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Working Paper
Corporate Finance and the Transmission of Shocks to the Real Economy
Credit availability from different sources varies greatly across firms and has firm-level effects on investment decisions and aggregate effects on output. We develop a theoretical framework in which firms decide endogenously at the extensive and intensive margins of different funding sources to study the role of firm choices on the transmission of credit supply shocks to the real economy. As in the data, firms can borrow from different banks, issue bonds, or raise equity through retained earnings to fund productive investment. Our model is calibrated to detailed firm- and loan-level data and ...
Working Paper
Government Banks and Interventions in Credit Markets
We study a large-scale quasi-experiment in the Brazilian banking sector characterized by an unexpected and macroeconomically relevant increase in lending by commercial government banks. Using credit registry data, we find that this intervention led to a reduction in lending rates, but it did not lead to a change in private banks’ credit supply. Firms reliant on government banks experienced a substantial increase in debt, and government banks faced a large increase in loan defaults driven by indebted firms. We find a small increase in employment at the firm level, suggesting limited direct ...