Browsing by Subject "Financial frictions"

Now showing 1 - 3 of 3
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    Essays in intangible capital reallocation, mergers and acquisitions and financial frictions
    (2013-08) Barlas, Mirza Jahiz
    This dissertation consists of three essays. In the first essay, I document novel empirical facts at the aggregate and the firm level on the reallocation of tangible and intangible capital. First, at the aggregate level, I interpret firm physical capital sales data as tangible capital reallocation and data on mergers and acquisitions (M\&As) data on intangible capital reallocation. I document the cyclicality patterns of the reallocation of both forms of capital. I show that in recessions, the correlation of intangible capital reallocation with GDP is greater than the correlation of tangible capital reallocation with GDP but in booms, the correlation of both types of capital reallocation with GDP are the same. I interpret this result as suggestive evidence that tangible capital serves a collateral motive which intangible capital does not since in recessions, firms choose to reallocate intangible capital over tangible. I also show that in the last decade the correlation of tangible capital reallocation with GDP has decreased to a quarter of its 1980s level. However, the correlation of intangible capital reallocation with GDP has remained the same in the last decade as in the 1980s. This result indicates that tangible capital collateralizability has become more important over time. Both these results show the distinctive cyclicality of the reallocation of both forms of capital. Second, at the firm level, I use data on M\&As to document the effects of capital reallocation on firm productivity and the importance of including intangible capital when evaluating the effects of capital reallocation. I document that after an M\&A, acquirer's structurally estimated productivity increases on average 4\% annually, and this productivity is 45\% higher when intangible capital is excluded from the estimation. This serves as evidence that capital reallocation is beneficial for the acquirers and intangible capital reallocation can account for measured productivity gains. In the second essay, I contribute to the recent macroeconomics literature on financial frictions at a theoretical and a quantitative level. This literature attempts to quantify the magnitude of output fluctuations attributable to financial market disturbances through frictions on the reallocation of capital among firms. At the theoretical level, I build a model in which heterogeneous firms use two forms of capital, tangible and intangible capital, to produce output. These firms are subject to idiosyncratic productivity shocks. I assume that only tangible capital is collateralizable and that both forms of capital are reallocatable across firms post-shock. I show that a financial market disturbance in the form of a tighter collateral constraint leads to a decline in output in the model with both forms of capital that is 2.8 times greater than the decline in output in the model with only tangible capital, in the sense, allowing for intangible capital magnifies the effects of financial market disturbances on output. A tighter collateral constraint causes tangible capital reallocation to decline sharply because firms are more constrained and leads to a fall in intangible capital reallocation because both types of capital are complementary in production. In the third essay, I present novel empirical observations about mergers and acquisitions. I show that acquirer productivity increases after an merger or an acquisition and that these the ex-post productivity gains are an inverse function of the productivity difference between the acquirer and target at the time of the merger or an acquisition. I also note that the higher the ex-post productivity gains for an acquirer, the bigger the decline in acquirer announcement returns and smaller the increase in target announcement returns. Lastly, I show that the executive compensation increase does not account for most of the ex-post productivity gains. These findings show that gains after a merger or an acquisition are not accruing towards shareholders or executives. Thus, I find suggestive evidence that labor obtains the most benefit associated with a merger or an acquisition in the form of increased wages and benefits.
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    Essays on financial frictions and macroeconomics.
    (2012-07) Hur, Sewon
    This dissertation consists of three essays. The first essay analyzes the effects of the Great Recession on different generations. While older generations have suffered the largest decline in wealth due to the collapse in asset prices, younger generations have suffered the largest decline in labor income. Potentially, the young may benefit from the purchase of cheaper assets, especially if they have access to credit. To analyze the impact of these channels, I construct an overlapping generations model with borrowing constraints in which households choose a portfolio over housing as well as risk-free and risky financial assets. Shocks to labor efficiency and uncertainty regarding the return on risky assets generate a recession with a drop in asset prices and cross-sectional changes in consumption, investment, and wealth that are consistent with the recent recession. In particular, younger generations experience large declines in nondurable consumption and housing investment, a fact that is supported by the data. Overall, the young suffer the largest welfare losses, equivalent to a 5 percent reduction in lifetime consumption. In the second essay, Illenin Kondo and I study the foreign reserves accumulation of emerging economies. Emerging economies, unlike advanced economies, have accumulated large foreign reserve holdings. We argue that this policy is an optimal response to an increase in foreign debt rollover risk. In our model, reserves play a crucial role in reducing debt rollover crises ("sudden stops"), akin to the role of bank reserves in preventing bank runs. An unexpected increase in rollover risk leads to a global rise in sudden stops, prompting emerging economies to update their priors about the risk they face. We show that a global increase in the rollover risk faced by emerging economies explains the outburst of sudden stops in the late 1990s, the subsequent increase in foreign reserves holdings, and the salient resilience of these countries to sudden stops ever since. In the third essay, Jose Asturias and I examine the role of entry barriers on firm entry and exit, aggregate productivity and output. Using cross-country data, we document that gross domestic product (GDP) per capita is positively correlated with firm entry rates, and that firm entry rates are positively correlated with barriers to firm entry. We develop a model, based on Asturias, Hur, Kehoe, and Ruhl (2012) where aggregate productivity growth is driven by the endogenous entry of productive firms and the endogenous exit of unproductive firms. Differences in entry policy lead to different levels of entry and output, while all economies grow at a balanced growth path with identical growth rates. In the quantitative extension, we show that reforms to entry costs can generate transition paths that resemble that of high-growth emerging economies.
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    Essays on macroeconomics and finance
    (2017-05) Cai, Zhifeng
    This dissertation consists of two parts. The unifying scheme is to advance our understanding of the nature of financial markets, in particular their macroeconomic implications. In the first essay, I focus on the microstructure of the financial market. In particular, I study how investors' information choices interact over time, and how does this dynamic aspect change the nature of information acquisition in financial markets? In an infinite-horizon framework in which a stock's dividend has a persistent component (stock fundamental), and overlapping generations of investors choose whether to acquire costly information about this time-varying component, I illustrate that information is like bubble in that its value is forward-looking: current investors have more incentives to acquire information if more investors get informed in the future, as the future resale stock price becomes more sensitive to the fundamental. This dynamic complementarity in information acquisition leads to multiple stationary rational-expectation equilibria, despite presence of the classic static substitutability force as in Grossman and Stiglitz (1980). The dynamic complementarity in information acquisition can be most prominent with intermediate persistence of stock fundamental, or when the public signal is imprecise. The second essay develops and quantifies a financial theory to account for the macroeconomic phenomenon that the recovery from the Great Recession was much slower than recoveries from other postwar recessions . I propose a standard neoclassical model enriched with a land sector. Land can be used either as a consumption good for the household or as collateral for the firm to finance working capital. The model exhibits two locally stable steady states: one with high capital and high land price, and the other with low capital and low land price. The multiplicity of steady states allows for asymmetric responses to small and large shocks. Large adverse shocks have a much more persistent impact, as they trigger transitions from one steady state to the other. A calibrated version of the model displays significantly delayed recovery upon large adverse shocks and is consistent with various features of the Great Recession and its aftermath.