Academic Publications
"Synergizing Ventures," forthcoming in Journal of Economic Dynamics and Control.
with Ufuk Akcigit, Emin Dinlersoz, and Jeremy Greenwood
Abstract: Venture capital and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and patenting levels than non-VC backed ones. Venture capitalists increase a startup's likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experience venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the degree of assortative matching between startups and financiers, and the taxation of VC-backed startups matter significantly for growth.
Coverage:
"Business Formation: A Tale of Two Recessions," Prepared for AER: Papers & Proceedings, May 2021.
with Emin Dinlersoz, Timothy Dunne, and John Haltiwanger.
Note: Papers & Proceedings volumes are not peer reviewed.
Abstract: The trajectory of new business applications and transitions to employer businesses differ markedly during the Great Recession and COVID-19 Recession. Both applications and transitions to employer startups decreased slowly but persistently in the post-Lehman period of the Great Recession. In contrast, during COVID-19 new applications initially declined but have since sharply rebounded, resulting in a surge in applications during 2020. Projected transitions to employer businesses also rise, but this is dampened by a change in the composition of applications towards applications that are more likely to remain nonemployers.
"COVID-19 and SMEs A 2021 "Time Bomb"?" Prepared for AER: Papers & Proceedings, May 2021.
with Pierre Olivier Gournichas, Sebnem Kalemli-Ozcan, and Nick Sander
Note: Papers & Proceedings volumes are not peer reviewed.
Abstract: This paper assesses the prospects of a 2021 time bomb in SME failures triggered by the generous support policies enacted during the 2020 COVID-19 crisis. Policies implemented in 2020, on their own, do not create a 2021 ``time-bomb'' for SMEs. Rather, business failures and policy costs remain modest. By contrast, credit contraction poses significant risk. Such a contraction would disproportionately impact firms that could survive COVID-19 in 2020 without fiscal support. Even in that scenario, most failures would not arise from excessively generous 2020 policies, but rather from the contraction of credit to the corporate sector.
with Ufuk Akcigit, Emin Dinlersoz, and Jeremy Greenwood
Abstract: Venture capital and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and patenting levels than non-VC backed ones. Venture capitalists increase a startup's likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experience venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the degree of assortative matching between startups and financiers, and the taxation of VC-backed startups matter significantly for growth.
Coverage:
"Business Formation: A Tale of Two Recessions," Prepared for AER: Papers & Proceedings, May 2021.
with Emin Dinlersoz, Timothy Dunne, and John Haltiwanger.
Note: Papers & Proceedings volumes are not peer reviewed.
Abstract: The trajectory of new business applications and transitions to employer businesses differ markedly during the Great Recession and COVID-19 Recession. Both applications and transitions to employer startups decreased slowly but persistently in the post-Lehman period of the Great Recession. In contrast, during COVID-19 new applications initially declined but have since sharply rebounded, resulting in a surge in applications during 2020. Projected transitions to employer businesses also rise, but this is dampened by a change in the composition of applications towards applications that are more likely to remain nonemployers.
"COVID-19 and SMEs A 2021 "Time Bomb"?" Prepared for AER: Papers & Proceedings, May 2021.
with Pierre Olivier Gournichas, Sebnem Kalemli-Ozcan, and Nick Sander
Note: Papers & Proceedings volumes are not peer reviewed.
Abstract: This paper assesses the prospects of a 2021 time bomb in SME failures triggered by the generous support policies enacted during the 2020 COVID-19 crisis. Policies implemented in 2020, on their own, do not create a 2021 ``time-bomb'' for SMEs. Rather, business failures and policy costs remain modest. By contrast, credit contraction poses significant risk. Such a contraction would disproportionately impact firms that could survive COVID-19 in 2020 without fiscal support. Even in that scenario, most failures would not arise from excessively generous 2020 policies, but rather from the contraction of credit to the corporate sector.
Working Papers
"Estimating SME Failures in Real Time: An Application to the COVID-19 Crisis", January 2022.
with Pierre Olivier Gournichas, Sebnem Kalemli-Ozcan, and Nick Sander
(Submitted; Draft previously circulated under the title: COVID-19 and SME Failures)
Abstract: We develop a flexible framework for tracking business failures during economic downturns. Our framework combines firm-level data with a model of cost-minimization where firms react to a rich set of shocks and fail if illiquid. After verifying that our methodology approximates past official failure rates, we apply it to the COVID-19 crisis in 11 countries. Absent government support, SME failures would have increased by 6.15 percentage points, representing 3.15 percent of employment. We find little threat to financial stability. Commonly implemented COVID-19 policies saved firms but were costly because funds were directed to firms that could survive without support.
Coverage:
"Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier," September 2021.
with Joonkyu Choi and Felipe Saffie
Abstract: We build a unique database linking information on campaign contributions, state legislative elections, firm characteristics, and allocation of American Recovery and Reinvestment Act (ARRA) grants. Using exogenous variation in political connections based on ex-post close elections, we show that politically connected firms are 38 percent more likely to secure a grant. Based on an instrumental variable approach, we establish that a one standard deviation increase in the share of politically connected ARRA spending lowers the jobs multiplier by 7.1 jobs. Therefore, the impact of fiscal stimulus is not only determined by how much is spent, but also by how the expenditure is allocated across recipients.
"Fiscal Policy in the Age of COVID: Does it `Get in All of the Cracks?'," NBER Working Paper No. 29293, September 2021.
with Pierre Olivier Gournichas, Sebnem Kalemli-Ozcan, and Nick Sander
Abstract: We study the effects of fiscal policy in response to the COVID-19 pandemic at the firm, sector, country and global level. First, we estimate the impact of COVID-19 and policy responses on small and medium sized enterprise (SME) business failures. We combine firm-level financial data from 50 sectors in 27 countries, a detailed I-O network, real-time data on lockdown policies and mobility patterns, and a rich model of firm behavior that allows for several dimensions of heterogeneity. We find: (a) Absent government support, the failure rate of SMEs would have increased by 9 percentage points, significantly more so in emerging market economies (EMs). With policy support it only increased by 4.3 percentage points, and even decreased in advanced economies (AEs). (b) Fiscal policy was poorly targeted: most of the funds disbursed went to firms who did not need it. (c) Nevertheless, we find little evidence of the policy merely postponing mass business failures or creating many ‘zombie’ firms: failure rates rise only slightly in 2021 once policy support is removed. Next, we build a tractable global intertemporal general equilibrium I-O model with fiscal policy. We calibrate the model to 64 countries and 36 sectors. We find that: (d) a sizable share of the global economy is demand-constrained under COVID-19, especially so in EMs. (e) Globally, fiscal policy helped offset about 8% of the downturn in COVID, with a low ‘traditional’ fiscal multiplier. Yet it significantly reduced the share of demand-constrained sectors, preserving employment in these sectors. (f) Fiscal policy exerted small and negative spillovers to output in other countries but positive spillovers on employment. (g) A two-speed recovery would put significant upwards pressure on global interest rates which imposes an additional headwind on the EM recovery.(h) Corporate and sovereign spreads rise when global rates increase, suggesting that EM may face challenging external funding conditions as AEs economies normalize.
"Leverage over the Firm Life-Cycle, Firm Growth, and Aggregate Fluctuations," NBER Working Paper No. 25226, September 2019.
with Emin Dinlersoz, Henry Hyatt, and Sebnem Kalemli-Ozcan
Abstract: We study the leverage of U.S. firms over their life-cycles, and the connection between firm leverage, firm growth, and aggregate shocks. We construct a new data set that combines private and public firms' balance sheets with firm-level data from the U.S. Census Bureau's Longitudinal Business Database (LBD) for the period 2005-2012. Public and private firms exhibit different leverage dynamics over their life-cycles. Firm and and size are systematically related to leverage for private firms, but not for public firms. We show that private firms, but not public ones, deleveraged during the Great Recession, and that this deleveraging is associated with a reduction in firm revenue and employment growth. Exploiting sectoral variation, we find that the leverage dynamics of firms is also relevant for aggregate fluctuations.
Coverage:
"Diversification and Risky Innovation among U.S. Firms," December 2018.
Abstract: Risky innovation contributes disproportionately to aggregate growth. I make use of a unique data set that combines ownership data for a sample of U.S. firms with the Census Bureau's Longitudinal Business Database, patenting data, and Compustat to study whether firms held by owners with more diversified business interests engage in riskier innovation. I document that higher owner diversification leads to riskier innovation within firms over time, after holding constant firm life cycle characteristics, access to finance, other features of the firm ownership structure, and time invariant firm and owner characteristics. Consistent with the risk-sharing channel, the results are strongest among firms held by owners who are most exposed to firm-specific risk. The results are also found at the sector level, with sectors characterized by higher diversification exhibiting higher risky innovation, revenue, and growth. I present a stylized model that rationalizes these empirical findings.
with Pierre Olivier Gournichas, Sebnem Kalemli-Ozcan, and Nick Sander
(Submitted; Draft previously circulated under the title: COVID-19 and SME Failures)
Abstract: We develop a flexible framework for tracking business failures during economic downturns. Our framework combines firm-level data with a model of cost-minimization where firms react to a rich set of shocks and fail if illiquid. After verifying that our methodology approximates past official failure rates, we apply it to the COVID-19 crisis in 11 countries. Absent government support, SME failures would have increased by 6.15 percentage points, representing 3.15 percent of employment. We find little threat to financial stability. Commonly implemented COVID-19 policies saved firms but were costly because funds were directed to firms that could survive without support.
Coverage:
"Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier," September 2021.
with Joonkyu Choi and Felipe Saffie
Abstract: We build a unique database linking information on campaign contributions, state legislative elections, firm characteristics, and allocation of American Recovery and Reinvestment Act (ARRA) grants. Using exogenous variation in political connections based on ex-post close elections, we show that politically connected firms are 38 percent more likely to secure a grant. Based on an instrumental variable approach, we establish that a one standard deviation increase in the share of politically connected ARRA spending lowers the jobs multiplier by 7.1 jobs. Therefore, the impact of fiscal stimulus is not only determined by how much is spent, but also by how the expenditure is allocated across recipients.
"Fiscal Policy in the Age of COVID: Does it `Get in All of the Cracks?'," NBER Working Paper No. 29293, September 2021.
with Pierre Olivier Gournichas, Sebnem Kalemli-Ozcan, and Nick Sander
Abstract: We study the effects of fiscal policy in response to the COVID-19 pandemic at the firm, sector, country and global level. First, we estimate the impact of COVID-19 and policy responses on small and medium sized enterprise (SME) business failures. We combine firm-level financial data from 50 sectors in 27 countries, a detailed I-O network, real-time data on lockdown policies and mobility patterns, and a rich model of firm behavior that allows for several dimensions of heterogeneity. We find: (a) Absent government support, the failure rate of SMEs would have increased by 9 percentage points, significantly more so in emerging market economies (EMs). With policy support it only increased by 4.3 percentage points, and even decreased in advanced economies (AEs). (b) Fiscal policy was poorly targeted: most of the funds disbursed went to firms who did not need it. (c) Nevertheless, we find little evidence of the policy merely postponing mass business failures or creating many ‘zombie’ firms: failure rates rise only slightly in 2021 once policy support is removed. Next, we build a tractable global intertemporal general equilibrium I-O model with fiscal policy. We calibrate the model to 64 countries and 36 sectors. We find that: (d) a sizable share of the global economy is demand-constrained under COVID-19, especially so in EMs. (e) Globally, fiscal policy helped offset about 8% of the downturn in COVID, with a low ‘traditional’ fiscal multiplier. Yet it significantly reduced the share of demand-constrained sectors, preserving employment in these sectors. (f) Fiscal policy exerted small and negative spillovers to output in other countries but positive spillovers on employment. (g) A two-speed recovery would put significant upwards pressure on global interest rates which imposes an additional headwind on the EM recovery.(h) Corporate and sovereign spreads rise when global rates increase, suggesting that EM may face challenging external funding conditions as AEs economies normalize.
"Leverage over the Firm Life-Cycle, Firm Growth, and Aggregate Fluctuations," NBER Working Paper No. 25226, September 2019.
with Emin Dinlersoz, Henry Hyatt, and Sebnem Kalemli-Ozcan
Abstract: We study the leverage of U.S. firms over their life-cycles, and the connection between firm leverage, firm growth, and aggregate shocks. We construct a new data set that combines private and public firms' balance sheets with firm-level data from the U.S. Census Bureau's Longitudinal Business Database (LBD) for the period 2005-2012. Public and private firms exhibit different leverage dynamics over their life-cycles. Firm and and size are systematically related to leverage for private firms, but not for public firms. We show that private firms, but not public ones, deleveraged during the Great Recession, and that this deleveraging is associated with a reduction in firm revenue and employment growth. Exploiting sectoral variation, we find that the leverage dynamics of firms is also relevant for aggregate fluctuations.
Coverage:
"Diversification and Risky Innovation among U.S. Firms," December 2018.
Abstract: Risky innovation contributes disproportionately to aggregate growth. I make use of a unique data set that combines ownership data for a sample of U.S. firms with the Census Bureau's Longitudinal Business Database, patenting data, and Compustat to study whether firms held by owners with more diversified business interests engage in riskier innovation. I document that higher owner diversification leads to riskier innovation within firms over time, after holding constant firm life cycle characteristics, access to finance, other features of the firm ownership structure, and time invariant firm and owner characteristics. Consistent with the risk-sharing channel, the results are strongest among firms held by owners who are most exposed to firm-specific risk. The results are also found at the sector level, with sectors characterized by higher diversification exhibiting higher risky innovation, revenue, and growth. I present a stylized model that rationalizes these empirical findings.
Work in Progress
"The Local Origins of Early-Stage Business Formation," with Emin Dinlersoz, Timothy Dunne, and John Haltiwanger
"Financial Structure and Volatility of Privately-Owned Firms," with with Emin Dinlersoz, Sebnem Kalemli-Ozcan, and Vincenzo Quadrini
"Financial Structure and Volatility of Privately-Owned Firms," with with Emin Dinlersoz, Sebnem Kalemli-Ozcan, and Vincenzo Quadrini
