," by Gutierrez and Philippon. Slides; replication material.

"The Rise of Star Firms: Intangible Capital and Competition," by Ayyagari, Demirguc-Kunt and Maksimovic. Slides; replication material.

"Time Inconsistency and Financial Covenants," by Xiang. Slides.

"Q: Risks, Rents or Growth?," by Corhay, Kung and Schmid. Slides.

"News Shocks and Asset Prices," by Bretscher, Malkhozov and Tamoni. Slides.

"Borrowing to Save and Investment Dynamics," by Xiao. Slides.

"Leverage Over the Life-Cycle and Implications for Firm Growth and Shock Responsiveness," by Dinlersoz, Kalemli-Ozcan, Hyatt and Penciakova. Slides; replication material.

"The Finance-Uncertainty Multiplier," by Alfaro, Bloom and Lin. Slides; replication material.

"Demand Disagreement," by Heyerdahl-Larsen and Illedistch. Slides; replication material.

"The Interplay Between Financial Conditions and Monetary Policy Shocks," by Bassetto, Benzoni and Serrao. Slides; replication material.