Essays on Macroeconomics

Abstract

Productivity Uncertainty, Learning, and Firm Leverage: This paper studies the role of learning about firm productivity in accounting for the variation of firm leverage and capital growth rate with firm age. Using comprehensive firm-level data in China, I find average firm leverage increases then decreases with firm age. Also, I find that new entrants' capital stock grows significantly higher than that of incumbents. I analyze whether information frictions and learning, in addition to financial frictions, are important in rationalizing these two features in the data. My answer is: yes. In the theoretical part, I first present a model with financial frictions that arise from costly equity issuance and default risks in a full information environment. I then extend the model to include information frictions and learning where firms learn about their productivity through production. I calibrate both models to match salient features in the China data, including the difference in capital growth rate between new entrants and incumbents. I find that the model with learning accounts well for the hump-pattern of the age-leverage profile in the data, whereas the model with full information overpredicts the leverage of young firms. When parametrized to match the leverage-age pattern, the model with full information underestimates the capital growth rate of new entrants relative to the incumbents. Lastly I show in a counterfactual exercise that equity issuance costs are a key source of financial friction that shapes the hump-shaped age-leverage pattern in the model with learning.