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Discussion Paper
Tax Reform's Impact on Bank and Corporate Cyclicality
The Tax Cuts and Jobs Act (TCJA) is expected to increase after-tax profits for most companies, primarily by lowering the top corporate statutory tax rate from 35 percent to 21 percent. At the same time, the TCJA provides less favorable treatment of net operating losses and limits the deductibility of net interest expense. We explain how the latter set of changes may heighten bank and corporate borrower cyclicality by making bank capital and default risk for highly levered corporations more sensitive to economic downturns.
Discussion Paper
Is Your Apartment Breaking because Your Landlord Is Broke?
Thirty-one percent of housing units in the United States are rental units, and rental housing is unique because unlike in the case of homeownership, renters rely on the property owner for maintenance spending. From the property owner’s perspective, building maintenance is an important investment necessary to keep the asset in good condition. However, like all investments, it is only possible to maintain a building with sufficient financial resources. In a recent staff report, I examine the relationship between a building’s financing constraints and its maintenance. I find that financially ...
Working Paper
Venture Capital and the Performance of Incumbents
I study the effect of investment in young, private firms by venture capitalists (VC) on public firms in the same industry. I construct an instrument for VC investment that relies on individual VC's investment histories, holdings of equity stakes in IPO firms, and aggregate market returns immediately following those IPOs. I find that increased VC investment has a large effect on incumbent profitability. The effect arises due to higher costs and not depressed sales. The effect is short lived as firms respond by reallocating resources away from treated markets and by reducing their use of labor.